Get your money overseas and, more specifically, into Asian real estate, recommends Barings' Chris Le...
Get your money overseas and, more specifically, into Asian real estate, recommends Barings' Chris Lees.
Lees, manager of the Baring Global Select fund, began investing in real estate in emerging markets seven years ago but believes that the best is yet to come. His main focus is on Asia and he is quickly buying up shares in leading real estate developers in the area.
"Asian real estate is cheap at the moment and quoted in currencies that are going up about 5% a year," says Lees. "The growth outlook is far more attractive than the West - the desire for second homes and holiday homes hasn't even started yet."
He believes that many of the real estate development shares in emerging markets are currently undervalued. "Many are misunderstood by the market as they are not widely covered by analysts but we believe that this sector has the potential to generate significant returns," he adds.
Lees has invested heavily in Guangzhou R&F and China Overseas Land, two fast-growing property developers listed on the Hong Kong Stock Exchange.
Simon Tyrrell, Asian property acquisitions manager at New Star Asset Management, also stresses the importance of local collaboration. He says: "Quite often the deal may be good but the conditions attached to it are not feasible or too risky." He also points out that in the case of the Philippines, Vietnam and Thailand there is limited transparency due to the infancy of the real estate sector as a whole.
As a result, Tyrrell's main focus is on Australia, South Korea, Hong Kong and Singapore. The latter has limited office space and rents look set to rise 40% in the run up to 2010. He is also investing in Japan, which is "coming off a low base and still has a lot of good stock."
Although Tyrrell is reluctant to plunge into buying real estate in China and India this is partly because the opportunities open to foreign investors are still limited. India is currently experiencing urbanisation on an enormous scale but the government has limited foreign direct investment to development projects only. This means that stabilised office buildings or shopping centres are off-limits.
In the case of China, there is a limit on the amount of foreign money that can be invested in the domestic Chinese market -foreigners account for only 4% of the market. Also relevant are the risks associated with land titles and tax status. At present land title is only 50 years for commercial office buildings, 40 years for retail properties and 70 years for residential and there is no clear process in place for renewal at the end of the term.
These factors aside, Lees says: "It is worth noting that US real estate billionaire Sam Zell has just sold off most of his US real estate portfolio and is investing in emerging real estate markets, Asia being one of his prime targets."
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