Asia Pacific outbound capital falls as China activity plummets 83%

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Outbound real estate capital from Asia Pacific dropped 34% to US$57bn during the past 12 months after Chinese capital outflows declined 83%, says advisor Knight Frank.

Chinese outbound investments fell from $34.5bn during the 12 months to 1Q18 to $5.7b in 1Q19, turning the country into a net importer in the year to 1Q19.

“The steep decline in Chinese outbound capital is largely attributed to capital controls imposed by the government to prevent money flowing offshore and is expected to stay in place until 2020 at least,” said Neil Brookes, Asia-Pacific head of capital markets at Knight Frank.

“China’s maturing market has been a target, not only for Singaporean investors but for US private equity and Hong Kong-based capital.

“While Tier-1 markets continue to attract the lion’s share of capital, some investors are exploring dynamic Tier-2 markets.”

At the same time, Singapore recorded $21.8b in outbound investments, taking the top Asia Pacific spot from Hong Kong with $11.4bn.

Singapore has already invested more than $4bn across several landmark cross-border deals into China, South Korea, Australia and the UK in Q1 2019.

“In the past 12 months, outbound capital from Asia-Pacific, and Singapore in particular, has sought out alternative asset classes in Western markets while reducing their exposure to retail assets in the region, previously thought of as a core asset class,” Brookes added.

Knight Frank predicts many real estate markets may not see returns hit recent highs amid the late cycle conditions.

“With ongoing trade tensions and heightened economic uncertainties, many Asia-Pacific central banks have opted for a more dovish stance on their monetary policies as economies start decelerating,” said Knight Frank Asia-Pacific head of research Nicholas Holt.

“In the past six months alone, five Asia-Pacific central banks have cut their benchmark interest rates following weaker than expected Q1 2019 GDP growth.

“While this will support real estate pricing, given the stage in the cycle, investors searching for higher returns are increasingly pivoting towards alternative assets and fringe markets.”