By Petra Blazkova on August 5th, 2016
RCA’s inaugural Asia Pacific Capital Trends report shows that income-producing real estate investment in Asia Pacific declined 39% from a year ago in H1’16. The declines were led by Australia, China and Japan. Investors turned more risk averse amid heightened market uncertainty and aggressive pricing.
Volumes fell across all income-producing property sectors in H1’16, with retail showing the sharpest decline of 61% YOY as shoppers tightened spending and underlying economic challenges across the region deepened. Investor concerns over external market volatilities also dampened activity.
Primary among these threats are concerns over slowing economic growth, uncertainty around interest rates and growing regional and global concerns about deflationary pressures. This was further exacerbated by a mismatch in expectations, as owners continued to price assets at historic highs and potential investors balked at the resulting compression of yields.
After eight consecutive years of growing flows to Europe and North America, the capital export out of Asia dipped into 2016. Still, Asian capital outflows are 75% above the 10-year average. Asian investors continued to look overseas for better returns than were available in their domestic markets, motivated by capital preservation, strategic diversification and also to capitalize on market cycles globally. Looking ahead, there is more capital to come out of Asia.
Regardless of their reasons for investing internationally, the marketplace will become more competitive as new investors appear on the global stage looking for their first allocation. Amongst these are Japanese pension funds, Chinese insurance companies, Asian sovereign wealth funds and Australian superannuation funds.
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