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Calculating currencies: an international perspective on real estate
the private investorInsights to real estate wealth Vol.4 2013
Summary FindingS • Acrossallinvestorgroups,BeijinghadthegreatestreturnsandTokyo
thelowestreturnsoverthefive-yearannualizedperiod.
• DelhiandShanghaiareexpectedtobethetoptwocitiesyieldingthehighestone-yearending2013totalreturnsforallinvestorgroups,withthelattercitypossessingbothassetpriceandcurrencyappreciationcontributingtowardtotalreturns.
• AustralianandJapanesegroups,asaresultoftheirweakcurrencies,wouldhavehadearnedahighertotalreturnonaone-yearending2013basisbyinvestinginanyforeigncitythanathome.
methodology Forone-yeartotalreturns,apragmaticapproachisadoptedbyaddingthebeginningofperiodrentalreturnfortheparticularyeartothepercentagechangeincapitalvalueforthatyear.Thefive-yeartotalannualizedreturnswerecalculatedusingthecompoundannualgrowthratemethod.
the uS dollar (uSd)Expected Fed’s exit from QE – Good news is bad newsThetrickleofimprovementsinUSeconomicindicatorsdisplayssignsofaneconomicrecoveryunderway,albeitananemicone,asarguedbysome.GiventheFed’sintentiontoreduceitsquantitativeeasing(QE)program,andwiththe6.5%unemploymentratespecifiedasoneofthekeyindicatorsfortheendofQE—ifandwhenthathappens—theshrunkenFed’sbalancesheetwouldlikelystrengthentheUSDintheprocess,ceterisparibus.
TheincreasedprobabilityofFedtaperingonpositiveeconomicdatareleaseshas,moreoftenthannot,resultedinthemarketreactingnegativelytosuchnews.ThisvolatilityandspeculationofanearlyFedexitfromtheQEledtoastrengtheningoftheUSD.Nervousinvestorsbailedoutofemergingmarketsinsearchofsaferassets,impactingcurrenciessuchastheIndianRupee,IndonesianRupiahandMalaysianRinggitcurrencies,causingthemtofallagainsttheUSD.WiththeUSDexpectedtostrengthenagainstmostmajorAsiancurrenciesexcepttheRMB,coupledwithanimprovingeconomy,Asianrealestateinvestorswouldlikelyenjoypositiveforeignexchangegains.
Withmajorcentralbanksaroundtheworldadoptingsignificantorcontemplatingshiftintheirmonetarypoliciesinabidtoaccomplisheconomicgoals,foreignexchangehasbeenmorevolatile.Loosermonetarypolicyhasledinternationalinvestorgroupstoflocktowardcertaincitiesorcountriesinanticipationofaspillovereffectontospurringrealestateassetgrowth.Whilemostrealestatefundshavealifespanofapproximatelyfiveyears,duringwhichthedirectionofcurrencypairswouldbehardtoforecastaccurately,movingforward,couldtherebecertaincitiesaparticularinvestorgroupshouldbeputtingontheirinvestmentradartorideontheexpectedcurrencygains,oraretheybetteroffinvestingdomestically?
Here,wedemonstratemajorinvestorgroups’five-yearannualizedtotalreturnsandtheone-yearending2013totalreturnsavailableinCBDGradeAofficestockacrosstenmajorcitiesinAsiaPacificandthetwoglobalgatewaycities—NewYorkandLondon—asarelativebenchmark.Inaddition,theone-yeartotalreturnsforthe2010–2012periodindicatingthecontributionofcurrencygainstototalreturnsispresentedtoillustratetheeffectcurrencygainscanhaveoninvestorgroups.
Foreachinvestorgroup,asectionhasalsobeendedicatedtoshowingthedirectionofsmartmoneymovementsintotopinvestmentdestinations.Thecapitalflowincludesallassetclasses.Noteworthytransactions,investorsortrendsarealsoincludedintherespectiveinvestorgroup’ssection.
the auStralian dollar (aud)Slide in AUD to continueResource-richandmajorcommodityexporterAustraliahashaditscurrencydroppingtonewlowsnotseensince2010againsttheUSD.ThisfollowsthetrendofweakercommoditiespricesamidaslowdowningrowthandaloweringoftheofficialGDPtargetfromamajorcommodityimporter—China.Australia’sownGDPgrowthforecastsfor2013havebeenloweredto2.25%,belowthepreviousyear’s3.15%growth,amidaslumpintheminingindustry.
DespitetheAUDhavingalreadydeclinedbyabout10%sincethestartof2013,theweaknessintheAUDlookssettocontinue,astherealexchangeratestillremainsovervaluedby10–15%,accordingtotheInternationalMonetaryFund(IMF)individualeconomy’sassessment,releasedinJune2013.
the BritiSh pound (gBp)Largest current account deficit since 1989Thepound,perceivedasarelativesafehavenduringthedepthsoftheEurozonecrisis,hasfallenbyabout4%againsttheUSDinthehalfyearendingJune2013,asfearsoverabreakupintheEurozonesubsided.Thecurrentaccountdeficit,whichwidenedto3.7%ofGDPin2012,thelargestshareofGDPinmorethan20years,contributedtoweaknessintheGBP.
