APAC Core Real Estate Funds Return 10.7% in 2014

Real estate funds focusing on core assets – mature properties in prime locations – achieved top financial results for regional investors in 2014, returning an average of 10.7 percent on their investments and outperforming higher risk opportunity funds.

For funds based in Asia Pacific, the best results were achieved by investment vehicles focused on Japan, according to an annual survey of fund managers responsible for non-listed funds and other investment vehicles.

The survey revealed that while Japan’s recovering market has continued to show strong yields, investors in China-focused funds achieved returns of only 2.8 percent in 2014.

Opportunity Funds Underperform

Overall returns for non-listed real estate funds in Asia Pacific were stable last year, earning 9.1 percent for investors compared to 9.2 percent in 2013 according to the ANREV Annual Index 2014, which was published this month.

The survey, which is conducted by the non-profit Asian Association for Investors in Non-listed Real Estate Vehicles (ANREV) compared the returns of 93 funds focusing on the region with an aggregate gross asset value of US$87.7 billion, according to a statement by the association.

“The performance of core funds has been steadily improving since 2011 with the drivers of return evenly spread between capital growth (5.4 percent), the highest since 2010, and income return (5.3 percent) illustrating improvement in market conditions in the region,” noted Amelie Delaunay, Director of Research and Professional Standards at ANREV.

Opportunity funds, which invest in higher risk assets in search of greater returns, disappointed in 2014, rewarding their more daring investors with 4.9 percent on their capital – the lowest rate since 2009. The results were a signficant change from 2013, when opportunity funds had outperformed core funds, according to the survey.

Japan Real Estate Returns 22% in 2014

Funds investing in Japanese real estate showed the highest returns overall and surpassed those concentrating on Australia to become the best performing geographic focus within the region last year.

In terms of local currency, Japan property funds’ returns jumped to 22.2 from 8.5 percent between 2013 and 2014, whereas those of Australian funds only increased by 150 basis points from 9.1 to 10.6. Chinese funds lagged behind with 2.8 percent returns in 2014 as mainland-focused saw results slip last year.

“Japan’s performance improved across all styles but the very high return was mainly driven by opportunity funds,” Delaunay said. “Both Australia and Japan benefited from strong domestic and inbound international capital flows as well as being large, liquid and transparent markets,” she added.

Flexible Timing and Focused Investments Brought Top Results

Looking at funds by type, the survey found that value-added funds improved their performance last year to return 8.4 percent for their investors in 2014.

Open-end funds, which have no pre-determined closing date continued to outperform closed-end funds, as they have since 2008. The total return of open-end funds in Asia Pacific for 2014 was 10.4 percent, while closed-end funds, which need to be liquidated by a fixed deadline, returned only 7.1 percent. 70 of the open-ended vehicles included in the survey were core funds.

Investors also received higher returns from funds that focused on particular types of real estate last year, with single sector funds bringing in 10.8 percent yields, compared to just 6.5 percent for multi-sector funds. Multi-country funds also appeared to suffer from their broad scope last year as their returns slid from 7.2 percent in 2013 to 4.9 percent in 2014.

According to the Global Real Estate Fund Index, which is compiled by ANREV together with its sister organisation the European Association for Investors in Non-listed Real Estate Vehicles (INREV) and the National Council of Real Estate Investment Fiduciaries (NCREIF), Asia Pacific non-listed real estate funds outperformed the US and Europe in the fourth quarter of last year for the first time in two years.