Published May 15, 2008

Natural disasters won't dent Asia property allure

European investors find region's GDP growth too attractive

(LONDON) The recent catalogue of natural disasters such as earthquakes and cyclones will not stop European property investors seeking value in Asia's most promising real estate markets, fund managers said here on Tuesday.

Days after Cyclone Nargis ravaged Myanmar's Irrawaddy region, a quake measuring 7.9 on the Richter Scale struck China's Sichuan province, felling buildings and shaking high-rise offices in cities as distant as Thailand's Bangkok and Vietnam's Hanoi.

Aid agencies and local governments are still assessing damage inflicted by the events, but neither has tarnished Asia's appeal to European property investors, who say opportunities to make double and even triple-digit percentage net returns in the region more than offset worries about natural disasters.

'I can't imagine the latest events are going to put a major halt on Asian property transaction volumes or the level of cross-border investment into the region,' said Mark Callender, head of international property research at Schroders, whose US$321 million International Selection Property Securities Fund was around 27 per cent invested in Asian stocks on March 31.

'Long-term, the opportunities are still there. Markets like Hong Kong and Singapore might look close to their peak, but places like Tokyo and Seoul are only halfway up,' he said.

Asian commercial property transaction volumes rocketed 27 per cent to US$145 billion in 2007, on the back of an 87 per cent rise in foreign investment to US$73 billion, according to data from property services firm Cushman & Wakefield.

China was one of the world's top 10 markets for deal volumes last year, leapfrogging more mature markets such as Hong Kong and Singapore for the first time, the data showed.

Cushman & Wakefield said investment volumes were expected to rise again this year, as global funds ramped up allocations to the region.

ING Real Estate, one of the world's biggest property fund managers, and a leading player in China's burgeoning residential market, said it did not expect international investment or domestic occupational demand to be severely affected by the quake.

'We see no reason for a decline in the strong demand for mid-tier residential housing in both Chengdu and Chongqing provinces and in China as a whole,' said Richard van den Berg, ING's China country manager.

'Some slowdown is expected in the immediate aftermath, but we expect that the sales momentum will recover when Sichuan province returns to normality,' he said.

Standard Life Investments Property Fund manager Andrew Jackson said property team members did weigh up the prevalence of natural disasters when assessing an area, but such studies had limited bearing on investment decisions.

'We are aware of the risks and there are certain areas we would be cautious about investing in because of vulnerability to cyclones, quakes or flooding,' Mr Jackson said, while adding that efforts to pin down new opportunities for its global property funds would not be undermined by the catastrophes.

But not even the most conservative fund managers will be tempted to abandon potentially moneyspinning Asian property investment plans in the wake of the disasters, said Trevor Hankin, a fund investment director at PRUPIM, the property unit of insurer Prudential.

'People are attracted to the huge GDP growth on show throughout Asia, which taken as a whole is probably double that of the USA and Europe,' said Mr Hankin.

'No investment is without risk, and clearly geographic phenomena are a risk to investment, but a small one. As investors go, the Pru is about as conservative as it gets, and this has no effect on our appetite for Asian property,' he said. -- Reuters