At the event, we were delighted to be joined by external expert speakers, including keynote speaker Charles Brewer, Global CEO of DHL eCommerce, who shared insights on the growth of ecommerce in Asia and its impact on Real Estate investing, as well as industry experts from Clifford Chance, KPMG, Cushman & Wakefield, M&G Real Estate, UBS and the former Region Head of Asia for GIC Real Estate, who talked about the market outlook and emerging trends for Real Estate in Asia.
The event prompted some thought-provoking conversations and yielded a number of interesting opinions on the state of play of the Asian Real Estate market. We list below several of the key themes discussed and some of the views expressed by our panellists and audience.
1. Key drivers affecting Real Estate fund operations in Asia
We are seeing a multitude of strategies that are reflecting the current point in the investment cycle that requires more active investment management. Ranging from build-to-core for global fund managers to value-add and opportunistic for local fund managers in Asia providing Pan Asian investment products. This active investment management is more suited to outsourcing of non-core activities so that the investment manager can focus their time and resources on maximising return on investment.
As with many maturing markets, especially those that are becoming increasingly regulated, a trend towards consolidation is now substantially under way, both among managers and service providers. This evolution has also been characterised by a drive for greater efficiency and cost effectiveness, a trajectory that has seen a move to more integrated operating models by both managers and service providers.
Key takeaways from the research:
- Overall there was a consensus around macro risks and attendant currency and interest rate volatility.
- There is a keen focus on occupier strength and underlying income.
- There is a need for discipline given rising valuations and search for adjacency in sector and asset selection.
- Credit is seen as promising, however hampered by varying regulatory framework on enforcing collateral and available risk adjusted returns unless for distressed opportunities.
2. Current tax & legal key trends
- BEPs – tax authorities in various countries are expected to come up with more stringent requirements for setting up offshore structures and holding entities, managers will need to show stronger business cases other than tax benefits.
- BVI / Cayman Economic Substance – exact requirements are not yet known, however, penalties will be imposed if requirements are not met. This will impact the way that managers structure their fund setup moving forward.
- Singapore Budget 2019 – all fund tax exemptions are extended for another five years as largely anticipated. Exemptions have also been enhanced to include interest income paid to Singapore companies.
- Amendments to the Accredited Investor definitions and the opt-in/opt-out regime for Accredited Investors – these have been underway and deadlines to implement these amendments are coming up in April and July 2019.
- Hedging under the immovable assets exemption – it is not clear whether hedging activities for a fund manager that falls under the immovable assets exemption constitutes capital markets activities between the SFA amendments and the FAQs, some managers are choosing to wait till further clarity is given.
- Funds selling into the UK will no longer require an AIFMD passport.
- VCC structure is imminent and will have a significant impact on the market.
- Tax and legal consideration will have an impact on the usual setup option in terms of fund structure and domiciliation, which managers will have to pay attention to.
- The role of traditional retail stores as we know it will change – move towards retail stores being delivery points and experiential destinations.
- On-demand / elastic delivery will be the new norm, impacting considerations of locations for logistics warehouses.
4. Fund Investment trends
- Real estate debt has emerged to be an interesting strategy to watch, as it is driven by the need for quick onshore financing and is seen as a proxy to core investments.
- Logistics continue to be an area of interest.
- The shared economy has driven some interesting opportunities such as changes in the residential spaces to co-living spaces, etc.
Biggest risks to look out for include:
- Obsolescence of space – as the usage of space is changing and evolving rapidly (e.g. retail spaces, offices and co-working spaces etc).
- Macroeconomic factors – geopolitical uncertainties slowing tenant demand.
- Dry powder chasing after the same assets resulting in asset price inflation.
The full ‘Real Estate Fund Operations: An Asset Manager and Sovereign Wealth Fund Perspective’ report is available for download by clicking here.
The research was conducted by Coleman Parkes Research. Telephone interviews took place in period May - June 2018. 100 respondents (66%) worked for asset management firms and 50 (33%) for Sovereign Wealth Funds or other government entities. In terms of individual roles, 65 respondents (43%) were Heads of Fund Finance, 63 (42%) were Heads of Fund Operations, eight (5%) each were Heads of Asset Management and Heads of Investments, and six (4%) were CEOs of Fund Managers.
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