TheUnitedKingdom’seconomicrecoverygainedmomentum,inlinewithabroaderEurozonerecovery,torecordpositiveq-o-qGDPgrowthof0.4%and0.7%inthefirstandsecondquarterof2013,respectively.Businesssentimentwasalsobuoyant,withthePurchasingManagers’Indexhittingatwo-yearhighof57.1inAugust2013.Onthebackofnascentsignsofrecovery,theBankofEnglandallayedconcernsoveraUS-typeoftapering,sayingitdoesnotintendtoraiseitsratesorreduceitsassetpurchaseprogramuntilunemploymentfallsto7%,whichisnotexpectedtobereacheduntil2Q16.
the euro (eur)Eurozone recovery underwayTheEurozoneasablocpulledoutofarecessionin2Q13,registering0.3%growthoverthepreviousquarter.GermanyandFrancepostedq-o-qGDPgrowthaboveforecasts,andPortugalalsopostedpositive2Q13q-o-qfigures.Pocketsofeconomicrecoveryintheregionhavereducedtailrisksofafull-blownEurozonebreakup.
TheEURrealeffectiveexchangerate(REER)hasdeclinedbyabout10–15%sinceitspeakinend-2009,andiscurrentlynearitslong-runaverage.WhiletheEurozoneistechnicallyoutofrecession,challengesremain,particularlyinEurozonenationsworsthitbythefinancialcrisis,asunemploymentrateremainshighandisnothelpedbypoorpricecompetitivenessresultingfromtheEURREERovervaluationinthesecountries.
the Singapore dollar (Sgd)SGD gradual appreciation to continueSingapore’seconomyforthefullyear2013isforecasttogrow2.9%,ledbyanimprovementinmanufacturingoutput,accordingtoapollbytheMonetaryAuthorityofSingapore(MAS).Thisisanexpansionfrom2012’sGDPgrowthof1.3%.However,inacauseforconcern,Singapore’scredittoGDPgrewatafasterpaceand,asof4Q12,stoodatmorethan1–2standarddeviationsabovethe12-yearmedianfrom2000–2012,accordingtothedatafromanIMFstudy.ThehigherdebtwouldleadtoSingaporebeingespeciallysusceptibletoanyUSFedinterestrateincreases.ThishasprobablyledtotheMASannouncingin2013strictercriteriaonrealestateaswellascarloanstoensurefinancialprudenceamongconsumers.
Morestringentcriteriaonrealestateloanswerejustoneinaseriesofmultipleroundsofcoolingmeasuresaimedattherealestatemarket.Aslocalsentimentwasleftreelingfromthecumulativeeffectsofthesecoolingmeasures,bothdevelopersandinvestorshadshownincreasedinterestinoffshoreinvestments.
Despitethepotentialoutflowofrealestate-allocatedcapital,theSGDisexpectedtocontinueonamodestandgradualappreciation,followingtheMAS’smonetarypolicystatementinApril2013tomaintainamodestandgradualappreciationoftheexchangerate.
the JapaneSe yen (Jpy)JPY slide set to continue on ‘Abenomics’UnderthenewgovernmentofShinzoAbeinDecember2012,Japanhasembarkedonaggressivemonetaryeasingpolicyinabidtoenddeflationandboosteconomicgrowth.TheBankofJapanaimstodoublethemonetarybaseby2014.Theinitiativehasledtoasteadydepreciationoftheyenagainstmostmajorcurrenciesanda14%declineagainsttheUSDbythehalfyearending2Q13.
Japan’seffortsinstimulatingtheeconomyshowedinitialsignsofpayingoff,with2Q13q-o-qGDPgrowthexpandingfasterthanexpectedat0.9%,markingthreestraightquartersofgrowth.
AlthoughtheJPYREERiscurrentlyestimatedtobeintherangeof20%undervaluationto10%overvaluation,however,giventhegovernment’skeypolicyprioritiesforeconomicgrowthandachievingitsinflationtarget,theJPYislikelytoshowcontinuedweaknessinthenearterm.
the Korean Won (KrW) Strong capital inflow from global investors boost KRWUnlikemostofitsAsianpeers,wherethethreatofFedtaperinghassparkedageneralsell-offandcapitaloutflows,SouthKoreabuckedthetrendwithstronginflowsintothecapitalmarkets.Theinflowbyoffshorefundsseemstoextendtorealestatemarketsaswell.TotaloffshorecapitalintoSouthKoreanrealestateYTDofUSD1,003millionhassurpassedthewholeoflastyear’sfigureofUSD630million.
