The private investor – currency effects on investment returns in Asia Pacific office markets
May 22, 2012 / By
Here in the Asia Pacific capital markets team we have been working on the next edition of The Private Investor. We have calculated the effects of currency movements on real estate returns, in ten Asia Pacific office markets for international investors, including those from the US, UK, and Euro area, as well as Japan, China, Australia and Singapore.
The growth of wealth in our region is high, with Asia Pacific growth continuing to outperform the rest of the world. As a result, we have seen an emergence of Asian private investors in the global real estate landscape who are increasingly choosing to invest in assets out of their own home country. We have developed The Private Investor series to speak directly to this group of investors and with the Euro area continuing to cause uncertainty in the global markets, currency is a timely topic.
There are a number of drivers behind where to buy real estate, as well as currency, diversification, wealth preservation and the attractive relative value of international opportunities all feature. One reason for investment in a particular city may be drivers such as familiarity through family ties and education. Wealthy Asian families are increasingly looking to secure an overseas education for their children and may buy property in that city.
Our first edition of The Private Investor looked at top ten potential investment destinations for Asia Pacific high networth investors based on a weighting of the number of international students and the size of the real estate investment market per city. Top of the ranking is London- highly attractive to Asian investors which has a large number of international students- followed closely by New York and Tokyo. The other cities that we have featured in the report include Singapore, Shanghai, Sydney and Melbourne, and outside Asia Pacific- LA, Toronto and Houston.
Our next edition looks at the effects of currency on the returns to real estate investment in office markets on a one year total return and annualised five year basis. Currency movements can make a significant effect on real estate returns. For example, the annualised five year total returns in Australian dollars in the Sydney office market gives 6%. Currency movements result in doubling returns to UK investors at 16%, whereas it halves returns for Japan yen investors at 3% when compared to local investors returns.
In Singapore, in local currency terms the annualised five year total return is 13%; in line with returns on the same basis to AUD denominated investors. USD investors would have received 16%, EUR investors 17% and GBP investors 20%. JPY investors would have received less at 8% on the same basis. If you were a Singaporean investor, which office market of the ten we featured would have given you the best return on a five year annualised basis? The top return for a Singapore investor a total return over five years annualised would have been Beijing at around 25%.
To find out more about how all seven selected currencies performed across ten Asia Pacific cities, the second Private Investor currencies edition will be out next month and a summary will appear in the Institutional Real Estate Newsletter in the June edition. If you would like a copy, please drop me an e mail. In the mean time log on here to see the first edition.
