Updated: Nov 5, 2020
The economical damage caused by the Covid pandemic left every investor with a burning question, Is this the best time to invest? The uncertainty of businesses, especially the aviation, hospitality, retail, office rental, and entertainment industries, makes one wonder if this pandemic will be prolonged. Yet, we see China rise out of the crisis to emerge stronger and possibly the best performer in the world as far as GDP is concerned. Many countries will experience negative growth this year. However, the silver lining lies in 2021. Analysts and experts predicted a strong growth rate compared to 2020.
The rise of Asia Pacific(APAC) and its massive future potential has been drawing the attention of the global financial markets for years. By the time this pandemic ends, the APAC economy is no longer a rising tiger, but a roaring one. Yes, the future has arrived even faster than expected.
We expect the APAC will lead in growth globally for the next 10 years. Recent research by Mckinsey and Co. suggests that Asian economies will be larger than the rest of the world combined in 2020. By 2030, Asia will be home to 65% of the global market. The middle class will account for 40% of global consumption. According to UBS Research, Asia too is on track to top 50 percent of the global GDP by 2040 and drives 40 percent of the world's consumption, representing a real shift and gravitates toward the world's center of the economy. The pandemic has indeed shaken the APAC economy this year with a massive decline in terms of liquidity and yield. But its ability to thrive back is exceptional compared to the other markets. In fact, APAC, (especially China) is the only region expected to produce a positive return to growth this year.
Asia is also home to roughly two-thirds of the world’s population, home to the fastest growing service sector. It is probably the most popular destination for global headquarters and the fastest rising numbers of tech start-ups. A technology-driven economy will be the main driver for growth. The number of high net worth individuals in this region is growing by a much faster rate than in any other.
Investing in Real Estate Markets in the Asia Pacific is still the key capitalization of most institutional investors. Capital sources from Europe and North America still chose the APAC core market due to its high potential to generate a high single-digit return. Despite the financial crisis, APAC real estate market is believed to be able to bounce back strongly in 2021. Investors continue to underline their confidence and commitment to this region.
Creating Opportunities – an untouched market
Why would Institutional Investors shun Real Estate Development(RED) investments compared to pure asset acquisition and management even when it can yield high double-digit returns? The greatest factor is probably the Fear Factor of Risk.
RED in the Asia Pacific remains an extraordinarily complex, diverse, and rapidly changing real estate market. In fact, the risk is viewed as too high even though the returns may undoubtedly be much higher than mere Asset Acquisition.
One cannot deny the fact that real estate development challenges remain. However, with better technology and analysis, it is no longer a risk-ridden portfolio. To capture this RED market while mitigating its risk, we have to leverage available technology. With Projagg as our technology partner, we can reduce the risk of investing in the RED market as no other Funds would. In fact, we would make RED Investment be re-classified as an “Asset-Class” investment.
For the enterprising mind, this is a call for an opportunity to those who can provide better solutions in a challenging market. If we keep doing the same thing for the last 10 years, would you expect different results for the next decade? For the investors seeking better returns at a lower risk, this is the space you would want to be in. This Covid pandemic has literally stopped all developments in its track. When the economy is back to normal, the demand will exceed supply as there is no new supply during this Covid period. RED will be reversing from its depth though it will probably take at least 2 years to reach its pre-Covid peak. Then again, what better time to invest when the market is just recovering from a battered state.
1. APAC will be booming and has more digital natives than the US and Europe combined (2020). The rise of tech start-ups and life science firms will flourish at a more feverish pace. This Covid Pandemic has created a newly heightened awareness. Any Fund who remains in their traditional mindset will soon be overtaken by new technology-driven Funds, such as the Projagg REDV Fund.
2. Asia Pacific region is still undersupplied with modern logistics space. The pandemic has even increased the demand for Data Centers and Warehouses to handle ever-increasing e-commerce and online transactions. Logistics market fundamentals appear solid. The World Bank anticipates 1.9% y-o-y growth in global trade volume in 2020, a moderate rebound from 2019’s 1.1% y-o-y. Regional private consumption growth is expected to be stable. Online retail sales growth will remain strong but the pace of expansion is slowing, with emerging consumer markets including India and Southeast Asia set to perform well on the back of steady urbanization and demographic growth
3. The growing number of the middle class, urbanization, and the rising income and consumption in the region will support various demand across property types. Diversification will be evident. This is important as it reduces risk and increases steady yield growth. It will offer cash flow, equity building, risk-adjusted returns, and even help hedge against inflation.
Overall, due to the strong economic growth next year, led by a lower or negative growth this year, the opportunity to gain in this region for the next 5 years is very promising. This growth will be fueled by technological growth and innovation, in all industry sectors, especially the real estate development sector.