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ALTERNATIVES

Asia-based real estate investors willing to take on more risk; Bangalore top target

Bangalore, India, has displaced Tokyo as the top target for Asia-based real estate investors in the latest annual survey of the region by the Urban Land Institute and PricewaterhouseCoopers, reflecting an increasingly crowded market for core assets.

In a briefing in Singapore Monday, John Fitzgerald, the Urban Land Institute's chief executive, Asia-Pacific, said the prominence of cities such as Mumbai, Manila and Ho Chi Minh City in the latest survey shows investors are willing to take on more risk as opportunities to invest in safe, core assets fail to keep pace with a growing tidal wave of yield-hungry institutional capital.

Bangalore, Mumbai, Manila, Ho Chi Minh City and Shenzhen took the top five spots in the latest survey's rankings of top investment prospects according to more than 600 real estate investment professionals surveyed. For the prior year's survey, Tokyo, Sydney, Melbourne and Osaka held the top four spots.

Mr. Fitzgerald said institutional investors in Asia remain very focused on core assets in gateway cities, but an ever-fiercer hunt for yield has effectively led to a sellers' strike by current holders of those core assets. Many have concluded that — should they sell — they're unlikely to find new properties to buy that could offer yields as attractive as the ones they're currently enjoying, he said.

Mr. Fitzgerald noted that for the first half of 2016, the number of real estate transactions by Asia-based investors declined by 39% from the first half of 2015, with even steeper falls in markets such as Japan and Australia.

In the same briefing, Colin Galloway, a consultant with the Urban Land Institute and the survey report's principal author, called the lack of recycling of capital now in the real estate market “unique to where we are right now,” rather than a normal part of an investment cycle.

With fewer core assets coming to market and larger pools of institutional capital from markets such as China and Japan likely to join the global hunt for yield in coming years, the latest survey found investors looking at higher–risk strategies for 2017, said Mr. Fitzgerald, including value-added and development opportunities.

Mr. Fitzgerald noted that insurance companies in Asia this year have invested more than $8 billion in real estate, more than their combined total over the previous three years.