Thesefactors,coupledwiththemonthlycurrentaccountrunningasurplusformorethan12consecutivemonths,willpossiblyseetheKRWontoapathofappreciationfortherestoftheyear.However,observersexpecttheBankofKoreatokeepaneyeonthestrengthoftheKRWfromrisingtoosharplytoensurepricecompetitivenessforitsexporters.
the renminBi (rmB)Continued reform in financial system InJuly2013,aspartofthegovernment’slong-termplantowardaconvertiblecurrencyandtheinternationalizationoftheRMB,Chinahastakenfurtherstepswithpartialinterestrateliberalizationbyremovingtheflooronlendinginterestratestolowercompanies’fundingcostandencourageeconomicgrowth.However,theflooronrealestatemortgagerateswillremain,asthegovernmentcontinuestocurbspeculativehomebuying.
Regulatorychangeswerealsopresentintheinsurancefundssector,withtheChinaInsuranceRegulatoryCommissionannouncingin4Q12thelooseningrestrictionsonChineseinsurers’overseasinvestmentstoincludeawiderlistofapprovedcountriesanduptoamaximum15%allocationoftotalassetstooverseasrealestate.
In2012,theofficialGDPtargethasbeenloweredto7.5%from8%,inatransitiontowardamorebalancedandsustainablegrowthmodel.AccordingtotheIMF,growthfor2013isforecastat7.75%comparedwith10.3%and9.2%GDPgrowthin2010and2011,respectively.Nonetheless,thesheersizeoftheworld’ssecond-largesteconomyandtheincreasingvolumeofRMB-denominatedinternationaltransactionssuggestageneralincreaseindemandfortheRMB.
8
Year2008 2009 2010 2011 2012 2013
5.5
6
7
6.5
7.5
USD/RMBRMB appreciation
Year2008 2009 2010 2011 2012 2013
0.6
0.65
0.75
0.85
0.7
0.8
USD/EUR
EUR depreciation
1.60
Year2008 2009 2010 2011 2012 2013
0.800.90
1.10
1.30
1.00
1.20
1.40
USD/AUDAUD depreciation
1.501.55
Year2008 2009 2010 2011 2012 2013
1.21.25
1.35
1.45
1.3
1.4
1.5
USD/SGD SGD appreciation
Year2008 2009 2010 2011 2012 2013
0.45000.5000
0.7000
0.8500
0.6000
0.8000
USD/GBP
0.5500
0.7500
0.6500
GBP depreciation
Year2008 2009 2010 2011 2012 2013
7075
95
115
85
110
USD/JPY
80
105100
120
90
JPY depreciation
1500
Year2008 2009 2010 2011 2012 2013
800900
1100
1300
1000
1200
1400
USD/KRW
KRW appreciation
Source: IHS Global Insights, International Monetary Fund
19%
8%
7%
6%
6%5%5%
4%4%
36%
Tokyo Melbourne
Seoul Osaka Mumbai Other
Shanghai Sydney Brisbane
Tianjin
Source: Real Capital Analytics
4 Jones Lang LaSalle • THE PRIVATE INVESTOR
USINvESTORSrMB expected to appreciate
against UsD in 2013
US Investor one year total returns 2010-2012
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
-20%
0
20% 30%
10%
60%
40% 50%
70%
-10%
New
York
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
New
York
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
New
York
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Developed market local return Emerging market FX gain/loss Developed market FX gain/loss Emerging market local returnsDeveloped market total return Emerging market total return
2010 2011 2012
• Tokyoreceived19%ofallUScapitalintheAsiaPacificforthelast24months,thelargestshareamongallcitiesintheAsiaPacificregion.Officeassetinvestmentsmadeupapproximatelyhalfoftheseinvestmentsbyvalue,withGECapitalRealEstate,GoldmanSachsandGreenOakamongnotablepurchasers,whileindustrialassetsmadeupathirdofUSinvestmentsinTokyo.
• Melbournerankedsecondasinvestmentdestination,attracting8%ofUStoAsiaPacificcapitalflows.USinvestmentsinMelbourneincreasedsignificantlyfromUSD28.2millionfor2012toUSD1,145.9millionfor2013YTDonthebackofacquisitionsfromBlackstone,LaSalleandInvescoRealEstate,resultinginafourfoldincreaseintransactionactivity.
• USinvestorshad7%ofallAsiaPacific-boundcapitalinvestedintoShanghaiinthelast24months.CapitalflowtotheChinesecityincreasedby2.2timestoUSD723millionin2013YTDoverthefullyearof2012,withtheUSD604milliondealbyHinesforamixed-usedevelopmentsiteintheprestigiousJingAnbusinessdistrictcontributingsignificantly.
Top investment destinations for US to Asia Pacific - last 24 months
TheChinesecitiesofBeijingandShanghaihaveproducedthehighestreturnsforUSDcapitaloverafive-yearperiodat31%and16%,respectively.Foreignexchangegainsaddedapproximately4%toUSinvestors’returninthesecities.SomenotableearlyUSD-basedinvestmentsintoChinainthelastfiveyearsincludedinvestmentsbyProLogisinProLogisParkJinqiaoinShanghai(2008),Blackstone’spurchaseofChangshouCommercialPlazainShanghai(2008)andJinlinTiandiRetailPodiuminShanghaibyAEW(2009).
