EVEN institutional investors are now being lured into the thriving Asia Pacific real estate sector, a report by real estate advisor CBRE indicated.
CBRE said Asia Pacific institutional investors were turning their sights on property, where expected returns are sweeter than traditional areas like insurance and pension plans that have gone sour due to the region’s aging population.
CBRE estimates that Asia Pacific institutional investors might pour in as much as $240 billion between 2015 and 2020.
The general reason, it said, is “the need to create globally diversified portfolios.”
“Asia Pacific institutional investors have not announced a concrete timeline to achieve these targets,” CBRE said.
“Instead, they are expected to gradually raise their allocations to real estate, due mainly to the challenge posed by market capacity.”
CBRE said these institutional investors were feeling the need to create more globally diversified portfolios, which is why several major Asia Pacific institutional investors have recently announced plans of increasing their real estate allocations.
One is the Government of Singapore Investment Corporation (GIC), which has indicated a reference level of up to 13 percent for its allocation to real estate, almost double its current allocation of 7 percent.
Another institutional investor, the Sovereign Wealth Funds, has put only two percent of its total Asset Under Management portfolio in pension and insurance by the end of 2014, according to CBRE.
One big reason, CBRE pointed out, is the ageing population in the region and “long-term liability matching.”
It noted that the “ageing population,” which is composed of older people, who are economically inactive, is a prominent trend in a lot of Asia Pacific countries.
This trend, CBRE said, along with lower birth rates, means there will be less people to contribute to pensions, insurance, and taxation, resulting in slower capital growth for Asian institutions.
This would also lead to an increase in the number of retirees claiming distributions from pensions and insurance schemes, CBRE said.
Countries experiencing this trend, CBRE said, will be generating lower tax income as the working population shrinks, while incurring higher welfare expenses to cover the higher numbers of the elderly.
Institutional investors are thus looking for alternative investment vehicles such as real estate, where financial returns are higher.
“To mitigate the risk of the increasing financial burden, Asia Pacific institutional investors will need to seek higher financial returns via alternate investment vehicle,” said CBRE.
CBRE said the potential for further currency devaluation also means Asia Pacific institutional investors’ Asset Under Management growth is expected to moderate to a steady single-digit expansion over the next five years.
This, it said, is another reason compelling institutional investors in the region to turn to real estate.