Yahoo Finance Singaporeans overtake US as biggest group of cross-border investors in Asia Pacific in 2023: MSCI
Singapore investors poured about US$8.3 billion into Asia Pacific real estate, surpassing the US$7.3 billion from US investors last year (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Singaporeans were in a pole position as the most prolific group of cross-border investors in the Asia Pacific region in 2023, according to MSCI Real Assets in a Feb 27 report. Singaporean investors poured about US$8.3 billion ($11.1 billion) into Asia Pacific real estate, surpassing the US$7.3 billion from US investors last year.
Notably, Singaporean investors continued to invest in Australia and China, with significant deals concluded in the fourth quarter. These were the two major markets from which global investors had retreated. “These trends were part of a broader global narrative of investors retreating to markets closer to home,” says Benjamin Chow, MSCI head of real assets research for Asia.
Investors from North America and Europe reduced their spending in Asia Pacific by more than 50% in 2023 compared with the year before. Investment from Canada and Europe plunged by 75% and 79%, respectively. An exception to this retreat was capital bound for Japan.
Read also: APAC commercial property sales plunge 40% y-o-y in 2Q2023: MSCI
As a result, global investors’ share of Asia Pacific acquisition activity fell to just 9%, the second-lowest level for a calendar year on record. Besides Singaporean investors, Japanese investors likewise ramped up their spending significantly last year. Their outlay in 2023 was more than that for 2020 to 2022 combined. Australia was by far their most significant target market. The sale of Sydney commercial tower, 60 Margaret Street, to Mitsubishi Estate and partner Syndey-based AsheMorgan for A$777 million ($680 million) last October marked Australia’s biggest single asset deal of the year.
Chinese investors still go for Singapore
Hong Kong investors maintained their activity compared with the three-year average, but the bulk of that capital found its way into China. Investors from China, however, did not reciprocate. While their activity level in Hong Kong was maintained at the three-year prior average, their primary target was Singapore, says MSCI. Chinese investors acquired a record $1.5 billion of Singaporean properties in 2023, the second consecutive year they spent more in Singapore than Hong Kong.
Still, the vast majority of Chinese capital continues to be focused domestically, as noted by MSCI. The lack of appetite from international capital sources means domestic investors face less competition within the Chinese market. Exchange rates and geopolitical risk, cited as the main impediments for foreign investors, are less of a concern for domestic institutions. “These investors have been able to take advantage of falling interest rates and heightened yields to pick up choice assets,” says Chow.
It is most evident for insurance-backed capital, which accounted for almost RMB40 billion ($7.5 billion) in deal volume, a 12% increase over 2022. It contrasts significantly with China’s overall decline in deal activity. “Notably, insurance players tend to target core strategies as they seek stable, less risky returns,” according to Chow. “Like other major markets, this has coincided with a pivot towards the industrial and living sectors, while office allocations have fallen dramatically.”
Commercial deals down 28%
For 2023, commercial real estate deals fell by 28% to US$139.7 billion. It was the lowest annual tally since 2012, according to MSCI, and is attributed to the spike in interest rates across major markets over the past two years. Japan was one of the major exceptions, tempering the regional decline in activity with a solid showing in 2023.
Deal activity in Asia Pacific centred around private buyers picking up hotel and retail properties across most of the region. Institutional buyers targeted growth sectors and markets with strong tailwinds, such as data centres, student housing, logistics in Japan, build-to-rent in Australia and rental apartments in China.
Read also: Commercial investment in Singapore up 74% in 2Q2022: MSCI
Chow points out that most of these sectors have not been traditional strongholds for institutional appetite. Other than Japan’s industrial market, none of the rest were in the top 10 target sectors for institutional buyers over the prior three years, he adds. Moreover, deal activity was already at very elevated levels for many of these smaller sectors and niche property types.
Timing of hoped-for recovery
Despite the slightly more upbeat end to the year, there remain question marks over the timing and nature of a hoped-for recovery in 2024. One significant influence is the point at which interest rates begin to fall. However, MSCI says another indicator to look out for is a recovery in institutional appetite for the core sectors across Asia Pacific.
“One key source of uncertainty — where peak interest rates would land — appears resolved for most markets except for Australia,” says Chow. “It should help investors underwrite deals with more clarity and accelerate the pace of price discovery early in the year.”
However, it could still be some months before interest rates begin falling. “Price discovery remains paramount in dictating when the recovery can begin,” adds Chow.
Sizeable gap in expectations
The good news is that prices did continue to adjust for most core sectors outside Japan throughout the second half of 2023. Yields expanded significantly — by over 50 bps — for offices in Australia and industrial in China and Korea, says MSCI.
The bad news is that the gap between buyer and seller expectations remains sizeable for others. Based on the end-2023 results of the MSCI Price Expectations Gap, the gap has widened, not shrunk, for offices in Japan and Australia and retail in Australia, even in 2H2023.
That may have to do with the fact that the outlook remains challenging for these specific markets.
Although the US is already discussing cutting rates, Australia is still bracing itself for one more possible rate hike.
In Japan, supply-side concerns and growing vacancy have coincided with a drop-off in office volumes, while investors are bracing for higher rather than lower borrowing costs in 2024.
These new sources of uncertainty will likely subdue activity for these sectors in the near term. For other sectors, all eyes will be on how much buyers and sellers get in sync on pricing in early 2024.
Given the recent price adjustments, the modelled gap was already shallower than –10% for eight of the 10 core sectors as of the end of 2023. With the effects of the Federal Reserve’s pivot filtering through in the coming quarters, there could be some light at the end of the tunnel.
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