AmongdevelopedAsiaPacificcities,HongKonggeneratedthehighestreturnsof14%fortheUSinvestors,whileSingapore,Seoul,MelbourneandSydneyhadreturnsof5–8%,whichwassignificantlyhigherthanthereturnsinglobalgatewaycitiesofNewYorkandLondonat1%and-1%,respectively.Despitepositivecurrencygainsofapproximately5%,thetotalreturninTokyowasthelowestamongallcitiesat-6%.
Movingforward,theforecastone-yearreturnfor2013fortheUSinvestorislikelytoyieldthesecondhighestreturnsinShanghaiat12.5%,withapproximately3%incurrencytranslationgains.Delhiisprojectedtobeslightlyaheadwithtotalreturnsof13.2%,albeitwithpotentialcurrencylossesatapproximately4%.ThekeyAsiangatewaycitiesofHongKongandSingaporeofferUSinvestorsdecentcore-typeofassetreturnsat6%and10%,respectively,withanexpectedmarginalcurrencylossesofapproximately2%inthelatter.TokyohasthehighestforecastlocalcurrencyreturnsamongdevelopedAsiamarkets,andeventheweakyen,forecasttodepreciate15%againsttheUSD,hasnotdeterredUSinvestors,whoapproximatelydoubledtheirYTDinvestmentstoUSD2.3billionover2012’sfigureofUSD1.2billion.
Early Investment Into Chinese Cities Reap Rewards
“FundscontinuetoexploreopportunitiesinAsiaPacificcitieswhereeconomicgrowthis
stillgenerallyhigherthanwesterneconomies.”
Annualized returns (2008-2012) One-year ending 2013 return
-10%
-5%
0
10%
5%
15%
Developing marketsDeveloped markets
Loca
l (New
Yor
k)
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
-10%
0
5%
10%
20%
30%
15%
25%
35%
-5%
Developing marketsDeveloped marketsLoca
l (Ne
w Yo
rk)
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Source: IHS Global Insight, July 2013
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013 Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
16%
19%
11%
11%
8%
8%
7%
5%
15%
Tokyo Hong Kong
Foshan (China) Shanghai Other
Osaka Melbourne Seoul
Sydney
Source: Real Capital Analytics
6 Jones Lang LaSalle • THE PRIVATE INVESTOR
EUROINvESTORS
• HongKongaccountedfor19%ofEurozonecapitaltoAsiaPacificinthelast24months.
• EurozoneinvestorswereactiveintheUSD20–60millionassetvaluerangeinTokyo,withatotalof11propertiestransactedinthelast24months.The11propertiesaccountedforthesecondlargestproportionbycapitalofEuroinvestorsinAsiaPacific.
• SydneyandShanghairoundedupasthenexttwomostactivelypurchasedcities,withsevenandfiveassetsacquiredrespectivelyinthelast24months.
Onafive-yearannualizedbasis,HongKongachievedthehighesttotalreturnsforEuropeaninvestorsamongdevelopedcitiesat17%,ofwhichcurrencygainscontributed3%.TheautonomousChinesecitywasalsothelargestrecipientofEurozone–AsiaPacificcapitalinthelast24months,withtransactionssuchasCLSACapital’sinvestmentsinTheBayBridgeHotel,LagunaPlazaandKianDaiIndustrialBuilding.
CurrencygainshadthelargestimpactonEuropeaninvestmentsinSingapore,whereitslocalcurrencyassetreturnsquadrupledtodeliveratotalannualizedreturnof8%duringthe2008–2012period.CurrencygainswerealsoasignificantdriveroftotalreturnsonMelbourneassets,comprising60%ofthe10%totalreturnsduringthesameperiod.
Fortheone-yearending2013forecasts,European’sAsiaPacificinvestmentsenjoyedtranslationgainsinChinesecities.TheemergingmarketofShanghaiisforecasttoyieldone-yearreturnsof14%byyear-end.SingaporeandSeoulturnedinattractivedevelopedmarketreturnsof12%and13%,respectively,withcurrencymovementflatagainsttheSGDandwithmarginallossesofapproximately2%againsttheKRW.
“ThegradualEurozonerecoveryandmorerisk-onapproachshouldseeincreasedinvestmentactivityinthecomingyear.”
