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Residential-Focused Private Real Estate Fundraising by Asia-Pacific-Based Fund Managers – May 2015

by Jaren Loke

  • 13 May 2015
  • RE

In recent years, regulators of various Asia-Pacific economies have imposed a string of cooling measures aimed at reducing upward pressure on residential property prices amid overheating property markets. In the aftermath of such measures, major markets such as China, Hong Kong and Australia have faced dipping sales of residential property. Nonetheless, due to the vastly varied nature of Asia-Pacific markets, interest in residential property investment in certain locations remains resilient, exemplified by a 1.5% increase in Japan’s residential property price index and an increase in India’s NHB Residex to 238 points in Q3 2014.

Preqin’s Real Estate Online service currently tracks 27 private real estate funds in market managed by Asia-Pacific-based managers that are primarily residential-focused. These 27 vehicles have an average target size of $164mn, with 60% already achieving an interim close. Encouragingly, funds of recent vintages are targeting more capital than earlier ones; the average target size of 2015 vintage funds is $196mn, compared to $160mn for 2014 vintage vehicles.

There have been 60 private real estate funds raised by Asia-Pacific-based managers investing primarily in residential properties since 2003. The average time taken for funds closed in 2014 to complete fundraising was shorter than the average time for funds closed in 2006-2014: 9.0 months versus 10.1 months respectively. Funds that closed in 2014 have on average completed fundraising 8.9 months faster than non-residential-focused funds that closed in the same year.

Strategy

A significant proportion (73%) of these 60 residential-focused vehicles employed a primarily opportunistic strategy, although opportunistic strategies have become less commonplace recently; only 29% of funds that closed in 2014 are primarily opportunistic vehicles, against 83% of real estate funds that closed in 2010. A possible cause could be the increased popularity of distressed and debt-focused vehicles, which accounted for 14% and 29% of funds that closed in 2014. Nonetheless, opportunistic vehicles remain prevalent, with 63% of funds currently on the road employing opportunistic strategies.

Location

In terms of location, 15% of the 60 residential-focused funds closed target Japan, while more than double this proportion (41%) target India. This is unsurprising considering India’s housing needs: according to one estimate, there could be a housing shortage by 2030 of 38 million homes. One fund targeting India that closed in 2014 was Kotak India Real Estate Fund II, raising $400mn. The vehicle provides debt financing for residential projects in cities such as Mumbai, Delhi and Bangalore.

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