The Tide is Turning

The tides are turning in Asia. Regional outbound flows, a space once dominated by Chinese capital is now being replaced by Singaporean investors. As Chinese investors decelerate their acquisitions of overseas assets and even begin to exit investments, we’ve seen Singapore take center stage.

While it’s hard to untangle China’s role from any kind of capital flow, anywhere, Asian outbound flows are not expected to plummet drastically. What’s been promising in recent months is the net exporting of Singaporean capital. Investors in Singapore have always enjoyed the familiarity of London’s commercial real estate scene (26% of Asian outbound deals in H1 2018 took place here), and we now see these investors venturing into Europe, where uncharted territory like Germany and the Netherlands have seen a significant influx in capital, particularly in the logistics sector. In fact, Singaporean investors poured an unprecedented $3.4 billion into Europe during the first half of 2018. The US and Australia are also key markets to which Singaporean fund managers have deployed capital.

You might begin to wonder what type of investors are behind these spending sprees. Interestingly, property companies have taken the spot of institutional investors so far this year. Property companies accounted for almost half (49%) of regional outbound investments, whereas they accounted for only 27% of the region’s total for the same period last year. In H1 2017, the institutional investor accounted for 45% of total regional outbound flows, and this figure has now plummeted to just 10%. Also developing a strong appetite for overseas investments in H1 2018 are REIT’s, real estate funds and private investors, who collectively accounted for 32% of the region’s outward flows, double the amount recorded in H1 2017.

And, while debt costs may be on the rise, there are still attractive debt offerings across APAC and this should steer further investments in the region. In the first half of 2018, we saw $8.5 billion of Asian outbound funds being circulated back into the region, which constitutes roughly a third of the region’s total outbound flows. While much of this capital took flight in Hong Kong, China and Japan as it mostly has in the past, there is still substantial capital floating around the region. Newer to the picture is Vietnam, which in recent times has been a beneficiary of foreign investors’ desire to capitalize on hotel, office and retail developments in the works near the upcoming Metro system.

There is more on the horizon for Singaporean investors. Domestically, regulatory constraints and a compressed yield environment have steered the Singaporean investor offshore in search of arbitrage which lurks beneath longer rental periods and more attractive yields in London, for example. Overseas office and logistics sectors have become an area where investors in Singapore have achieved portfolio diversification parallel to higher returns. The same rationale for overseas investments, particularly for office buildings, can be applied to investors in Hong Kong, too.

Investors in Korea and Hong Kong have also been keen to capitalize on the opportunities presented by China’s sell-offs and by better yields. What is synonymous with investors from these countries is that they are both seasoned and sophisticated, it won’t be surprising to see these investors restoring equilibrium in the Asia’s outbound flows and it is expected that the region will continue to gain a stronger foothold in Europe and play a prominent role in the global realm.

By Yvonne Siew, Executive Director, Singapore, Capital Advisors, CBRE.