Investors pour funds into Asian real estate

The flow of capital into Asian property from outside the region is accelerating as a result of the credit crisis in the US, according to a report on the sector published on Wednesday.
Property investment in Asia grew 27 per cent to $121bn in 2007 and continues to build, says the report, which is being published by KPMG, the Asia Pacific Real Estate Association and index provider FTSE.
Investment was evenly allocated over the first and second halves of the year, unlike in Europe and North America, where investment slowed dramatically in the second half.
Most Asian markets recorded direct real estate returns above the global average of 10 per cent last year. This is forecast to continue, albeit at a lower rate.
The report comes during a period of aggressive fundraising activity for new global property funds, many of which are raising allocations to Asia to gain exposure to economies that are relatively insulated from the credit crisis. Property markets in the region, while not immune, have stood up relatively well compared with the US and Europe.
MGPA, the private equity fund manager part owned by Australia’s Macquarie Bank, this week launched a global fund that will invest mostly in Asia. It has secured $3.9bn in equity for Asian investment, giving it a potential buying power in the region, with leverage, of $15.6bn.
The fund has already committed $2.2bn to investments in Singapore, Japan, China and Thailand, and is looking at South Korea, Malaysia, Taiwan and Australia. North American investors make up 40 per cent of the fund.
Asian real estate investment trusts also outperformed American and European counterparts. Credit problems and softening real estate prices in the US and Europe mean that investors are focusing more on Asia both for long-term returns and opportunistic investments, according to the report.
At the same time, banks have become more reluctant to lend for new Asian projects, which increases the bargaining power of foreign funds. But the report says this has slowed, rather than halted, the financing process.
“There’s no shortage of capital in Asia,” said Andrew Weir, one of the report’s authors. “There are investment funds that have raised money and haven’t spent it yet.”