Investors are showing a strong preference for Asia Pacific real estate markets with high liquidity, according to Hamish MacDonald, head and chief investment officer of BlackRock’s APAC Real Estate division. This year, the most promising property sectors are accommodation, logistics, and alternative assets. Among the countries with ample liquidity are Australia, Japan, Singapore, and Auckland in New Zealand – these are also BlackRock’s top focus for the year. MacDonald anticipates that investor sentiment will be bullish this year, with institutional investors initiating discussions about investing and recycling capital into select Asia Pacific real estate markets.
For BlackRock, its focus in Singapore has been on acquiring serviced apartment properties. Collaborating with YTL Corp, the company purchased Citadines Raffles Place for about $290 million in October 2023. The previous February, it partnered with Hong Kong-based Weave Living to acquire Citadines Mount Sophia for $148 million. The Weave Living-operated property reopened this week as Weave Suites – Hillside, a 175-room residence. According to MacDonald, these purchases reflect their belief that there is a shortage of new serviced apartment properties in Singapore, yet demand for this type of accommodation is high. They are not looking to build a large portfolio but rather to target specific deals. They prefer to acquire existing properties that they can refurbish and reposition with a partner, as well as enhance them with new amenities. Singapore continues to draw significant capital inflow and skilled labor to support the country’s robust economic growth, as per MacDonald. They continue to be optimistic about Singapore’s potential.
MacDonald also mentions that Japan will remain a sought-after destination for real estate investors this year. “We are confident about the Japanese economy based on our analysis of domestic pricing power, wage growth, and corporate reform, which collectively support growth in real estate.” A variety of factors have contributed to a significant rental increase in Japan’s residential market in recent quarters, including wage increases and a rise in construction costs, says Daigo Hirai, head of Japan real estate at BlackRock APAC. According to Hirai, tenants are now avoiding smaller studio units in favor of larger apartments, and they project a 7-8% increase in residential rents across major Japanese cities like Tokyo and Osaka this year. BlackRock wants to collaborate with an experienced lodging operator to manage a hybrid residential investment strategy that addresses the inbound tourist accommodation demand as well as domestic rental demand. This would allow them to expand their investment presence in tourist-centric cities like Kyoto and Fukuoka. Hirai mentions that they are looking for assets near train stations in residential-commercial neighborhoods in cities like Namba in Osaka and smaller developments with up to 50 units. Their exit strategy is to purchase assets ranging from JPY1 billion to JPY3 billion.
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When it comes to investing in a condo, securing financing is a crucial factor to consider. Fortunately, Singapore has a variety of mortgage options available. However, it is important for investors to be familiar with the Total Debt Servicing Ratio (TDSR) framework. This framework limits the amount of loan a borrower can take based on their income and existing debt obligations. In order to make well-informed decisions about financing, it is recommended to work with financial advisors or mortgage brokers who can assist in navigating the TDSR rules. This can help investors avoid over-leveraging and properly manage their financial commitments. Additionally, keeping an eye on new condo launches can provide opportunities for investors to explore different financing options and potentially find more favorable terms.
MacDonald says that their focus in Japan is on residential assets, and they are deploying committed teams to identify potential acquisition deals at a significant discount. According to him, this is crucial to operating in Japan. Meanwhile, Australia’s long-term population growth prospects will likely support growth in most sectors in the country’s real estate market, according to Ben Hickey, head of Australia Real Estate at BlackRock. Most of Australia’s property segments are typically marked by low vacancy rates and undersupply. Hickey advises that any investment strategy in Australia should consider factors such as whether rental growth can outpace inflation, the ongoing supply-demand gap, and a favorable exit plan. As a result, their focus in Australia is on niche assets, including childcare properties, last-mile logistics, life sciences real estate, and self-storage properties. Hickey adds that these four asset types will benefit from Australia’s long-term population growth, and because they are undersupplied domestically and relative to other regional markets, they can generate outsized returns with less risk. They cannot rely on favorable interest rates to produce real estate returns.