With the ranks of the wealthy growing in Asia, investors seeking to diversify their portfolios could consider how best to incorporate real estate.

Property has always had the reputation of being high on both risk and reward but, as today's market features a major trade dispute and a 10-year economic expansion that may be losing steam, high-net-worth (HNW) investors have plenty of avenues to find returns in both retail and commercial markets in Asia and abroad, says Chris Marriott, CEO of South East Asia for global property agent Savills Plc.

“I think the outlook is still positive, and probably the best gauge would be the attitude towards real estate investing in Asia-Pacific, the number of funds and private equity firms that are present in the market and the amount of cash that they're intending to raise," he says.

According to Marriott, about US$20 billion was raised for funds in the Asia-Pacific market in 2018, while the 63 funds in the region had about $55 billion in “dry powder," or cash-like securities that can be used to make future asset purchases.

With Asian economies continuing to outperform their western counterparts on growth, funds in the region have been following suit in their geographic distribution. “Not only do we have an increase in the proportion of total assets being allocated to real estate, within that real estate category, most funds are trying to increase their location to the Asia-Pacific region," says Marriott.

According to a survey from The Economist Intelligence Unit (EIU), commissioned by RBC Wealth Management, 78 percent of high-net-worth-individuals (HNWIs) in Asia say they invest in residential real estate in the Asia Pacific region.

The New wealth rising survey, which targets HNWIs and their adult children, as well as high-earning professionals across China, Hong Kong, Singapore, Taiwan, Canada, the U.S. and UK, looks at the shifting landscape of global wealth, what it will be invested in and who is investing.

With the largest wealth transfer in history underway, major attitudinal shifts are emerging. Interests are swinging from local to global, smart philanthropy is taking hold, and impact- and alternative investing are going mainstream. As wealth shifts—globally and from one generation to the next—the influence of affluence will change.

As that wealth shifts across generations, it's also moving across jurisdictions, says Michael Reed, head of RBC Wealth Management, Southeast Asia, and chief executive, RBC Singapore Branch. “The destinations of choice are the U.S., Canada, UK, and Australia," he explains. “Those countries offer education, lifestyle, sound property markets and quality retirement options that appeal to many high-net-worth families."

Real estate in Asia

The Asia-Pacific region is a collection of markets with their own individual characteristics. Within the region, the bulk of activity has been spread among Hong Kong, Japan, South Korea and China, with commercial real estate often being the dominant investment. Internationally, the activity has been in developed markets such as the UK, Australia and particularly the United States, which saw US$19.1 billion from Asia-Pacific investors in 2018, leading all countries, according to Savills.

The EIU data found more than half of respondents in Asia (57 percent) say they hold commercial real estate within the Asia Pacific region.

For a more targeted approach, Marriott suggests considering alternative investment categories such as student housing and retirement homes, which are two areas seeing strong growth, both in Asia and internationally, thanks to favourable demographics.

Moving into individual markets does require a deeper knowledge of that market, and a better understanding of local risks. Investors need to keep in mind that real estate is usually not as liquid an investment as a stock or bond, which means it takes longer to sell an asset. For investment in commercial real estate, it can be important to track industrial supply, demands and GDP that may impact those lead indicators.

According to the New wealth rising survey, almost half of investors in Hong Kong (47 percent) say they currently hold real estate in their portfolios. Additionally, of the HNWIs in Asia who say they own a secondary domestic residence, more than half (57 percent) say their primary purpose is long-term investment.

“You're going to look at the political, legal and financial risks involved in any specific country," says Marriott. “Legal in terms of land title ownership and the ability to inforce ownership laws, financial in terms of currency exchange and interest rates, and the requirement to hedge your currency."

Another option is to invest in logistics, which operate out of buildings for storage and distribution. This is a rapidly expanding space as global trade continues to grow. “There's been strong growth in logistics in China; we're starting to see that also grow in India, Indonesia, and Vietnam," says Marriott, adding that the increase is driven by growth in e-commerce.

Trade dispute and economic uncertainty

The U.S.-Chinese trade dispute has dominated headlines of late, and for good reason. According to a recent report by the Asian Development Bank, the conflict is currently the largest risk to the Asian economy, and many economists have cut growth forecasts as a result.

The EIU survey found 83 percent of HNWIs in Asia say it's more important than ever to future proof one's wealth. Additionally, more than half (56 percent) say global economic uncertainty is a top concern when it comes to their ability to create, preserve or manage their wealth.

The trade dispute has raised concerns about the economic outlook for both the U.S. and China, as well as the broader Asia region, but it also presents opportunity. According to Marriott, international private equity funds continue to invest money in Chinese markets despite the continuing uncertainty - seeking to take advantage of more opportunistic pricing.

