APAC crowned as world's largest source of real estate capital

Capital outflows from China, Hong Kong, and Singapore that totalled US$71.9b secured APAC's top spot.

The Asia Pacific's US$90b worth of capital beat Europe (US$83b) and North America (US$80.9b) as the largest source of cross-border real estate capital in 2017, Knight Frank revealed. APAC significantly exported US$19.8b to the US and US$19.6b to the UK, respectively.

“A major driver for the increase in outbound capital is the surge in the strength of the domestic markets in Asia-Pacific where the region saw a 36% increase in investment activity in the 12 months to March 2018, with the first quarter of this year setting an all-time record for transaction volumes,” Knight Frank Asia Pacific head of capital markets Neil Brookes said.

The report noted a rise in cross-border real estate capital from Asian countries including Hong Kong, with a capital increase of 41% to US$20.5b, and Singapore’s cross-border capital that climbed 35% to US$19.9b in 2017. South Korea (US$8.6b), Japan (US$3.1b), Australia (US$1.7b), Taiwan (US$1.7b), Thailand (US$1.1b), Malaysia (US$500m), and India (US$300m) also contributed to making APAC as the largest source of cross-border real estate capital.

Brookes thinks that the slowdown from China that resulted from government capital controls were countered by increases in capital from Singapore, Japan, and South Korea bound for the US and Europe.

Despite remaining as top cross-border real estate capital source in the region, China’s US$31.5b worth of capital is only an 8% increase from 2016 amidst other APAC countries with double-digit increases.

Also read: China to slow down economic growth in 2018

“The increase of cross-border capital emanating from the Asia Pacific region demonstrates the growing confidence and comfort of many different types of investors in this region sourcing and executing on opportunities outside their home jurisdictions,” Knight Frank Asia Pacific research head Nicholas Holt explained.

Holt believes that APAC’s outbound capital volume in 2018 will reach similar levels with that of 2018 due to increasing drive for diversification, limited local liquidity and growing familiarity with offshore markets

Meanwhile, North America topped inbound capital with vast majority of the capital coming from domestic investors and only less than 15% of purchasers from abroad. US, UK and Germany clinched the top 3 spots for attracting inbound investment in 2017.

For 2018, Knight Frank thinks that Japan’s comeback as a major investor could warm up cross-border capital flows even by a tiny additional share of domestic share flowing into the overseas market.

“Whilst rising interest rates and further trade tensions remain risks for global real estate investors, the macroeconomic environment remains supportive to many real estate classes,” Holt noted.