Hong Kong – Highest 5-year annualized developed market returns
Top investment destinations for Eurozone to Asia Pacific - last 24 months
Source: IHS Global Insight, July 2013
Annualized returns (2008-2012) One-year ending 2013 return
-5%
0
10%
5%
15%
20%
Developing marketsDeveloped markets
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai-10%
-5%
0
10%
15%
25%
35%
5%
30%
20%
40%
Developing marketsDeveloped markets
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Euro Investor one year total returns 2010-2012
-20%
0
20% 30%
10%
60%
40% 50%
70%
-10%
Developed market local return Developing market FX gain/loss Developed market FX gain/loss Developing market local returnDeveloped market total return Developing market total return
2010 2011 2012
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013 Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
Euro expected to appreciate against
most currencies except RMB & SGD
in 2013
12%
10%
9%
8%
8%7%
6%
6%
4%
30%
Auckland Shanghai
Los Angeles (US) London Las Vegas (US) Other
Houston (US) Tokyo Hong Kong
Inland Empire (US)
Source: Real Capital Analytics
8 Jones Lang LaSalle • THE PRIVATE INVESTOR
AUSTRALIANINvESTORS
Source: IHS Global Insight, July 2013
InvestmentsinHongKongdeliveredthehighestresultsamongdevelopedmarkets,achievinganannualizedreturnof10%overthefive-yearperiodandbeatinginvestmentintheirhomecities,whichonlymanaged2%inSydneyand4%inMelbourne.Notably,however,Australianinvestorsventuringbeyondthedevelopedmarketswouldachieveahealthy12%and27%inShanghaiandBeijing,respectively.
Intheone-yearending2013forecasts,Australianinvestors’foreigninvestmentsareexpectedtoreaphigherreturnsineveryforeigncitythanintheirhomemarket.InShanghai,Australianinvestorscanexpecttoreceivestrongcurrencygainsthatwouldenabletotalreturnsof28%,morethandoublelocalcurrencyassetreturnsof10%.RecentactivitybyAustraliangroupsinthecitywasMGPA’sacquisitionofJ-Towerin1Q13forUSD42.3million.
Onaforecastyear-end2013basis,Singaporeofferedthehighestdevelopedmarketreturnsat25%,helpedbystrongcurrencygainsof13%.TheglobalgatewaycitiesofNewYorkandLondonofferedAustralianinvestorstotalreturnsof22%and18%,respectively,withcurrencygainsboostingtotalreturnsbytwotimesforNewYorkand2.9timesinLondon.
“WeexpectagrowingproportionofAustraliancapitaltargetingAsiaPacificcities,
consistentwithgrowthintheirunderlyingeconomies.”
Currency gains in most foreign cites for year-end 2013 reverses losses in the last 5 years
• Aucklandaccountedfor12%ofalloutboundcapital,thelargestshareamongallcities.Majortransactionsinthelast24monthsinvolvedPropertyForIndustry(PFI)andGoodmanGroup.
• AcquisitionsbyAustraliangroupsMGPAandMacquarieGrouphelpedShanghaicapture10%,thesecondhighestshareofAustralianoutboundcapital.
• GoodmanGroup’sacquisitionofapartialinterestinATLLogisticsCentrein1Q13comprisesthebulkofAustraliancapitalHongKonghashadoverthelasttwoyears.
• AustraliancapitalintoLondonincreasedtoUSD218millionin2013YTDwithtransactionsbyWestfieldGroupandQSuper.
Top investment destinations - last 24 months
All currencies except the Yen is expected
to appreciate against the AUD in 2013
Annualized returns (2008-2012) One-year ending 2013 return
0%
5%
10%
20%
25%
15%
30%
Developing marketsDeveloped marketsLoca
l (Melb
ourne
)
Loca
l (Syd
ney)
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai-15%
-5%
0
5%
15%
25%
10%
20%
30%
-10%
Developing marketsDeveloped markets
Loca
l (Melb
ourne
)
Loca
l (Syd
ney)
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Australian Investor one year total returns 2010-2012
-20%
0
20% 30%
10%
60%
40% 50%
70%
-10%
Developed market local return Developing market FX gain/loss Developed market FX gain/loss Developing market local returnDeveloped market total return Developing market total return
2010 2011 2012
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013 Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
Source: Real Capital Analytics
10 Jones Lang LaSalle • THE PRIVATE INVESTOR
JAPANESEINvESTORS
Source: IHS Global Insight, July 2013
TheChinesecitiesofBeijingandShanghaihadproducedthehighestfive-yearannualizedreturnsat24%and10%,respectively,despitecurrencylossesofapproximately3%.Infact,therelativelystrongJapaneseyenoverthefive-yearperiodfrom2008–2012hashadJapaneseinvestorsrecordtranslationlossesineveryAsiaPacificcity,aswellasinNewYorkandLondon.HongKong(8%),Melbourne(2%)andSydney(0.1%)weretheonlydevelopedcitiesthatturnedinpositivetotalreturnsfortheJapanese.
However,inthereversalinthestrengthoftheyen,theaggressivemonetaryeasingpoliciesunderthegovernmentofShinzoAbesince1Q13haveledtothedepreciationoftheyenagainstmostmajorcurrencies.Since1Q13,theyenhasdepreciatedby14%againsttheUSDbythehalfyearending2Q13.Asaresult,Japaneseoffshoreinvestorscanexpecttoenjoycurrencygainsinalltheforeigncitiesfortheyearending2013.
