Brexit Could Boost Asian Investor Interest in Aussie Real Estate

The dust has yet to settle from the UK’s historic vote to leave the European Union, but the uncertainty caused by Brexit is already expected to tamp down interest in the London property market, and provide opportunities for Asian cities to try replace the UK capital as the favorite destination for the region’s real estate investors.

London attracted more than $8.1 billion in capital from Asia last year, according to figures collected by Mingtiandi, making it the top city for property acquisitions among institutional investors and developers from mainland China, Hong Kong, Singapore and other locations.

With investment yields in New York under pressure and some observers already calling a top to the Manhattan market, one analysis sees Asian investors finding attractive returns on core real estate markets closer to home, particularly Australia, following the Brexit decision.

Colliers Sees Brexit Making APAC Look Good

A potential side effect of the Brexit vote, according to international brokerage Colliers International could be a reversal of the flow of Asian capital into western property assets, as investors reassess levels of risk in western countries compared to locations closer to home.

“Global investors are mostly cautious about economic prospects in China, sceptical about reforms in Japan, and concerned about political and economic risks in Asian emerging economies except perhaps for India,” Andrew Haskins, APAC head of research with Colliers International said of decisions in recent years by Asian property investor to look outside the region for deals.

Post-Brexit, this perception could change. “In the wake of the UK’s vote, Japan may well appear more stable than many western countries. Opinion towards China may well also improve,” Haskins noted in a report released this week.

In its analysis, Colliers pointed out that the UK’s decision is also likely to put downward pressure on global bond yields, which should make the 3-6 percent investment yields offered by core Asian property assets more attractive in comparison.

New York Seen Sliding, Australia Looking Better

While New York was the second most popular destination for Asian real estate investors last year, accounting for $5.58 billion in acquisitions from the region, a rising dollar and shrinking investment yields may make Manhattan less attractive in 2016.

The Chinese yuan slid by one percent in trading today against the dollar, reaching multi-year lows in the wake of Brexit and making New York less affordable to mainland institutions, who did much of the buying in the city last year.

Nearly $14 billion was invested in New York commercial property from January through March of this year, but that total amounted to the slowest three months for the Big Apple’s real estate market since the third quarter of 2014, according to figures from Cushman & Wakefield. The New York-based brokerage blamed the slowdown in part on China’s slowing economy, but many observers think the Manhattan market may have already topped out.

Colliers, which predicts that office rentals in Sydney will grow an average of 3.8 percent in the next three years, and sees Hong Kong rentals moving up by 4.0 percent in the same period, believes that Asian core real estate assets will look more attractive as other investment targets lose their appeal.

“We still see Australia as the most attractive market in the region, given high prime-grade office yields and strong interest from Chinese and other foreign investors,” Haskins said. Chinese investors seem to agree with that sentiment, with developer Beijing Macrolink having purchased Sydney’s Coca-Cola building for $119 million earlier this month. In May China’s Ping An Insurance entered into a joint venture with Australian real estate conglomerate Mirvac to co-develop that company’s 500-apartment St Leonards Square project in Sydney’s north shore.

In addition to Australia, Colliers contends that Shanghai core assets should be able to offer a 5.4 percent investment yield, and sees Singapore’s top properties coming in at an average of 4.0 percent yields. Hong Kong, despite its high office rents, is seen offering investment yields of 2.9 percent – the lowest in the region.