By Petra Blazkova on March 1st, 2019
South Korean and Singaporean investors have taken over the mantle from the Chinese in 2018 as being some of the biggest exporters of capital in Asia Pacific. While the Singaporean groups have been active on the global stage for over 20 years, the South Koreans are only just starting to make their mark as global real estate investors.
Singapore’s cross-border investors are the largest exporter of capital from Asia in absolute dollar terms and are known for their global diversification. They have invested in Australia and China, Europe, the U.S., and emerging markets such as Brazil and India.
In 2018 they bought $24.7b in income-producing assets abroad – the second highest amount behind 2015. Their investment strategy is not confined to the traditional sectors; alongside traditional offices and retail, they have bought logistics and alternative asset classes such as student housing and manufactured homes.
In contrast, the South Koreans are more focused on the core real estate sectors, with a large allocation to CBD offices. Of the $8.4b invested in 2018 over 76% went towards Europe. The U.K. and Germany, and to a lesser extent Belgium and France, have been the key target markets. The opportunities in liquid, deep markets combined with attractive long-term income streams is what appeals to them.
There is a common denominator between the two investment powerhouses, which continues to propel their spending and increases the firepower of their institutional investors. Singapore had an average savings rate of 47% of GDP over the last decade of which about half gets invested through government sponsored entities. In South Korea, the situation is similar: large inflows of compulsory pension and insurance contributions from this populous country need to be invested to match future liabilities.
Institutional money has led the way for both investor groups. In Singapore, GIC – the country’s sovereign wealth fund with a mandate to invest solely abroad – is the largest investor and spent four times more than the second ranked Mapletree Investments. In South Korea, cross-border investors such as the National Pension Service of Korea (NPS) and Samsung Life Insurance dominate. In 2018, they were joined by groups including by Hana Financial Group, Mirae Asset Financial, Korean Investment Holdings and NH Investment & Securities.
Good knowledge of real estate market cycles and a need to diversify geographically has driven both nationalities into overseas markets. Their domestic markets have been tight, characterized by rising prices, low yields and a competitive investment environment. It is not surprising after a strong run at home, that they are looking for investment opportunities elsewhere.
But how much are they prepared to pay for the international exposure? It would seem they outbid both domestic and other foreign investors. For instance, the average office yield that South Korean and Singaporean investors paid in Europe in 2018 was 50 basis points below other cross-border players and another 35 basis points below the domestic groups.
Looking ahead, both Singaporean and South Korean investors will continue to explore new opportunities to export capital given the relatively small size of their domestic markets. In response to high prices globally, however, they face a competitive environment and may need to develop new investment angles to deploy capital efficiently.