Final word
The period to 2028 will see more wealth created in Asia-Pacific than in any other region. Christine Li, Head of Research for Knight Frank Asia-Pacific, assesses the outlook for two critical elements of the region’s investment story: Chinese investors and Japanese real estate
3 minutes to read
To understand the future of private investment across the Asia-Pacific region, we have to understand China. For years, property has been the favoured asset class for wealth accumulation for the Chinese, with many investing as much as 70% of their savings in real estate, both domestically and internationally.
Small apartments and condominiums in South-East Asia, for instance, were a popular choice for the Chinese middle classes in the late 2010s due to affordability and geographic proximity. For the more affluent, top destinations included Australia, the UK and the US.
But a protracted property crisis at home and slower growth mean many Chinese are taking a more conservative approach, curbing domestic home purchases and overseas investments.
In 2023, total sales by China’s top 100 developers were down 17.3% from a year earlier, as property companies grappled with a liquidity crisis. The slowdown has been a major blow to consumer and investor confidence. Governmental efforts to revive the market by reducing interest rates and down payment requirements have had a muted effect.
The key impact has been that Chinese buyers have become much more selective. South-East Asia, especially Thailand and Malaysia, have fallen out of favour. In contrast, Japan and UAE have seen increased Chinese purchases, while Australia maintains its position as the top choice for overseas property purchases.
A substantial recovery hinges on a resolution of the credit crisis, though we still expect opportunities to emerge across the risk spectrum, particularly within private credit and government-approved sectors such as logistics and data centres. Any pick up in economic momentum could be swift, given the government’s recent shift towards a more accommodative stance and the rollout of policies aimed at kickstarting growth.
Japan’s Rising Sun
In terms of markets in demand from regional investors Japan is firmly in the spotlight, with real estate investment here running above the long-term average. Japan stands alone among the world’s major central banks in holding interest rates low, and the country’s economic revival suggests that Prime Minister Abe’s economic strategy is bearing fruit. The total transaction volume exceeded ¥5 trillion (US$34 billion) in 2023, down about 9% but still elevated compared with pre-pandemic levels.
Investors have been pricing in a normalisation of monetary policy in 2024. Structural reforms focusing on improving governance and shareholder value have propelled the country’s stock markets to a 30-year high.
Still, after three decades of deflationary pressures, we can expect authorities to stay cautious. Any rise in policy rates will be gradual, and the impact on funding costs will remain manageable. With prime capitalisation rates in Tokyo ranging from 3–4.4%, spreads continue to remain compelling. The weight of capital seeking acquisitions should limit yield expansion.
Leasing fundamentals will remain key to sustaining cash flow and preserving value. The strengthening of manufacturing supply chains has enabled demand for logistics space to keep pace, despite an elevated pipeline of new supply. Multi-family assets also continue to attract the attention of investors, particularly as rents are expected to grow in line with wage increases.
Asian buyers, especially from Taiwan, Hong Kong and Singapore, dominate the Japanese market, compensating for lower activity from Western investors. The rise of private investment is notable, with family offices increasingly moving capital into Japan amid uncertainties in the wider region.
The stable investment climate and the depth of its real estate market mean that Japan will remain central for many regional investment strategies. With the yen likely to appreciate, there is also a window of opportunity for investors to lock in value at current exchange rates.
Download the full report here