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Institutional investors expected to put more money in real estate
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INSTITUTIONAL investors are expected to raise their target allocations for real estate investment this year to 9.6 percent from 9.4 percent in 2014, which could mean an extra US$52.5 billion in the market, global real estate services provider Colliers International said in a research report.
That follows a US$105 billion increase on the previous year when target allocations rose from an average of 8.9 percent of existing portfolios in 2013.
The weight of money targeted at real estate is also evident in the size and origin of cross-border direct investment flows.
Though the 2007 peak of US$382 billion is yet to be repeated, cross-border investment totaled US$262 billion in 2014 with substantial expansion of Asia investment led by Chinese buyers. Asia capital accounted for 30 percent of cross-border investment last year, compared to 13 percent in 2007, the report said.
"Weight of capital as an investment driver is certainly not a new phenomenon, but remains undiminished in this particular cycle," said Walter Boettcher, EMEA (Europe, the Middle East and Africa) research director and economist at Colliers. "However, what is new is the extent to which property investment has become globalized with funds needing to reach beyond their domestic borders to satisfy their target allocations to property."
A low interest rate environment and an international search for yield, with property offering relatively high returns compared to bonds and equities, are major drivers behind the new trend, according to Boettcher, who also said the concern for this particular property cycle is that there is too much money chasing the same product.
Looking into 2015, more Asian investors, particularly from China, will go outbound given the relaxation of the restrictions on overseas investment and demand for overseas real estate as a way of generating better returns and diversification, Colliers said.
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