APAC OUTLOOK

The rise of private capital in real estate

In a time of financial market volatility, driven by persistent inflation, elevated interest rates, and geopolitical uncertainties, private wealth investors increasingly turn to real estate as a compelling source of risk-adjusted returns, stable income, and portfolio diversification.
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Categories: APAC Outlook World Regions Asia Pacific Cambodia Chinese Mainland Hong Kong SAR, China India Indonesia Japan Malaysia Philippines Singapore South Korea Thailand Australasia Australia New Zealand

Knight Frank’s Horizon Report III – Look Beyond the Norm, found that over the past 24 months, private capital has emerged as a major driving force behind real estate investment. High-Net-Worth Individuals (HNWIs) in Asia-Pacific significantly raised their investment in commercial real estate, with a twofold increase from US$2.2 billion in 2022 to US$4.4 billion in 2023, despite global investment volumes declining to almost 10-year lows. 

However, the first half of 2024 has seen a cautious approach from HNWIs, with investments totaling approximately US$460 million, a 60% decrease from the same period in the previous year. This shift reflects a growing emphasis on capital preservation rather than aggressive yield pursuit. 

Cash holdings and investment strategies

According to Capgemini, HNWIs have increased their cash holdings to a multi-decade high of 34% in 2023, significantly above the long-term average of around 25%. This trend underscores the shift towards capital preservation among private wealth investors. Despite their competitive advantages, including ample capital and low reliance on debt financing, private wealth investors are adopting a wait-and-see approach during periods of market uncertainty. 

Regional investment preferences 

Most cross-border investments by Asia-Pacific HNWIs have remained within the region. From 2022 to 2023, Singapore attracted over 50% of total intra-regional capital, followed by Hong Kong SAR at 28.5%. While conventional offices remain the primary investment target, opportunistic investments in the living and hospitality sectors are gaining traction, driven by structural undersupply and revenge travel trends. 

Emerging trends in private wealth real estate investment 

  1. Student Accommodation Sector: Attracting interest due to reliable cash flows from upfront student payments. Hong Kong SAR's decision to double the quota for non-local students at universities from 20% to 40% for the upcoming academic year further bolsters its attractiveness as an educational hub.
  2. Cross-Border Investments: Strong interest in diversifying portfolios internationally, with Hong Kong-based family offices exploring London's residential market.
  3. Japan Focus: Growing interest in residential properties and land in areas such as Niseko and Tokyo, driven by demand from Greater China and Singapore investors.
  4. Australia and New Zealand: Increasing attention on the living sector and Build-to-Rent properties in Sydney and Brisbane, as well as farmlands for personal and inflation-hedging purposes.

Outlook for private capital in real estate 

As uncertainties persist regarding U.S. interest rate cuts and geopolitical instabilities, private wealth investors are becoming more risk-averse. They are gravitating towards secure, long-term investments that emphasize cash flow and downside resilience for wealth preservation. 

While real estate continues to appeal to private wealth investors, asset owners may need to offer significant discounts to attract private capital in the current market environment. The focus remains on high-quality assets in prime locations that can provide stable returns and potential for long-term appreciation. 

As we move forward in 2024, the role of private capital in real estate is expected to remain significant, with HNWIs and family offices playing a crucial role in shaping market dynamics across Asia-Pacific.