Good returns seen from mature markets

KepLand property fund unit positive on residential, office, retail and hospitality

EMERGING economies may be all the rage, but Keppel Land’s property fund manager Alpha Investment Partners still sees good returns coming from matured Asian markets.

Alpha is positive on the residential, office, retail and hospitality sectors in ‘core’ markets such as Singapore, Hong Kong, South Korea and Taiwan. The one sector that has not caught its fancy is that of logistics properties.

‘On a risk-adjusted basis, the returns are quite attractive,’ said Alpha managing director Loh Chin Hua yesterday, at the sidelines of the Asian Public Real Estate Association Property Leaders Forum.

Alpha adopts a barbell strategy for the Alpha Asia Macro Trends Fund, which is 70-80 per cent focused on core markets, and 20-30 per cent focused on fast-growing ones.

It is not for a lack of opportunities that Alpha is less involved in developing economies. Take China for instance – Mr Loh recognises that it is an important market offering much investment potential, but there are other downsides at play.

‘We always look at risk-adjusted returns, how easy it is to execute transactions, and right now, it is quite challenging for an institutional investor to be investing in China,’ he said.

During a panel discussion at the forum, Mr Loh spoke of changing regulations in China and the complexities that poses. A lot of these changes are retroactive and ‘you just have to accept them’.

But Alpha will continue to seek out deals in China, and it is confident that residences catering to middle income earners in second tier cities will still see demand.

In Singapore, Alpha is interested in the retail, hospitality and residential sectors. It has a fund which is part of a consortium owning Katong Mall. ‘We still believe that suburban malls generally will do well,’ Mr Loh said. ‘There will be a number of new subway lines coming up, so there could be more opportunities in that area.’

The office market here could surprise on the upside, he added. While a substantial amount of new office space will be coming up, rents have historically ‘responded more to demand changes than to supply changes’. Banks are hiring again, and ‘the analysts might be a little bit too negative on the office sector’, he said.

According to Mr Loh, Alpha is seeing a healthy deal flow and is working on a number of transactions. Around 30 per cent of its US$1.2 billion Asia Macro Trends fund has been invested, and this could rise to 50-60 per cent soon.

He also said that risk appetite has improved, and some investors have approached Alpha to start new funds.

Source: Business Times, 22 Apr 2010