Cross-border commercial real estate investment in Asia-Pacific

[...]while important for international risk-sharing, cross-border financial investment can amplify volatility in CRE markets.3 This article starts by providing definitions and a taxonomy for the analysis of CRE investment, followed by a stocktake of developments in Asia-Pacific CRE markets. Table 1...

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Bibliographic Details
Published inBIS Quarterly Review pp. 15 - 30
Main Authors Liu, Amanda, Shim, Ilhyock, Sushko, Vladyslav
Format Magazine Article
LanguageEnglish
Published Basel Bank for International Settlements 01.09.2020
Subjects
American dollar
Capital gains
Commercial real estate
Coronaviruses
COVID-19
Economic crisis
Finance companies
Funding
Government bonds
Interest rates
Pandemics
Portfolio management
REITs
Securities markets
Volatility
United States > US
Asia
Asia-Pacific region
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Summary:[...]while important for international risk-sharing, cross-border financial investment can amplify volatility in CRE markets.3 This article starts by providing definitions and a taxonomy for the analysis of CRE investment, followed by a stocktake of developments in Asia-Pacific CRE markets. Table 1 shows the three resulting categories: (i) direct real investors (henceforth "real investors"), such as property developers, operators and users, who also tend to have a long-term horizon and local market knowledge; (ii) direct financial investors, such as sovereign wealth funds and high net worth individuals, who buy property for investment purposes (such as rental income), but are direct, long-term owners of the specific property itself; and (iii) financial intermediaries for indirect financial investors, such as property funds and real estate investment trusts (REITs). [...]REITs often use debt to finance their acquisitions subject to leverage limits and also expose investors to equity market risk.7'8 Drivers of cross-border investment We now turn to a key driver of cross-border investments: the search for yield, ie investors' search for a relatively high and steady income stream, capital gains aside. [...]the average capitalisation rates of Asia-Pacific CRE investments (the ratio of net operating income to property value) exceed benchmark bond interest returns (the ratio of the coupon amount to bond value) by a significant margin (Graph 2, left-hand panel).
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ISSN:1683-0121