WHILE global sentiment for real estate remains positive, uncertainty from China, US’ tightened monetary policy, and other global geo-political events are curbing investors’ risk appetite for this year, Colliers International said in its 2016 Global Investors Outlook.
The global property consultant said it surveyed over 600 investors across the risk spectrum from the Americas, Europe, Middle East, Africa, and Asia-Pacific regions, including investors in private equity, property, and sovereign wealth funds.
Risk appetite moderates
Based on the survey, there was a decline in the percentage of investors who are willing to take on more risks in 2016. Only 44 percent of the respondents said they are likely or highly likely to take on more risks in the next twelve months, compared with the 59 percent registered in the previous year.
“This decline might also reflect the fact that fund managers have already taken as much risk as their mandates allow them,” Colliers said.
Colliers said Asian and Australian/New Zealand investors are either most “unlikely” to take more risk (68 and 64 percent, respectively).
In contrast, 52 percent of Continental Europeans and 53 percent of Middle Eastern and African investors are among those inclined to take additional risk.
Colliers’ survey also showed that the decline in risk appetite was apparent across all types of capital. Private equity funds posted the sharpest decline, as only 47 percent of the respondents said they were likely to take on more risks this year, a sharp decline from the 81 percent recorded last year.
Meanwhile, the survey found that only 33 percent of Asian investors are willing to take on more risks in the next 12 months, a decline from last year’s 58 percent.
“This has partly been due to the investor’s preference to wait for a clearer direction on where the economy is headed,” Colliers said.
According to a US-based private equity fund, currency volatility is a key concern in investing in markets, such as India and China, which could significantly impact investment returns on exit.
Colliers said those planning to expand their portfolio this year decreased, as only 54 percent said they would be net buyers, compared to 67 percent last year.
On the other hand, investors expecting to be net sellers or reduce their portfolio has increased to 14 percent from last year’s six percent.
“This might signal a desire from some investors to take advantage of the current pricing levels to cash-in and a view that in some markets, the property cycle is nearing a turning point,” Colliers said.
But then the advisory firm said international investors remain confident in the property sector, stressing that economic volatility’s impact might be short-term and market fundamentals would drive long-term strategies.
Colliers said 51 percent of its global sample respondents manage multi-asset portfolios, 52 percent of which said they intend to raise their allocations to real estate, with only 11 percent indicating a likely reduction.
Colliers said its survey results showed that more global investors would partner with local expertise and acquire platforms as a means of placing substantial amounts of capital with confidence.
Shift to debt
In 2016, more investors will use debt to finance their acquisitions, according to Colliers, despite increased interest rates in some territories.
“This suggests that the equity phase of cycle is giving way to the debt phase,” Colliers noted. “The survey suggests that the higher target returns will be achieved through a greater use of debt.”
Colliers’ survey showed that majority or 82 percent of global investors were likely or highly likely to use debt in future investments, up from 78 percent last year.
Half of the respondents were highly likely to use debt—a similar number to last year.
“Looking more closely at the responses reveals that 100% of the Middle Eastern investors surveyed expected to use debt, followed by Asian (91 percent) and European investors (90 percent). This marks a significant change for European investors, as last year only 59% of them intended to use debt,” Colliers pointed out.