_The Opportunities in Asia-Pacific's Multifamily Sectors

For years, the Asia-Pacific multifamily real estate sector has consistently been behind its Western counterparts in development as an asset class for institutional investment. This has mainly been due to structural economic and cultural factors, such as relatively cheaper property prices, importance of home ownership and lack of a rental culture in the region. This shows in the capital market transaction volumes for multifamily assets. Between 2016 and 2020, the APAC multifamily sector only accounted for 4.8% of total commercial transaction volumes, while the European multifamily market accounted for 14.9% of its total. However, recent trends have slowly turned the outlook on the Asia-Pacific multifamily sector, and the market is set to see an increase in its pace of growth. New opportunities are arising in the form of multifamily real estate for investors looking for a new asset classes to diversify into in Asia-Pacific.

Trends to Define the Market

Traditionally, in most markets across the APAC region sans the gateway cities, the costs of property have tended to be cheaper than in Western economies. Combined with an elevated level of cultural significance for home ownership, this meant that renting for residential stay was not highly sought after by Asian home occupiers. For institutional investors in the region, there is a definite preference for investing in traditional asset classes, such as office, retail and industrial, that had always been considered less risky. Given all these factors, the multifamily market has had limited growth in over the past few decades.

Urban land availability has gradually become more limited in recent years and property prices have climbed. Over the past decade, home prices in APAC have risen approximately 80%. For prospective homeowners, the challenge of affording their own residential property is becoming more daunting and renting an increasingly attractive option. This has put pressure on governments to begin adopting policies supporting rental markets, additionally fueling demand for multifamily assets. Furthermore, the cultural aspects of home ownership are eroding gradually. The Millennial and Gen-Z segments of populations are becoming increasingly global citizens. With more migration for work and study among them, renting has become more of a necessity for them than a choice, and pre-established mindsets and cultural norms are being upended.

In the capital markets, institutional investors are now feeling the pinch as yields for traditional core assets in the office and industrial classes have undergone compression. The multifamily sector presents an opportunity for investors to diversify with assets having better risk-reward prospects for their portfolios, due to its relatively stable cashflows, with less of a reliance on single large tenants, such as office and retail assets. The residential property market is thus a decent option for investors to diversify and hedge against economic downturns, such as during the COVID-19 pandemic.

From 2016 to 2020, investments into the operational residential market (which includes multifamily, student housing and senior living) has risen 60% to US$26.3bn. Investment appetite towards a stable earning alternative asset class that has been growing firmly over the past decade across the globe. As the US and Europe multifamily market continue to mature, investors will eye the emerging markets for new opportunities, such as those in Asia-Pacific.

Hotspots of Activity

Japan alone accounts for 72% of the total multifamily transaction volume in APAC between 2016 to 2020 and is the second largest multifamily market globally. Markets in other APAC geographies exist, such as in Australia, Mainland China, New Zealand, and South Korea but they are still significantly behind in development and scale. Some of the nascent markets are seeing some support from local governments, largely due to political will to solve housing issues in their respective markets. Shanghai’s multifamily market is set to undergo a period of growth as proactive apartment property zoning will drive up investment opportunities in the city in the following years. As a result, international players such as Macquarie Group and Greystar have made their first forays into the market in the last two years. The Australian multifamily sector will also see policy drive its demand. In 2020, the state of New South Wales cut back on land taxes and exempted foreign investors surcharge. These policy drivers have helped Australia garner interest from investors such as Greystar, who in early 2020, has raised a record A$1.3bn for a built-to-rent multifamily venture, in conjunction with other notable players such as Mirvac and Oxford Properties. For South Korea and New Zealand, changing demographic and property market conditions are the underlying drivers for the multifamily sectors in these markets, and we expect the trends supporting the market’s growth to continue into the 2020s.