Nonetheless,Japaneseinvestorsareexpectedtoachievestronglocalreturnsof15%foryear-ending2013comparedwith-11%annualizedoverthe2008–2012period,andlookingfurtherashoremightdeliverbetterexpectedreturnsforJapanesecapital.AmongdevelopedAsiaPacificcities,Singapore(27%),Seoul(27%)andHongKong(22%)areexpectedtohavethehighestforecastone-yeartotalreturnending2013forJapaneseinvestors,withforeignexchangegainsmakingupahefty73%oftotalreturnsinHongKongand55%inSingapore.
“JapanesegroupsbearishontheYenshouldconsiderinvestingoverseas,asexpectedcurrencygainsalonemaysurpasstheir
domesticassetreturns.”
Opportunities abound- Japanese groups set to gain the most from offshore investments
• Approximately66%ofalloutboundJapanesecapitalwenttoUKandUScities,with86%ofthiscapitalinvestedintoofficeassets.
• Asignificant42%ofallAsiaPacific-boundJapanesecapitalinthelast24monthsflowedintoTierIIChinesecities,suchasWuxi,Tianjin,FoshanandShenyang.
• Morethan90%ofJapanesetoAsiaPacificcapitalwenttowardthepurchaseofdevelopmentsites.JapanesegroupswhowereactiveincludedMitsuiFudosan,MitsubishiandSekisuiHouse/Chemical.
Top investment destinations - last 24 months
All currencies are expected to appreciate
against the Yen in 2013
25%
16%
8% 6% 5%
4% 3%
2% 2%
29%
London DC
Tianjin Foshan Shenyang Other
San Francisco Moscow Hawaii
Wuxi
Annualized returns (2008-2012) One-year ending 2013 return
0%
5%
10%
20%
30%
25%
15%
35%
Developing marketsDeveloped markets
Loca
l (Tok
yo)
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai-15%
-5%
0
5%
15%
25%
10%
20%
30%
-10%
Developing marketsDeveloped markets
Loca
l (Tok
yo)
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Japanese Investor one year total returns 2010-2012
-20%
0
20% 30%
10%
60%
40% 50%
70%
-10%
Developed market local return Developing market FX gain/loss Developed market FX gain/loss Developing market local returnDeveloped market total return Developing market total return
2010 2011 2012
Toky
o
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Toky
o
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Toky
o
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013 Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
14%
13%
13%
6% 12%
4% 3%
34%
Singapore London
Chiba (Japan) Other
New York Sydney Hong Kong
Rio de Janeiro(Brazil)
Source: Real Capital Analytics
12 Jones Lang LaSalle • THE PRIVATE INVESTOR
CHINESEINvESTORSRMB expected to
appreciate against all currencies in 2013
Source: IHS Global Insight, July 2013
ThegradualappreciationandstrengthoftheRMBagainstmostregionalandmajorcurrenciesoverthelastfiveyears(2008–2012)meantthatcurrencymovementsinoffshoreinvestmentsweremostlynotinfavorofChineseinvestors.Asaresult,ChinesefundsachievedthehighesttotalreturnsintheirhomecitiesofBeijing(27%)andShanghai(12%),whileinvestmentsintoHongKonggeneratedadecenttotalreturnof11%after3%incurrencylosses,thehighestamongdevelopedmarkets.
Overtheshorttermtomediumterm,outboundChinesecapitalisexpectedtocontinueamidtheslowergrowthinthedomesticmarketanddiversifyawayfromthelimitedinvestmentoptionsathome.WhilethestrengthoftheRMBgaveChineseinvestorsgreaterpurchasingpowerinbiddingforassetsabroad,thepotentialimpactofcurrencytranslationlossfortheone-yearending2013variedamongdevelopedcitiesandrangedfrom-2%inNewYorkto-17%inTokyo.
ForkeyAsiaPacificcities,Singaporestoodoutonaone-year-ending-2013forecastwithtotalreturnsof11%.ChinesecapitalintoSingaporehadincreasedfourtimesfor2013YTDoverthatin2012,andthenumberofdealsdonewasupthreefold.Noteworthytransactionsin2013byChinese-sourcedcapitalinthecity-stateweretheacquisitionofGrandParkOrchardHotelbyBrightRubyResourcesforUSD913millionandReignwoodGroup’spurchaseofall36remainingunsoldunitsinluxuryresidentialdevelopmentHamiltonScottsfromthedeveloperforUSD328million.
“ThegradualliberalizationofChina’scapitalaccountislikelytoseeatrickle-downeffectintheformoflargerChinesecapitaloutflowinto
overseasrealestatemarkets.”
Increasing offshore investments in developed markets Singapore, Sydney, New York, and London
• SingaporewasthetopinvestmentdestinationforChineseoffshorecapitalduringthelast24months,accountingfor14%ofalloutboundcapital.OfthetotalChinesecapitalinSingapore,45%wasinvestedindevelopmentsitesbygroupssuchasMCCLand,ChinavankeandHaoYuanInvestments.
