GRIEast Asian investors take long-term view over Brexit and FX
GRI Club UK & Ireland discussed investment into the UK & Ireland from Japan, South Korea, China and Hong Kong.
March 1, 2019Real Estate
GRI Club UK & Ireland met in London on 26 February to discuss institutional investment from East Asia UK and Ireland real estate. Participants considered the fundamental drivers behind current and future capital outflows from Japan, South Korea, mainland China and Hong Kong. It became clear that investors from East Asia are neither put off by Brexit uncertainties, nor attracted solely by the relatively weak value in the pound sterling at present, but instead take a long-term view towards investing in the UK – primarily in London, but with increasing sophistication to invest further afield.
East Asian investment drivers
The meeting provided an opportunity to consider drivers and dynamics around such investment into the UK & Ireland, aside from the current FX rate. It was noted that in Japan, an ageing and diminishing population, besides poor returns on Japanese government bonds, is pushing Japanese capital to find other sources of profit, investing in alternative assets such as real estate. Compared to fifteen years ago, current levels of Japanese institutional investment are low, but are expected to return to the UK and Europe, especially because investing in the US is difficult right now.
The current wave of overseas investment into Europe from South Korea, it was suggested, is a structural change that is likely to continue. Some of that investment may already have been present, indirectly, but is becoming more sophisticated, direct and obvious, with investors taking a long-term view, primarily at opportunities in London.
Capital investment flows outward from mainland China into real estate projects have been subject to restrictions since 2016, although it was noted that existing projects continue to find local sources of funding. Capital flows from Hong Kong continue and, ironically in the light of Brexit, see the UK as a safe harbour as China’s influence within the province increases.
Brexit
Brexit was raised, but is not seen as a major issue for East Asian investors - more of a European challenge, than a global challenge. If anything, the difficulty of investing in the US at present is more of an issue, given interest rate differentials and the challenge of finding attractive yields. It was generally agreed that there are a number of large institutional investors with the potential to deploy capital in Europe, the UK & Ireland. Within the UK, investors are attracted primarily to London as one of the world’s two large-scale gateway cities (together with New York), paired with the UK’s transparency and strong legal system. Participants concluded that time is required to develop the necessary relationships and build trust with East Asian investors in order to unlock those capital flows.
Global investment flows into the UK and Irish real estate markets will be discussed further at British & Irish GRI 2019 on 15-16 May in London.
East Asian investment drivers
The meeting provided an opportunity to consider drivers and dynamics around such investment into the UK & Ireland, aside from the current FX rate. It was noted that in Japan, an ageing and diminishing population, besides poor returns on Japanese government bonds, is pushing Japanese capital to find other sources of profit, investing in alternative assets such as real estate. Compared to fifteen years ago, current levels of Japanese institutional investment are low, but are expected to return to the UK and Europe, especially because investing in the US is difficult right now.
The current wave of overseas investment into Europe from South Korea, it was suggested, is a structural change that is likely to continue. Some of that investment may already have been present, indirectly, but is becoming more sophisticated, direct and obvious, with investors taking a long-term view, primarily at opportunities in London.
Capital investment flows outward from mainland China into real estate projects have been subject to restrictions since 2016, although it was noted that existing projects continue to find local sources of funding. Capital flows from Hong Kong continue and, ironically in the light of Brexit, see the UK as a safe harbour as China’s influence within the province increases.
Brexit
Brexit was raised, but is not seen as a major issue for East Asian investors - more of a European challenge, than a global challenge. If anything, the difficulty of investing in the US at present is more of an issue, given interest rate differentials and the challenge of finding attractive yields. It was generally agreed that there are a number of large institutional investors with the potential to deploy capital in Europe, the UK & Ireland. Within the UK, investors are attracted primarily to London as one of the world’s two large-scale gateway cities (together with New York), paired with the UK’s transparency and strong legal system. Participants concluded that time is required to develop the necessary relationships and build trust with East Asian investors in order to unlock those capital flows.
Global investment flows into the UK and Irish real estate markets will be discussed further at British & Irish GRI 2019 on 15-16 May in London.
