Asian institutional investors are looking to invest $150 billion in global real estate in the next five years, with a focus on cities like Dubai, London, New York and Sydney, according to a new research.
Leading global real estate services provider CBRE's latest study found that cash-rich Asian investors currently control a fifth of global institutional capital.
However, the current low global interest rate environment and weak stock market performance means they face significant challenges in maintaining adequate returns on their investments.
The lack of overseas investment experience, regulatory restrictions, limited investable stock and aggressive pricing have posed significant challenges for investors seeking to expand their portfolios within the Asian Pacific region.
Despite a sharp increase in investment activity in recent years, presently Asian investors allocate just 1.7 per cent of their assets to real estate, compared to 6 per cent 8 per cent among investors in North America and Europe, the report said.
"Asian institutional investors are already beginning to acquire assets overseas, with core assets in gateway cities being the most sought after asset class," said Chris Ludeman, President of Global Capital Markets, CBRE.
"While investors that have already had exposure in global markets will continue to acquire new assets, the next few years will see a number of new entrants to leading global real estate markets such as London and New York. Japanese institutions, which to date have largely been absent from the global scene, as well as Taiwanese and Chinese insurance companies will be the first groups to emerge," Chris added.
Acquisitions by Asian investors outside the region surged from USD 2 billion in 2008 to almost USD 9 billion in 2012, with Asian institutions accounting for a large portion of the purchases. Europe is currently the major focus for Asian investors followed by North America and Australia, the study found.
As Asian institutional investors diversify into low-risk alternative asset classes, more are expected to increase their allocation to real estate.
A conservative estimate of increasing their allocation to real estate to 2.5-3.5 per cent in the next five years, allowing a steady increase of asset size at 4-6 per cent per annum. This would translate into a potential inflow of over USD 150 billion into the global real estate investment market.
Other investors such as REITs and end-users will also be competing to acquire new properties, a situation which may result in a prolonged period of structurally low yields for core assets in Asia, the study said.
The past year has seen several markets make progress towards liberalising outbound investment in the insurance sector, including in world's second largest economy, China.
In October 2012 the Chinese Insurance Regulatory Commission (CIRC) relaxed its restrictions on overseas investment by domestic insurance companies.
