Calculating currencies: an international perspective on ... · an economic recovery under way, albeit an anemic one, as argued by some. 90 Given the Fed’s intention to reduce its

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



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



-5%

0

10%

5%

15%

20%


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%


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



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)



AUSTRALIANINvESTORS


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


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%


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%


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





JAPANESEINvESTORS


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.


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


0%

5%

10%

20%

30%

25%

15%

35%


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%


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%


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



14%

13%

13%

6% 12%

4% 3%

34%

Singapore London

Chiba (Japan) Other

New York Sydney Hong Kong

Rio de Janeiro(Brazil)



CHINESEINvESTORSRMB expected to

appreciate against all currencies in 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.


Chinese Investor one year total returns 2010-2012

-20%

0

20% 30%

10%

60%

40% 50%

70%

-10%


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




-10%

-5%

0

5%

10%

15%


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%


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


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.


Singapore Investor one year total returns 2010-2012

-20%

0

20% 30%

10%

60%

40% 50%

70%

-10%


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


SGD in 2013Source: IHS Global Insight, July 2013


-10%

-5%

0

10%

5%

15%

20%


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%


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: Real Capital AnalyticsSource: Jones Lang LaSalle Asia Pacific Capital Markets, 2013


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%


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


KRW in 2013


30%

10%

9% 8% 5%

4%

3%

3% 3%

25%

London Sydney

Chengdu Shanghai Inland Empire (US) Other

Chicago Houston Los Angeles

Frankfurt


-5%

0

10%

5%

15%

20%


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%


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


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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