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Asset Management / Wealth Management
Cross-border capital inflows prop up Asia-Pacific real estate investment
But Hong Kong H2 deal volumes slide to lowest in a decade
The Asset 19 Feb 2020

REAL estate investment volumes in Hong Kong plunged to their lowest level in a decade in the second half of 2019 as the political unrest that erupted in June pummelled dealmaking and investor confidence, Real Capital Analytics’ Asia-Pacific Capital Trends 2019 report released February 17 showed. 

Across Asia-Pacific, total investment volume for the region was US$158.5 billion in 2019, a dip of 8% year-on-year, but still the third highest level on record.

The investor pullback was largely restricted to specific areas of weakness, as the largest country markets remained relatively unscathed by the economic headwinds. Cross-border transactions picked up momentum and market share, with investors flocking to the largest and most liquid safe haven metropolises.

Total cross-border investment volume in the Asia-Pacific reached US$57 billion in 2019 for a second consecutive record year, and activity has now grown for eight of the last 10 years.

Throughout the past decade, increased regional cross-border flows in the Asia-Pacific have been defined largely by North American and regional super investors such as Blackstone and Singapore’s GIC, and only in the last two years have European players been consistently represented in the top 10.

Germany’s Allianz is an example of one large European institutional investor which debuted in Asia-Pacific markets in 2017 with a pair of big-ticket Chinese acquisitions totalling US$1.3 billion. In 2019, Allianz ventured into Singapore, Australia and Japan, rising to become the second largest cross-border investor in APAC for the year, behind Blackstone.

Most cross-border investors target the top eight metros in the region which have remained firmly entrenched for many years, and for the first time ever in 2019 six of them made it past the US$10 billion mark in a calendar year.

A curious bifurcation emerged in the Asia-Pacific in the final quarter of last year, between the alternative real estate accommodation sectors of hotels, apartments and senior housing and care, where transaction volumes surged, and the three traditional commercial sectors of offices, industrial and retail where volumes all declined.

The hotel sector booked its second record-breaking year in a row as sales of individual hotel assets soared by 50%, boosting overall investment volume to US$15.8 billion in 2019. The industrial sector recorded the biggest proportional decline in transactions, but 2019 was still its second strongest year on record and yields were stable over the 12-month period, even in Hong Kong.

Hong Kong’s protests accelerate real estate investment market’s reversion to trend

Hong Kong endured a torrid second half of 2019 across property sectors with real estate investment activity sliding to the lowest level in 10 years and transactions down 57% in the last three months.

Over the whole year, deal volume was down 42%, compared with 2018, to total US$15.2 billion. Asia-Pacific’s largest metropolitan retail market was particularly badly hit and the weakening economic outlook has deterred office investors as well.

The decline in pricing in these sectors is extending into 2020, but Hong Kong is still likely to remain the world’s most expensive market for the foreseeable future.

David Green-Morgan, RCA’s managing director for Asia-Pacific, says: “I think we will see a further slowdown in Hong Kong’s investment activity in the first-half of 2020. Hong Kong had two exceptionally strong years in 2017 and 2018 when annual deal volumes exceeded US$25 billion."

"Such momentum was ultimately unsustainable as the market does not have the same scale of commercial stock compared with other global cities, so the trajectory of normalisation seen in 2019 was a matter of when rather than if," he adds.

"That said, with the demonstrations exacerbating the slowdown and few big deals in the pipeline, there is a real chance that activity in Hong Kong could sink well below its longer-term average in 2020.”

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