New research from Jones Lang LaSalle shows that most markets in the Asia Pacific region invested more heavily in local real estate during 2016, amid political and economic uncertainty sparked by Brexit and the US election.

The report, titled  'Real Estate Investment Flows: An Asia Pacific Perspective', looks at deals worth more than US$5m in commercial, retail and industrial real estate in the Asia Pacific region.

In China, investment in domestic real estate increased by 50 per cent compared with the previous year. Increased regulatory scrutiny of capital outflows led many domestic investors to bid strongy for local properties, ultimately outbidding foreign investors, according to the report.

Despite stronger local investment, outbound investment from China grew to record levels in 2016 reflecting a desire for trophy assets and to diversify out of China. Key markets were the US, Australia, and Hong Kong.

Mixed picture for inbound and outbound capital flows

Inbound investment to Singapore surged 441 per cent year-on-year in 2016 on the back of mega deals such as the JLL-brokered Qatar Investment Authority purchase of  Asia Square Tower 1  for US$2.45 billion. The city-state, however, experienced a decrease in domestic real estate investment with a 16 per cent dip in 2016.

“Domestic investors were quiet as they focused on diversifying exposure overseas. S-REITs were also less active as they have already completed many transactions in recent years,” says Tay Huey Ying, Head of Research, Singapore at JLL.

“Foreign investors’ appetite remained robust as the price gap between buyers and sellers in Singapore has narrowed following recent price corrections, and many seized opportunities to purchase assets in the office sector at lower prices. Investors continue to be keen on Singapore’s prime office and sub-urban retail assets, which are closely held and rare to access,” adds Ms Tay.

Like Singapore, South Korea’s inbound investment swelled in 2016 with a number of major deals, including China Investment Corporation (CIC) and Brookfield Asset Management’s acquisition of IFC Seoul from AIG Global Real Estate for US$2.3 billion. The country registered a 282 per cent increase in domestic real estate investment year-on-year, driven by yields looking attractive on a global and regional basis, in addition to the domestic base rate at a record low level of 1.25 per cent.

South Korea’s investment in overseas property decreased by 21 per cent in 2016, partly due to 2015 being a record year for Korean outbound transactions, and a shift in focus to offshore debt deals with investors preferring those over higher-priced offshore equity deals.

In Hong Kong, real estate investment activity remains robust with an 18 per cent year-on-year increase in domestic transaction volumes in 2016, driven by local investors and corporate end users investing in Grade-A offices and strata retail units.

Domestic investors were active across most Asia Pacific real estate markets in 2016, as many looked to purchase real estate assets at home amid global political and economic volatility. Chinese investors ploughed a total of US$29.1 billion into domestic real estate assets, a 50 per cent increase year-on-year, while domestic investment in South Korean real estate surged 75 per cent to US$12.4 billion. 

“Looking at the figures, it’s clear that investors flexed their domestic purchasing power in 2016,” says Myles Huang, Research Director, Asia Pacific Capital Markets at JLL. “In China, Hong Kong, Korea and Japan, we saw an increase in the volume of domestic deals in 2016, spurred by strong in-country opportunities as well as many institutional investors allocating more money to the real estate asset class in general.”

“Chinese investors, however, were also strong cross-border players in 2016 as they diversified overseas. But with the government’s increased scrutiny on outbound capital, the domestic investment trend is likely to sustain throughout 2017,” adds Mr Huang.

Read Jones Lang LaSalle's complete report 'Real Estate Investment Flows: An Asia Pacific Perspective' here.