Asian property investors are the most conservative globally—survey

Economic uncertainties and tightened credit line tame appetite for risk.

Asian property investors were ranked lowest in terms of their appetite for risk on a global basis, according to a landmark survey released on Tuesday by Colliers International. 

The Global Investor Sentiment Survey is an annual survey which takes the pulse of property investors worldwide, measuring their risk appetite, optimism, key concerns and overall market outlook. This year’s survey was conducted in the first two weeks of August 2011 using a series of targeted questions.

In Asia, the majority of investors surveyed remain optimistic in property investment. 65% of the overall respondents indicate that they will very likely expand their property portfolios in the next 6 months. 

“Office spaces in Beijing and Shanghai are the Asian investors’ top preferences,” said Piers Brunner, Chief Executive Officer of Colliers International Asia. “This is followed by residential or office property in India, while industrial property in Singapore and China came in third. The findings also revealed that most investors place their bets in their own region.”

Economic uncertainties cause Asia investors to target high IRR

Despite a willingness to buy, investors in Asia are not compelled to move out of the risk curve in order to achieve superior returns. According to the survey findings, 35% of Asian investors mention that uncertainties surrounding both global and regional economic conditions is a major deterrent in their purchase decision, while 31% see a lack of supply of “for sale” property with their target internal rate of return (IRR) as the main obstacle. 

“When asked on their target IRR for investments, a vast majority of the Asian respondents (over 75%), indicated that they typically aim for 15% IRR or higher. This is much higher than the average 40% investors globally who concurred to the same IRR target,” added Brunner.

“A high IRR target is an indication that Asian investors are currently riding high on their risk adversity by only wanting to invest on properties which are able to generate returns strong enough to offset any possible negativity. This correlates to the survey findings which also revealed Asia to be currently the lowest in terms of risk appetite.”

Less access to credit in Asia

Reduced risk appetite varies across the region, however, according to the survey findings, 69% of Asian investors expressed that they felt a tightening of credit as compared to 6 months ago. 

“The credit scene in Asia has gone through tremendous changes. Investors face more challenges when it comes to credit accessibility with rising cost of debt and a shrinking loan-to-value (LTV) ratio,” commented Brunner. 

The survey disclosed that 77% of Asian investors said cost of debt has increased, while 54% pointed out that the maximum LTV ratio decreased.

Emerging trends on obsolete properties and sub-urban office spaces

The survey also revealed two emerging trends in Asia: reducing interests in owning older and more obsolete commercial property and greater anticipation in demand for sub-urban office spaces, accoding to a Colliers International report.

On the former, 65% of Asian investors surveyed said owning older more obsolete commercial real estate is a bigger concern today than 10 years ago. These older commercial assets are challenged by competitive new developments equipped with modern functional features.

“The needs of commercial space users have changed, thus rendering older developments functionally obsolete,” said Simon Lo, Executive Director of Research & Advisory, Asia. “Location is no longer the determining factor if the assets’ features are not up to par. This finding is also consistent across the globe.”

The latter trend on sub-urban office spaces was clearly indicated by the 77% of Asian respondents who anticipate a surge in demand for sub-urban office property over the next 10 years. This will particularly be the case when some of the older buildings situated in urban downtown locations become obsolete.