A healthy economy begets a healthy property market, and there are few healthier economies around at the moment than those in Asia.
Economic growth in 2014 is forecast at 6 per cent year-on-year for some countries, and this is underpinning a strong property development pipeline. Property development companies looking to offload some of their holdings, or to free up capital to fund further developments, are driving the development of the real estate investment trust (REIT) sector.
Louis Christopher, founder and research director of SQM Research, says the Asian REIT sector has bright growth prospects.
“Where the Asian REIT sector is right now, it’s still in its infancy in terms of the number of managers offering product, as well as the number of REITs that are available,” Christopher says.
“Mind you, it has exploded in terms of the number of REITs, but I think it’s going to get a lot bigger than it is now through more and more Asian economies developing a REIT sector.”
Stephen Finch, chief executive of APN Property Group’s Asian operations, says there are opportunities for Australian investors to diversify their property holdings, and “Asia definitely gives some opportunity for diversification”.
Finch (right) says historical correlations between Asian property markets and the Australian property markets are “not that high – in fact, in one or two cases they’re approaching zero to negative”.
“It’s also about tapping into a very interesting growth story,” Finch says.
“Australia is quite a mature market for real estate, while Asia is a market that is growing very rapidly, both in terms of the underlying economies, and the growth in the rental streams that are supported by that economic growth, but also in the context that REITs in Asia are still a relatively small part of the investable commercial real estate space.”
Zenith Investment Partners analyst Jonathan Baird says Asian REITS were not immune from the same issues that hit the sector globally prior to the global financial crisis.
He says REIT managers deviated from their core business of being “rent collectors” into activities like property development and funds management, and also, in many cases, became highly leveraged in an attempt to bolster returns.
“There has been a painful period of reconstruction since then,” he says.
The full version of this article was originally published in the May 2013 edition of Professional Planner.