“I think it's actually creating an opportunity in China, rather than changing necessarily the dynamic," he says. For instance, concern over the dispute can increase the appeal of buying convertible debt in real estate developments, as the securities bring in interest payments, but can be converted to stock in the project if it is successful. The economic stress of the dispute also is prompting some developers to sell assets in order to clean up their balance sheets, which presents opportunities for a savvy investor.

Economic uncertainty can be troubling for investors, and means they should proceed with caution, but it doesn't change the long-term economic picture for the region.

There is also reason to believe the financial activity in the real estate sector globally still has plenty of momentum. According to research firm Preqin, assets under management in the real estate sector are projected to hit $1.2 trillion in 2023, which would be a 50 percent increase from 2017.

“The fundamentals are that there is a broad, long-term-sustained economic boom in Asia-Pacific," says Marriott. “There will be cyclical booms and busts within each individual country, but the broad economic facts will remain the same."

The information contained in this document has been compiled by RBC Wealth Management from sources believed to be reliable, but no representation or warranty, express or implied, is made by RBC Wealth Management, its affiliates or any other person as to its accuracy, completeness or correctness. All charts, illustrations, examples and other demonstrative content contained in this document have been provided for illustrative purposes only as of the date of this document, are subject to change without notice and are provided in good faith but without legal responsibility. Whilst efforts are made to ensure the accuracy and completeness of the information contained in this document at the time of publication, errors and omissions may occur.

Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Hypothetical historical data used in this document, including any underlying assumptions used, is not indicative of future performance or value. Any upward or downward trend presented is not an indication that the portfolio is likely to increase or decrease in value at any time.

Each legal jurisdiction has its own laws regulating the types of services, securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, any services, securities or investment products discussed in this document may not be offered or eligible for sale in some jurisdictions. This document is not an offer to provide any services or to sell or a solicitation of an offer to buy any security. Additionally this document is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. The contents of this document are provided for informational purposes only and do not constitute a recommendation to purchase a particular security or investment product or take up any services. Nothing in this document constitutes legal, accounting or tax advice and you are advised to seek independent legal, tax and accounting advice prior to acting upon anything contained in this document. Interest rates, market conditions, tax and legal rules and other important factors which will be pertinent to your circumstances are subject to change. Specific investment strategies should be considered relative to the suitability of the products contained therein, your objectives and risk tolerances. For information on any services, security or investment product mentioned in this document you are advised to consult the applicable offering document pertaining to such security prior to investing or taking up such service.

To the full extent permitted by law neither RBC Wealth Management nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this document or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Wealth Management. RBC Wealth Management is the global brand name to describe the wealth management business of the Royal Bank of Canada and its affiliates and branches, including Royal Bank of Canada, Singapore Branch, Royal Bank of Canada, Hong Kong Branch and RBC Investment Services (Asia) Limited.

® Registered trademark of Royal Bank of Canada. Used under license. RBC Wealth Management is a registered trademark of Royal Bank of Canada. Used under license. Copyright © Royal Bank of Canada 2019. All rights reserved.


The material herein is for informational purposes only and is not directed at, nor intended for distribution to or use by, any person or entity in any country where such distribution or use would be contrary to law or regulation or which would subject Royal Bank of Canada or its subsidiaries or constituent business units (including RBC Wealth Management) to any licensing or registration requirement within such country.

This is not intended to be either a specific offer by any Royal Bank of Canada entity to sell or provide, or a specific invitation to apply for, any particular financial account, product or service. Royal Bank of Canada does not offer accounts, products or services in jurisdictions where it is not permitted to do so, and therefore the RBC Wealth Management business is not available in all countries or markets.

The information contained herein is general in nature and is not intended, and should not be construed, as professional advice or opinion provided to the user, nor as a recommendation of any particular approach. This document does not purport to be a complete statement of the approaches or steps that may be appropriate for the user, does not take into account the user’s specific investment objectives or risk tolerance and is not intended to be an invitation to effect a securities transaction or to otherwise participate in any investment service.

The text of this document was originally written in English. Translations to languages other than English are provided as a convenience to our users. Royal Bank of Canada disclaims any responsibility for translation inaccuracies. The information provided herein is on an as-is basis. Royal Bank of Canada disclaims any and all warranties of any kind concerning any information provided in this report.

© 2019 Royal Bank of Canada

The article is for information only and contents do not constitute recommendation to purchase any investment product. Nothing in this article constitutes legal, accounting or tax advice and you are advised to seek independent legal, tax and accounting advice prior to acting upon anything contained in this article.

We want to talk about your financial future.