Investors who chose unlisted real estate funds focusing on the Asia Pacific region had a good year in 2016, enjoying returns of 10.6 percent that outperformed competitors in the US and Europe, according to the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV). ANREV’s annual index tracking 84 regional investment vehicles recorded the second-highest returns since 2007, surpassed only by a 2015 peak of 12.1 percent. Australia was the top performer among single-country APAC funds in 2016 edging out Japan to bring in the strongest returns in the region. Driven mainly by strong capital growth, the Australia-only vehicles returned 13.5 percent – a slowdown from the 2015 figure of 17.0 percent but still the second-strongest return since 2007.
Japan Returns 13% While China Funds Bring Home Doughnuts
Japan enjoyed robust returns at 13.0 percent, albeit down from a high of 21.5 percent in 2014-15, due in part to the liquidation of several funds. Huge amounts of capital chasing real estate assets continued to distort pricing levels in China, where funds returned 0.0 percent in 2016, an increase on the negative returns witnessed in 2015 but down significantly from the 5-year average of 3.1 percent.
Australia accounted for 60.5 percent of the gross asset value of the funds tracked by ANREV’s All Funds Index and was a major contributor to the index’s overall returns; a separate index that excludes Australia single-country funds from the All Funds Index generated returns of just 5.9 percent.
Asia Opportunities Attracting More Global Capital
Asia Pacific’s solid performance last year may further encourage investors at a time when both Asia-based and global firms are raising billions of dollars targeted at APAC real estate. Asia Pacific “was the only region in 2016 to see an increase in capital raising activity,” commented Amélie Delaunay, Director of Research and Professional Standards at ANREV in a press release. “These returns shore up Asia Pacific’s position within a diversified investor real estate portfolio.”
Released this month, ANREV’s Annual Index 2016 includes non-listed real estate funds that have at least 90 percent of their gross asset value targeting the APAC region. A related index compiled by ANREV and partner associations reveals that Asia Pacific funds outperformed other global regions in 2016 – with US funds posting 8.49 percent returns and Europe reporting 6.54 percent – for the first time since the inception of the index in 2009.
Core Fund Returns Slide as Opportunistic Strategies Jump
Core funds – those focusing on mature properties in prime locations – experienced their second-best performance since 2007 with an average return of 13.1 percent, down slightly from the 15.7 percent reported in 2015. However, value added funds – targeting increased cash flow by improving or repositioning properties – outperformed both core and opportunistic funds, reporting returns of 10.1 percent in 2016, a sharp improvement over 3.5 percent in 2015. Opportunity funds, which target higher-risk assets that often require major rehabilitation, struggled to perform with returns of only 0.4 percent in 2016.
Funds with an open-ended structure (i.e. no pre-determined closing date) outperformed closed-end funds again as they have every year since 2008, with a total return of 13.3 percent. Closed-end funds, which are liquidated by a fixed deadline, liquidated by a fixed deadline, lagged behind with a total return of just 3.3 percent.