The best returns in Asian real estate are coming from Japan and South Korea's office properties, as well as mid-end homes in China and India, according to RREEF Alternative Investment, which manages about $86 billion globally. Japan and Korea's office rents are surging from a shortage. "It's a long-term demographic growth story and a long-term economic growth story," said Kurt Roeloffs, Asia head of RREEF.
Hong Kong fund manager LIM Advisors says investors may be losing out on cheap, Asian property stocks because they prefer private equity property funds to property securities funds. Japanese REITs are trading at more than 40% discount to net asset values. Thai and Philippines property developers are also bargains, according to Peter Churchouse, director for LIM Advisors.
Several REIT managers are looking to the defined contribution plan market as a new source of investment capital. The growing use of target-date and other premixed funds in 401(k) plans is fueling the trend. "Over the next five years or so, defined contribution plans will be a very material part of our (real estate) business," said Allen Smith, CEO of Prudential Real Estate Investors.
The Asian real estate market is heating up, but speakers at this week's Reuters Global Real Estate Summit suggest the easy money is to be made elsewhere. "Among institutional investors, there's incremental appetite for Asia," said Richard Price, Asia head of ING Real Estate. "But the question is, as their home markets reprice, will Asia be as compelling?"
Private-equity firms may use initial public offerings as an exit strategy for REITs they have acquired. That could lead to a surge of real estate IPOs in the next two to five years, according to market observers. The firms have been buying commercial properties and taking REITs private over the course of the past five years.