Investors split on ways to play Asian property

While US property investors favour opportunistic bets in Asian unlisted real estate markets, their European and Asian counterparts are more likely to seek different types of exposure, according to new findings from INREV, an association of European investors in unlisted real estate.

About 77 per cent of US investors surveyed by INREV and other property investment associations preferred value-added or opportunistic strategies in the unlisted property sectors of developed Asian markets, compared to roughly 50 per cent of European and Asian investors who shared the same view.

In emerging Asia, all US respondents saw opportunistic exposures as the most appealing; in contrast, just 27 per cent of European respondents and 23 per cent of Asian investors shared the same view.

The findings were made in the INREV Investment Intentions Asia Survey 2009, an online questionnaire answered by 73 investors, fund managers and fund-of-funds managers (FoFs) and jointly developed by INREV, the Asian Real Estate Association and the Pension Real Estate Association.

It shows divided opinions among investor and FoFs preferences. Among investors, core and value-added funds were equally popular and selected by 42 per cent of respondents as their preferred style in developed Asian markets, while the FoFs overwhelmingly favoured opportunistic funds by a majority of 88 per cent.

Most investors (70 per cent) and fund-of-fund managers (65 per cent) believed a manager’s local presence in Asia is the most important criteria for fund selection in the region, followed by the location of investment activity (60 per cent) and the type of property targeted (40 per cent).

The most attractive markets were China, Australia and Japan, and the most appealing combinations of market and sector were China residential, sought by 45 per cent of respondents, and China retail, selected by 35 per cent. China office, Australian office and Japan office were favoured by fund-of-fund managers.

Continuing headwinds for investors and managers, plus a lack of transparency into the unlisted Asian real estate market, are the major obstacles to entering the market. But the major reason for investing in the market, according to 75 per cent of investors, is access to expert management.

Most respondents expect Asia to be the first unlisted real estate market to recover from the global downturn, with investors and single fund managers being more optimistic about the its prospects than FoF managers.

All investors believe that, on average, debt levels in Asian unlisted property funds will be lower over the next two years, reflecting the expectation that debt for financing will be difficult to access for some time.

However, despite these perceptions, the number of investors seeking exposure to the market has fallen from 88 per cent in 2008 to 24 per cent today. But there has been a recent uptick in investor appetite, INREV states, as respondents indicated they were more likely to allocate to Asian unlisted property over the medium-term than in the short-term.

Asian respondents were the most upbeat on the region’s environmental credentials: 67 per cent say they have developed or are in the process of developing minimum environmental performance criteria for unlisted property investment. While 58 per cent of European investors shared this view, just 29 per cent of US investors agreed.