TMF Group’s Singh provides observations on Asia Pacific Private Equity/Real Estate
It’s fair to say that with so many economies in growth phase, Asia Pacific represents rich pickings for global PE/RE managers, as well as domestic players. The most popular markets include: Australia, Japan, South Korea, Hong Kong, China, India, Singapore and the Philippines. This is according to Rajindar Singh, Senior Commercial Director, Private Equity & Real Estate at TMF Group, who operates out of the group’s Singapore office.
“With respect to fund structures, large global managers are looking to invest selectively at certain regions within APAC,” says Singh (pictured). “Real estate valuations in Hong Kong and Singapore are very high so they generally look at growing markets like Japan and Korea. Japan has a lot of Class A and Class B commercial real estate. We also see a lot of interest in Australia. In India, there are good opportunities in logistics infrastructure and to some extent in commercial and residential real estate in key cities like Mumbai and Delhi and Bangalore.”
One of the attractions of Singapore is that it has a well-established REITs market. Many of the good grade buildings are locked within these REITs and do not change hands frequently.
“In Singapore, older residential apartment blocks and areas are being torn down and turned into more efficient, higher-end residential developments by local developers. We are also seeing joint ventures with Chinese and Singapore developers,” says Singh.
Likewise, in Hong Kong, many of the good grade buildings are locked within the REITs or owned by listed developers within their portfolios and hence do not changes hands. That’s why a lot of RE fund managers prefer to focus on markets like Japan where they see value.
In India, there is a lot of construction activity in Mumbai, especially in the central business district and financial centre. There is also strong demand in the hospitality sector. In Delhi, there are new retail shopping malls being developed. The first Indian REIT is also planned for later in 2018 by a local commercial real estate developer and global fund manager. According to Bloomberg1, the size of the issue may be as much as USD1 billion depending on what assets are finally included in the REIT.
PwC points out in its 2018 Emerging Trends in Real Estate survey2 on Asia Pacific, that those cities that look most attractive from an investment perspective include Sydney and Melbourne, which offer significant rental growth, Tokyo, which still offers yields higher than those one would receive in sovereign bonds, and markets such as Vietnam, which are enjoying long-term secular growth. It also notes that there is “a huge resurgence in investor sentiment toward Singapore, which appears to have found a bottom in both the office and residential sectors”.
Singh observes that “a lot of Asia-focused RE funds are looking at the warehouse and logistics space”, as the retail industry transitions to become more e-commerce in nature, with internet sales dominating traditional high street sales.
“The trend is changing as retail moves away from shopping malls more towards logistics centres to handle large volume internet-based orders; large e-commerce portals and other e-commerce businesses are increasingly doing this,” says Singh.
He observes that in Malaysia, for example, interest has been growing among some fund managers where they are developing and holding properties in key cities like Kuala Lumpur.
Likewise, in Singapore, for example, the Asia Square Towers in Marina Bay Financial Centre were developed by a large global fund manager in the past who subsequently sold it to sovereign fund and listed REIT after holding it for a number of years.
Knight Frank Malaysia anticipates that in response to China’s One Belt One Road infrastructure initiative, Chinese developers might look to become active in Malaysian port, rail and highway projects. According to Knight Frank’s “New Frontiers: The 2018 Report”, Malaysia ranked third in China outbound real estate investments into Belt and Road countries with USD2.37 billion received over the past four years, behind Singapore (USD3.87 billion) and South Korea (USD2.74 billion).
“On the private equity and infrastructure side, there are big opportunities for fund managers to invest in clean energy projects and power plants in India, as well as port facilities; a lot of the ports in India are quite old and their capacity needs to be expanded,” says Singh.
China-focused private equity funds dominated fund raising in 2017, accounting for USD31 billion of the USD64 billion raised for Asia-focused funds, according to Preqin3. Funds focused on areas other than China and India raised 75 per cent more capital in 2017 than in 2016, securing USD28 billion from 56 funds, the report found.
An increasing trend has been observed in India where large limited partners (insurance groups and pension funds) have gone into joint ventures with fund managers there to establish platforms for investing in private equity.”
One potential spanner in the works for the region could be the growing threat of a trade imbalances between China and the US, which could lead to repercussions for assets such as logistics and shipping.
“E-commerce platforms might be susceptible to any such phenomena.I think the shipping industry could also be impacted, with less trade coming out of China, which in turn could lead to lower demand for logistics and warehousing.
“That said, I think things will come to a rational conclusion in the end,” finishes Singh.
3: 2018 Preqin Global Private Equity & Venture Capital Report