Ravi Chandran
Knight Frank research predicts that Singapore outbound capital investment into Australia will reach US$3.82 billion in the next year, 28% above the 5-year average of US$2.98 billion
- Asian property investors to target resilient markets and assets
- Singapore outbound capital investment with its volume, will dominate capital investment globally in 2021
- Hong Kong investors will be just behind Singapore outbound capital investment
Knight Frank’s Active Capital 2020 finds that Singapore outbound capital along with that from Hong Kong will dominate global investments in 2021 alongside other major markets like the US, Canada and Germany. In a ranking of top capital sources for the coming year, the two Asian financial centres are placed fourth and eighth, respectively.
The top 10 sources of capital in 2021:
1. United States
2. Canada
3. Germany
4. Singapore
5. United Kingdom
6. Switzerland
7. France
8. Hong Kong, SAR
9. Sweden
10. Israel
Singapore outbound capital
Using a proprietary ‘capital gravity’ model which forecasts likely flows of capital between countries and their estimated size for 2021, the research predicts that outbound investment from Singapore into Australia will reach US$3.82billion in the next year, 28% above the 5-year average of US$2.98 billion. This is despite transaction volumes from Singapore to Australia falling 10.4% year-on-year compared to the same timeframe in 2019, as travel restrictions and the protracted lockdown in some Australian states stalled investment activity.
“While Covid-19 has dampened investor appetite in the short-term, we expect a reversal in Q4 and into the new year. By any yardstick, capital flows from Asia to Australia has gained momentum – increasing by up to 31% even during the pandemic – as investors focus on resilient markets and assets. With stable long-term growth prospects, Australia will continue to attract strong cross-border interest from Asian investors.” said Neil Brookes, head of capital markets, Asia Pacific and team lead for the new Asia Transactions Team.
Daniel Ding, head of capital markets for land & building, international real estate & industrial, Knight Frank Singapore, added, “Amidst this low interest rate environment, Singapore investors are focusing on a barbell strategy of defensive stable income on one end, and hunting for high returns from deemed irreversible growth trends and themes on the other. Despite the uncertainty surrounding the pandemic and international travel restrictions, we have worked with our clients to come up with solutions to get around underwriting acquisitions.”
Hong Kong outbound capital
Knight Frank’s model forecasts outbound capital from Hong Kong to rebound in 2021, as investors eye key investment markets like the UK, US and Japan. In the last quarter, year-on-year transaction volumes from Hong Kong to the UK rose 35%, suggesting pent-up demand from Hong Kong-based investors.
Emily Relf, head of outbound capital, Asia Pacific, said, “With the ongoing challenges on both the economic and social front, domestic investors will increasingly look to hedge their risk by diversifying their portfolios through cross-border investments. Even with travel and lockdown restrictions, there remains pent-up demand for UK office assets from many territories in Asia. We’ve already seen evidence of this in the form of The Cabot sale in Canary Wharf for £380 million – the largest deal of 2020 so far – acquired by Hong Kong’s Link REIT.”
“Historically, the UK remains one of the most resilient office locations, which has been in the top five destinations for global cross-border capital in every quarter but two since before the Global Financial Crisis. With some of the highest office yields in the world, we expect interest from Asian capital not only to be sustained but to grow in the coming year,” Relf added.
Paul Hart, executive director, Greater China and head of commercial said, “Investors in Hong Kong – including many Chinese Mainland investors with a presence in Hong Kong – continue to show an appetite to diversify their investment portfolio overseas. The pandemic has only deferred but not deterred outbound investment and therefore we expect the capital flowing into overseas real estate properties will become active again when the situation improves. Hong Kong remains the gateway city for Chinese Mainland capital going abroad.”
Focus on resilience
At a time of heightened uncertainty, Active Capital finds real estate investors are increasingly positioning their portfolios for resilience. This includes identifying assets with strong tenant demand – underpinning capital values and ultimately returns – as well as assets which are best placed to weather shocks and benefit from the recovery and broader structural changes.
On an asset level, this means the office sector will continue to play a prominent role in global allocations. The office sector was the most active in the first half of 2020, followed by residential and industrial. Within Asia Pacific, the office sector remains dominant, attracting 45% of all transaction volumes in the first nine months of 2020 ; however, the market share for industrial assets has increased by more than 50% compared to its historical five-year average .
“While recovery to pre-Covid volumes may not happen soon, capital flows between liquid and trusted global safe-havens will continue. The notion of positioning for resilience will be at the heart of any investment decision,” Brookes said.
“For investors, cross-border property investment offers true diversification and more options to meet revenue targets. In a period where physical travel remains subject to restrictions, intra-regional investment into ‘near neighbour’ locations will become ever more compelling,” he concluded.
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