Observers say Korean pension funds have been aggressively investing in commercial real estate in Asia.
According to Woori Investment & Securities, the Korean National Pension fund has put nearly US$3 billion into real estate in the past six to nine months alone.
And it appears investors are favouring commercial properties over residential ones to get better returns.
Private home prices have enjoyed a good run-up in recent months in Asia.
For example, cost of private residential properties hit a record high in Singapore in the second quarter, rising by an estimated 5.2 per cent.
But investors and asset managers are expecting home prices to moderate across the region.
So, they are turing their attention to commercial properties instead.
Woori Investment & Securities, part of South Korea’s Woori Financial Group, has seen a growing outflow of Korean money seeking such opportunities.
Derek Wong, director, Real Estate Investment & Finance, Woori Investment & Securities, says: “We’re looking favourably at the commercial sector, mainly the office building and retail sector. As a whole maybe we are looking at a range of six to eight per cent minimum for a very safe country but if it’s a high risk country then we need to add in that spread.”
Despite concerns of a supply glut in the office segment in Singapore, Henderson Global Investors says the new buildings under construction in the city have already received 80-90 per cent commitment from tenants.
Hong Kong’s supply picture is also tightening as businesses add to their headcount.
Frankie Lee, head of Property Equities, Asia, Henderson Global Investors, says: “We only conservatively assume a 25 per cent increase in rents in both Singapore and HK this year and given the type of rent increase in the first half this will prove to be quite conservative. I think now we can safely say that 25 per cent this year in these two places for 2010 and perhaps another 15 per cent for 2011 is quite achievable.”
In view of this, Henderson recommends stocks such as Hong Kong Land and Keppel Land to take advantage of the uptick in rents.
It also looks on Industrial Real Estate Investment Trusts favourably, given Singapore’s strong economic growth.
Source : Channel NewsAsia – 2 Jul 2010