Barriers, data dearth hamper Asian market

• Aug 01, 2019

Despite healthy GDP growth, the Southeast Asian property market still has investment barriers and a lack of data, says Credit Suisse.

“There is a lot of economic growth in Southeast Asia, but the property market is not very transparent compared with places like Australia and the US, where rules, regulations and tax policies are easy to understand,” said Christopher Chiang, a Singapore-based director and head of real estate for Asia-Pacific at Credit Suisse.

“In some of the emerging markets in Southeast Asia, even if you go to a broker or research house, they would tell you it is not easy to get access to the data pool. When there is a lack of data, there is vagueness and transparency is difficult to gauge to invest in these markets.”

Credit Suisse wants to establish a toehold in the Southeast Asian property market by possibly offering higher-return investment products in real estate.

The majority of clients are primarily high net worth investors and institutional investors.

“From our experience, the lower-return products tend not to be too exciting for Asian investors. Where we have more success is the value-added strategy targeting double-digit returns,” said Mr Chiang.

“Our focus in Asia has two strategies — to increase our footprint and assets under management [AUM], and how can we help our investors in allocate their capital overseas. A lot of investors in Asia are still focusing their investment strategies in their home countries.”

The Bangkok property market is difficult for foreign firms to tap into because of the baht’s strengthening value and how few commercial assets, such as office buildings, are being traded, he said.

“The level of stock available for us to consider is very limited. A lot of companies here still own assets on their balance sheets,” said Mr Chiang.

Increasing residential properties in Bangkok offer a difficult scenario to generate decent returns, while foreign ownership restrictions are another obstacle, he said, noting that partnering with a local property developer is an option for the bank in the region.

Real estate investment can be broken down in two categories — core and value-added investments — said Credit Suisse.

Core investment refers to purchasing buildings at good locations that are fully leased or 95% leased with long-term lease agreements, with returns mainly being generated by long-term leases.

Value-added investment aims to generate higher returns through stronger capital growth. Active management, such as leasing of vacant spaces, optimisation of leases and repositioning buildings through refurbishments or renovations are typical characteristics of value-added investment strategies in real estate.

“Rental growth means higher operating income and that is how you create value,” said Francisca Farina Fischer, a Zurich-based managing director of Credit Suisse and head of international real estate.

Despite the low interest rate environment globally, speculative investment in real estate in European, Japanese and US markets is not high because the construction level is low and access to finance has become more stringent, said Ms Fischer.

“The governments [in these markets] are restrictive in giving building permits. It is different from Southeast Asia,” she said.

Despite some institutional investors shying away from investing in the London property market because of Brexit uncertainty, London is still a global financial hub, said Ms Fischer.

Credit Suisse manages AUM worth US$50 billion in direct real estate investment globally. The firm’s AUM in real estate for Asia-Pacific is under $2 billion. The firm ranks third in Europe for AUM for direct real estate investment and 14th globally.

Source: https://www.bangkokpost.com/business/1722355/barriers-data-dearth-hamper-asian-market