• LondonwasaclosesecondhighestinattractingoffshoreChineseinvestments,accountingfor13.4%ofalloverseasinvestments,almostallofwhich(97%)wereinvestedinofficeassets.PingAnInsurance,DalianWandaGroupandCICwereamongthemoreprominentinvestorsinLondoninthelast24months.
Top investment destinations - last 24 months
Chinese Investor one year total returns 2010-2012
-20%
0
20% 30%
10%
60%
40% 50%
70%
-10%
Developed market local return Developing market FX gain/loss Developed market FX gain/loss Developing market local returnDeveloped market total return Developing market total return
2010 2011 2012
Beijin
g
Shan
ghai
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Delhi
Mumb
ai
Beijin
g
Shan
ghai
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Delhi
Mumb
ai
Beijin
g
Shan
ghai
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Delhi
Mumb
ai
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013 Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
Annualized returns (2008-2012) One-year ending 2013 return
-10%
-5%
0
5%
10%
15%
Developing marketsDeveloped markets
Loca
l (Beij
ing)
Loca
l (Sha
ngha
i)
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Delhi
Mumb
ai
-15%
-5%
0
5%
15%
25%
10%
20%
30%
-10%
Developing marketsDeveloped markets
Loca
l (Beij
ing)
Loca
l (Sha
ngha
i)
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Seou
l
Toky
o
New
York
Lond
on
Delhi
Mumb
ai
12%
7%
6%
4%
4%
4% 4%
4% 3%
52%
London Shanghai
Hong Kong Tokyo San Francisco Other
Sydney Chongqing Beijing
Melbourne
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013 Source: Real Capital Analytics
14 Jones Lang LaSalle • THE PRIVATE INVESTOR
SINGAPOREANINvESTORS USD expected to slightly appreciate or maintain against the
ThehomemarketforSingaporeinvestorsisexpectedtoperformbetterintheyearending2013,withforecastone-yearreturnsof12%comparedwith6%inthepreviousyear.Theirfive-yearreturnsbyinvestingathomewas2%onanannualizedbasis,outperformingtheirUS(1%)andJapanese(-11%)counterpartsonthesamemeasure.Amongthedevelopedcities,HongKongyieldedthehighestannualizedfive-yeartotalreturns(11%)totheSingaporeinvestor,beatingglobalgatewaycitiesNewYork(-3%)andLondon(-4%).
Despitepotentialcurrencylossesofapproximately3%fortheyearending2013,London’sappealasatransparentandsafehavenassetclasshasattractedSingaporeinvestors.CapitalinflowintothecityfortheYTDhasbeenmorethanfourtimesthanthatforthewholeofthepreviousyear,makingSingapore-sourcedcapitalthesecondlargestforeigninvestorinLondonafterUSinvestors.
Onaone-yearending2013forecastreturns,HongKongisexpectedtodeliver8%.CapitalintoHongKongYTDisalreadythreetimeshigherthanthevolumeforthewholeof2012atUSD1,037million,withSingaporeanbuyerssuchasCapitaLand,MapletreeandEuYanSangInternationalcontributingtothenumbers.
“InvestorsstillseepotentialinChinesecities,withcurrencygainsaddingontoassetgrowth.”
Singapore groups set to be the largest foreign investors from Asia Pacific in 2013
• Inthelast24months,Londonwasthetopoverseasdestination,attracting12%ofalloutboundcapital,94%ofwhichwereonofficeassets.Londonattractedmorethanfivetimesthecapitalonthebackofanapproximatelytwofoldsurgeintransactionactivityin2013YTDthaninthefull-year2012.
• TheTierIChinesecitiesofShanghaiandBeijingtogetheraccountedfor11%oftheSingaporeoutboundcapital.SingaporeangroupsCapitaLand,PerennialRealEstateandKeppelLandmadesignificantacquisitionsinthesecitiesinthelast24months.
• BiggerticketacquisitionsweremadeinShanghai,withcapitalincreasingby3.2timestoUSD988millionfor2013YTDcomparedwiththatin2012onthesamenumberofdealsdone.
