«Lots of high net worth individuals don’t have the quantum of capital to do something themselves internationally,» Justin O’Connor from Savills Investment Management says in his interview with finews.asia.
Justin O’Connor, what sort of property investments are your clients in Hong Kong and Singapore looking at?
I don’t think there’s one answer. For high net worth individuals, it’s often about wealth creation – so they’re often looking at total returns. That’s an interesting contrast to Europe, where it’s more about wealth preservation. For example, in Singapore, many investors are looking for returns of at least 10 percent in general. They have a greater appetite for risk, so they might for example, take a building with vacancies so that you can get capital growth.
What role does property play in the portfolio of a high net worth individual?
Many of our high net worth individual clients built their wealth on property, so for some, their allocation could be more than 90 percent but they may be looking to diversify into other asset classes.
«Investors like taking the spread between the debt costs and property yields»
I think you can also say they might have a large real estate investment portfolio which is prime and relatively passive, which they manage themselves, but are looking to a third party like us to drive performance with properties requiring active management.
What are the most attractive property markets in Asia right now?
Japan and Australia, with slight differences at play are of particular interest. These are both attractive property markets that are stable economically and politically. In Japan, the feeling is that cheap debt is there to stay. Investors like taking the spread between the debt costs and property yields, which can generate cash on cash of more than 6 percent.
What about Australia?
It really comes down to an investor’s appetite for currency risk. It’s high-yielding and if you’re not bothered about hedging, and are calculating in local currency, you’re buying off attractive yields again.
How are they doing this internationally?
Lots of high net worth individuals don’t have the quantum of capital to do something themselves internationally. You may have a net worth of $50 million with significant exposure to real estate in your own market and want to diversify by putting $5 million into international.
«Many investors see the U.K. following the Brexit vote as a great buying opportunity»
But $5 million doesn’t go very far in say the Japanese property market. This client might look at some comingled funds for international diversification purposes.
What about investments outside of Asia?
High net worth individuals may come from countries with political or economic risks, and look to get their assets outside. Another big driver is currency. Many investors see the U.K. with a 20 percent drop in the British pound following the Brexit vote as a great buying opportunity – plus some price correction and that makes sense for a high net worth individual looking at wealth creation.
You’re waiting for full regulatory licenses in Australia and in China. How close are those?
In Australia we’re very close to getting approval. For China, we hope for it to come through later this year.
Justin O' Connor is the global CEO and Chairman of Savills Investment Management's Global Executive Committee. He joined Savills Investment Management in 2004 and was appointed CEO in 2006. Under his tenure, the business has grown significantly, expanding into new markets in Europe and Asia. He has over 30 years real estate investment experience and has worked for companies including Lend Lease, Henderson Global Investors.
