A rising foreign property investments interest among Asians – Will the trend continue?

With the growth in affluence and wealth among many Asians, there has been a rising interest in foreign real estate investments in the bid of seeking for greater returns and diversification benefits. Increasingly, most of the wealthy Asians are flocking abroad seeking for new opportunities in real estate, businesses that have corporate turnaround potential, wealth management-related products, art collections, among many others. In the past, most of the Asian investors were originating from China, Japan, South Korea, and Taiwan, but lately, South-East Asian investors have also joined in the bandwagon in seeking for foreign riches, mostly in real estate-related investments.

Bloomberg News Online reported on November 19-20, 2013 that there has been a growing trend among both Chinese and South-East Asian investors scouring for foreign real estate namely in the Western industrialised economies, including the United States, the United Kingdom, Australia/New Zealand, the European Union, and some in the Caribbean region known for its tax-free status, and all-year round tropical climates. In a November 19, 2013 Bloomberg News interview on the early Asian morning show, ‘First Up’, one of the journalists commented that many South-East Asian investors are seeking for investments mainly in the United Kingdom, including London, which have seen a record number of foreign investors, including those from Singapore, Malaysia, and Thailand seeking to purchase real estate in the glitzy suburbs around London. The City of London has been seeing a growing interest among many foreign investors due to the financial activities that have made the city an attractive location to retire, and seek diversification for their monetary wealth. There are many prime locations in London which attracted many South-East Asian investors, and given that most of these investments are long-term, and some of them for the purposes of providing their offspring with accommodation while they study in UK education institutions, and perhaps seeking for careers in the country after they graduate. The City of London has also had the experience of hosting the Olympic Games in 2012, and infrastructure built for the Games are still relatively new, and easily accessible within walking distance. It is these features that attract many Asian investors to London.

In a separate report by Bloomberg News Online on November 20, 2013, there are also many Asian investors, especially those from China, flocking to other developed economies in a bid to diversify or perhaps store their ‘illicit’ wealth abroad. The term ‘illicit’ is used in this context because of the widespread reports of massive corruption and cronyism that many of us have been encountering in various media sources that have tarnished much of the reputation and efforts made by lawmakers in Beijing to restrict such activities. As many readers would have recalled some of the revelations and court testimonials made by the now deposed Chinese government official, Mr. Bo Xilai that will soon expose some of the weak governance practices that are still hampering the Chinese government’s reform agenda in attempting to modernise the country. Given the complexities surrounding Mr. Bo’s case, we shall leave this issue aside for another topic of discussion and focus on the current discussion topic of foreign investments originating from China.

The Nov. 20 Bloomberg News report highlighted some of the reasons, including skyrocketing prices in China, which forced by Chinese investors to seek for greater diversification of their investments abroad. In a statistical press release on November 18, 2013, the country’s National Bureau of Statistics reported that private real estate prices rose the most during the month of October 2013, with some cities such as Guangzhou experiencing an upsurge in home prices of approximately 21.0 percent, 20.0 percent in nearby Shenzhen, 18.0 percent in Shanghai, and 16.0 percent in Beijing. Prices climbed in 69 of the 70 Chinese cities tracked by the government. Given the ever-rising home prices in China, it is not a surprise that investors are seeking for alternative locations including the United States where home prices are just starting to see an upsurge, but not at those astronomical price levels seen in China.

One of the reasons cited by Bloomberg News is the relative safety and strong judicial system that govern most of the private property ownership rules, transactions, and other legal matters if one were to place their money in foreign private properties located in western economies. Other Asian property firms are also trying to offer Chinese investors with various VIP previews on many foreign properties which are well-situated, accessibility to amenities such as transport, food and entertainment. These Asian property firms are also trying to diversify their home base into foreign real estate as most of the downbeat economies, especially the European Union (EU) is still struggling to keep their economies afloat and are in need for foreign direct investments (FDI) to boost their economies. The attractiveness and relatively low valuation offered by most of the properties located in western economies provide great potential among wealthy Asians and companies to diversify their investment portfolio, and into foreign real estate investments.

To address whether the trend of foreign real estate investments will still be originating from the Asia-Pacific region for a long while, it should be quite obvious that many wealthy Asian investors and companies are looking overseas to grow their wealth and seek for greater returns. However, despite the general bullishness surrounding this emerging trend of foreign real estate buying, there are risks including the possibility of a prolonged slowdown in many of the western economies, including the United States, which is still hampered by domestic squabbles among lawmakers on the state of the finances it is holding. However, barring a prolonged drag in some of the shortfalls experienced in many of the western economies’ government coffers, the wealthy Asian investors, just like any investors, will seek to ‘buy low, sell high’, seek for greater diversification of their wealth, deploy reasonable leverage in financing the real estate, and this is especially so given the lessons that were brought out from the experiences during the Asian Financial Crisis in 1997-1998, the SARS (Sudden Acute Respiratory Syndrome) Crisis in 2003, and the recent Global Financial Recession in 2008-2009, which saw the western influence and wealth standing dwindled and replaced by Asians, and some Latin Americans.

About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Hock Meng Tay, CAIA has written 181 post in this blog.

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc