Properties in Southeast Asian cities including Bangkok, Jakarta and Kuala Lumpur are attractive for investors seeking to boost returns by holding riskier assets, Deutsche Bank AG’s RREEF unit said.
Retail real estate, such as supermarkets, convenience stores, and logistics facilities, which include warehouses that focus on e-commerce, offer opportunities, said Leslie Chua, the head of research and strategy in the Asia-Pacific region at RREEF Real Estate, a unit of Deutsche Asset Management (Asia) Ltd. Office markets in Sydney and Melbourne also are attractive because of a lack of supply, he said.
RREEF, with 3.4 billion euros ($4.4 billion) in Asian property assets, recommends investors diversify by boosting alternative investments, including Asian real estate, to counter declines in traditional assets, such as bonds and stocks. A growing middle class and changing lifestyles in Southeast Asia is attracting retailers as Europe’s sovereign debt crisis and a global economic slowdown curbs spending elsewhere.
“Investors are caught between a rock and a hard place,” Chua said in an interview in Singapore. “They need to be risk averse, but given the volatility in equities and bonds and the types of returns they get, they have to go up the risk curve, which typically means people will move to hard assets like real estate.”
Southeast Asian governments have bolstered spending on infrastructure and stepped up efforts to spur domestic consumption in a bid to reduce their economies’ reliance on exports. Indonesia’s government will increase capital spending by 15 percent next year.
In Malaysia, Prime Minister Najib Razak in 2010 identified $444 billion of private-sector led projects for the current decade. Philippine President Benigno Aquino asked lawmakers last month to approve a record 2 trillion-peso ($47 billion) budget for 2013 as he increases spending on roads, hospitals and schools.
“If it’s going to be a prolonged recovery in Europe and the U.S., we need to look for markets that can compensate for that,” Chua said. “Clearly Asia offers that. Indonesia, Malaysia and Thailand have got their ship in order and transparency has improved in these markets.”
The asset manager is “cautiously optimistic” on the Singapore office market. It said it doesn’t expect a fully-fledged correction in rents because supply of new office space remains limited.
Singapore office rents may fall as much as 6 percent this year, less than an earlier estimate of as much as 15 percent, Sigrid Zialcita, managing director for Asia-Pacific region at Cushman & Wakefield Inc., said on June 29.
The yield spreads between real estate assets and government bonds are attractive, Chua said. The spread for office markets may range from 200 basis points to 300 basis points above sovereign debt for Singapore office markets. Retail spreads range between 200 basis points and 400 basis points while the industrial sector is slightly higher from 250 basis points to 400 basis points, he said.
“Given where sovereign bond yields are right now, there is a very handsome spread,” Chua said. “Low borrowing costs and stable yields make for a very good form of alternate investment.” Borrowing costs will remain low, he added.
Five Asian economies -- Indonesia, Thailand, Philippines, Malaysia and Vietnam -- along with China and India will outpace the rest of the world over the next two years, according to the International Monetary Fund in a July 16 report. In 2013, the five countries will grow 6.1 percent, compared with 2.3 percent in the U.S., 0.7 percent in the euro area and 1.5 percent in Japan, it said.
“We are asking investors to seriously look at Southeast Asia; it’s a market that’s been often ignored largely because of a lack of transparency,” Chua said. “For a typical investor who is new to this part of the world and who wants to get their feet wet, then Australia, Singapore and Japan are a natural choice.”