Asia-Pacific outbound capital

 In the last 12 months, total outbound capital from Asia Pacific dropped 34% (from US$88bn to US$57bn), coming in third behind North America (US$110bn) and Europe (US$104bn), due in part to the significant fall in outbound capital from China Mainland.

 In the same period, Singapore overtook Hong Kong, recording a 23% increase in outbound capital. According to the report, Singapore has already invested more than US$4 billion into China Mainland, South Korea, the UK and Australia in Q1 2019, reflecting several landmark cross-border deals.

 Paul Hart, Executive Director, Greater China, Head of Commercial, Knight Frank, said, “The ongoing Sino-US trade war dampened Hong Kong’s GDP growth and local market sentiment. While Hong Kong’s local investment activities are subdued due to buyer’s hesitation, outbound investment demand remains strong. Although UK especially London has been a traditional favourite for Hong Kong investors, the impasse surrounding Brexit has eroded investor confidence; other markets like Singapore are now becoming a focus. Going forward, while the trade war will continue to impact the local market, a conclusion to the Brexit saga may result in a focus to London as investors seek long term safe haven to grow their capital.”

Asia-Pacific cross-border capital outflows by source*

 Neil Brookes, Asia-Pacific Head of Capital Markets, Knight Frank, said, “The steep decline in Chinese outbound capital is largely attributed to capital controls imposed by the government to prevent money flowing offshore and is expected to stay in place until 2020 at least.”

 “In the past 12 months, outbound capital from Asia-Pacific, and Singapore in particular, has sought out alternative asset classes in Western markets while reducing their exposure to retail assets in the region, previously thought of as a core asset class,” he added.

Asia-Pacific inbound capital

Between Q1 2018 and Q1 2019, China Mainland was a net importer of capital and Asia Pacific’s largest recipient of cross-border capital, edging ahead of Australia. South Korea was the only other Asian entrant in the top 10 destinations globally for cross-border investment.

Top 10 routes of cross-border capital into Asia Pacific

Source: Knight Frank/RCA

 Brookes said, “China Mainland’s maturing market has been a target, not only for Singaporean investors but for US private equity and Hong Kong-based capital. While Tier-1 markets continue to attract the lion’s share of capital, some investors are exploring dynamic Tier-2 markets.”

 Into extra time

The report discusses the implications for real estate investors in the late cycle environment, arguing that many markets will not see returns hit recent highs.

 “With ongoing trade tensions and heightened economic uncertainties, many Asia-Pacific central banks have opted for a more dovish stance on their monetary policies as economies start decelerating. In the past six months alone, four Asia-Pacific central banks have cut their benchmark interest rates following weaker than expected Q1 2019 GDP growth,” said Nicholas Holt, Asia-Pacific Head of Research, Knight Frank.

 “While this will support real estate pricing, given the stage in the cycle, investors searching for higher returns are increasingly pivoting towards alternative assets and fringe markets,” Holt added.

Purpose-built student accommodation (PBSA)

 One of the specialist sectors highlighted in the report, purpose-built student accommodation (PBSA), has attracted high volumes of cross-border investment over the last three years, as university student numbers hit record levels globally.

 Outbound investment from Asia-Pacific markets into UK student property has risen by 47% in the last five years, according to RCA data compiled by Knight Frank. In April, Singapore Press Holdings (SPH) added £133.7 million worth of assets to its UK student property portfolio, increasing its portfolio by 1,243 beds to 5,059 beds across 20 assets in 10 cities.