Property investors looking for bargains in Asia, particularly Japan
Struggling property markets in Asia are starting to attract strong interest from investors with Japan and China among the most popular.
Funds and private investors are seeking well priced investments and are looking to buy now and in the near future as they expect the region will recover more quickly than markets in the UK and US.
Property fund manager LaSalle Investment Management, which raised a $3 billion fund in August, expects Hong Kong and Singapore to recover first from the global financial turmoil while others predict China will be first to see recovery.
'We are seeing a decline in values throughout the region. There are properties that are being sold at much lower prices than the market's perception of their values,' said regional director David Edwards.
LaSalle has so far invested $10 billion in Asia and nearly half of the amount was in Japan.
ING Real Estate plans to double its investments in Asia to $1 billion, with most of its investors in Europe wanting to diversify into the region, according to the firm's Asia Pacific managing director Nicholas Wong.
ING has invested mostly in China and Japan as these are markets that are 30 to 40% off their peaks. It is also now marketing a $750 million fund to build Chinese housing.
'Most of our clients are from the UK and Europe and traditionally, they invest only at home,' Wong said. 'Now, they want global exposure and most of them want to go to Asia for diversification,' he added.
With Hong Kong, Japan and Singapore in recession, Asian developers are battling falling demand and tighter credit, even after efforts by central banks to encourage lending by slashing key rates.
Behind the investment enthusiasm is a hope that capital-starved property firms will offer plum investment deals to foreign investors looking for internal rates of return of 25 to 30%.
In Hong Kong, the de facto central bank has lowered its base rate twice in the last month, while in China, monetary authorities have cut borrowing costs three times since mid-September.
'The risk of bankruptcies is still higher throughout Asia and most financial institutions are not out of the woods yet. That's why overall lending conditions have not yet returned to normal,' said Kelvin Lau, economist at Standard Chartered Bank in Hong Kong.
In Japan, more than 400 small and medium-sized developers have gone out of business this year as the residential market slowed and as credit dried up. But the tough environment is not stopping property investors from prowling the region for bargains.
China's ailing property market is expected to stabilize in about six months and recover in two years, before most other Asian countries, said Cheng Soon Lau, managing director at Invesco Real Estate Asia.
Invesco is planning to invest directly in China, Japan, Hong Kong and Singapore, buying office blocks and building housing.
Managers of securities funds are becoming less worried that investors will withdraw money, according to Chris Reilly, director of property for Asia at Henderson Global Investors.