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
Singapore Investor one year total returns 2010-2012
-20%
0
20% 30%
10%
60%
40% 50%
70%
-10%
Developed market local return Developing market FX gain/loss Developed market FX gain/loss Developing market local returnDeveloped market total return Developing market total return
2010 2011 2012
Sing
apor
e
Melbo
urne
Sydn
ey
Hong
Kon
g
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Sing
apor
e
Melbo
urne
Sydn
ey
Hong
Kon
g
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Sing
apor
e
Melbo
urne
Sydn
ey
Hong
Kon
g
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Top investment destinations - last 24 months
SGD in 2013Source: IHS Global Insight, July 2013
Annualized returns (2008-2012) One-year ending 2013 return
-10%
-5%
0
10%
5%
15%
20%
Developing marketsDeveloped markets
Loca
l (Sing
apor
e)
Melbo
urne
Sydn
ey
Hong
Kon
g
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
-15%
-5%
0
5%
15%
25%
10%
20%
30%
-10%
Developing marketsDeveloped markets
Loca
l (Sing
apor
e)
Melbo
urne
Sydn
ey
Hong
Kon
g
Seou
l
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
Source: Real Capital AnalyticsSource: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
16 Jones Lang LaSalle • THE PRIVATE INVESTOR
KOREANINvESTORSUSD expected to appreciate against
Koreaninvestorsrecordedcurrencygainsinalmosteverycity,exceptinIndiancitiesandLondon,onafive-yearannualizedbasis.Duringthissameperiod,KoreangroupswouldhavedonebetterinthedevelopedmarketsofHongKong(18%),Melbourne(11%)andSydney(9%)thaniftheyhadinvestedathome.CurrencygainscontributedmorethanhalfofthetotalreturnsforAustraliancities.
InasignoflargerKoreangroupswarmingtooffshoreacquisitions,therewasacumulative84%increaseinvalueofKoreanpurchasesfor2013YTDinthebasketofcitiestrackedagainstthewholeyear2012.Ofthesecities,currencygainswouldhavethelargestimpactinHongKong,whereitcomprised43%oftotalreturnstobringtotalreturnsto11%fortheforecastyearending2013.InSingapore,currencygainsadded3%ontopoflocalcurrencyassetreturnsof12%,edginguptotalreturnsto15%forKoreaninvestors.
“Weareseeingasurgeofinterestandactivityfrominstitutionalandpensionfundsin
stabilizedassets.”
Korean groups stepping up foreign investments
• OftheKoreangroups’capital,59%wentoutsideAsiaPacific(notincludingthoseclassifiedunder‘Others’)
• LondonwastheleadingdestinationforKoreansoffshoreinvestments,accountingfor30%ofalloutboundcapital.Almostallofthesefundswereinvestedinofficeassets.SamsungAssetManagement,NationalPensionServiceandKoreaLifeInsuranceweresomeoftheactiveKoreangroups.
• Sydneyattracted10%oftheKoreans’outboundcapital,thehighestamongAsiaPacificcities.NotabledealswereMiraeAssetGlobalInvestments’purchaseofFourSeasonsHotelSydneyandtheNationalPensionServiceportfoliopurchaseinQuarryIndustrialEstate.
Korean Investor one year total returns 2010-2012
-20%
0
20% 30%
10%
60%
40% 50%
70%
-10%
Developed market local return Developing market FX gain/loss Developed market FX gain/loss Developing market local returnDeveloped market total return Developing market total return
2010 2011 2012
Seou
l
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Seou
l
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Seou
l
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Top investment destinations - last 24 months
KRW in 2013
Source: IHS Global Insight, July 2013
30%
10%
9% 8% 5%
4%
3%
3% 3%
25%
London Sydney
Chengdu Shanghai Inland Empire (US) Other
Chicago Houston Los Angeles
Frankfurt
Annualized returns (2008-2012) One-year ending 2013 return
-5%
0
10%
5%
15%
20%
Developing marketsDeveloped markets
Loca
l (Se
oul)
Mel
bour
ne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Toky
o
New
Yor
k
Lond
on
Beiji
ng
Shan
ghai
Delh
i
Mum
bai
-10%
-5%
0
10%
15%
25%
35%
5%
30%
20%
40%
Developing marketsDeveloped markets
Loca
l (Seo
ul)
Melbo
urne
Sydn
ey
Hong
Kon
g
Sing
apor
e
Toky
o
New
York
Lond
on
Beijin
g
Shan
ghai
Delhi
Mumb
ai
Source: Jones Lang LaSalle Asia Pacific Capital Markets, 2013
AUTHORS
dr megan WaltersHeadofResearchAsiaPacificCapitalMarketsmegan.walters@ap.jll.com
COPYRIGHT © JONES LANG LASALLE 2013 All rights reserved.All information contained herein is intended as guide only and does not constitute advice. It does not constitute any offer or part of any contract for sale, lease or otherwise. All details are approximate and have not been independently verified. Users should make their own enquiries to verify and satisfy themselves of all aspects of the information (including without limitation, any income, rentals, dimensions, areas, zoning and permits). While the information has been prepared in good faith and with due care, no representations or warranties are made (express or implied) as to the accuracy, currency, completeness, suitability or otherwise of such information. Jones Lang LaSalle, its officers, employees, subcontractors, agents and clients shall not be liable to any person for any loss, liability, damage or expense arising directly or indirectly from or connected in any way with any use or reliance on such information. The whole or any part of this document must not be reproduced without written consent from Jones Lang LaSalle.
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nicholas WilsonResearchManagerAsiaPacificCapitalMarketsnicholas.wilson@ap.jll.com
yy tanAnalystAsiaPacificCapitalMarketsyy.tan@ap.jll.com
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