Cash-rich Asian investors look West

HONG KONG: Danny Lim is about to embark on his third shopping trip to the United States this year. He will be focusing on distressed real estate around the country, hitting various target cities where he expects prices to rebound.

The trip will take him to San Francisco, Los Angeles, New York and Las Vegas. He sees it as an opportunity to buy distressed property in the world's biggest economy before the property market rebounds.

"The residential market is bottoming and starting to come up, but it's still at a very early stage," Lim reasoned. "In the next year or so, I think there's a good window of opportunity before things start to stabilise there."

His overseas investment strategy has been reaffirmed, he says, by the latest measures taken by the Hong Kong government to curb speculative property demand.

Lim is one of a rising tide of cash-rich Asia-based investors who are targeting real estate in the West. They are hoping to pick up high-value homes or high-yielding rental properties at knock-down prices in the United States and Western Europe.

"We have all this money being made in Asia, and US values are down," said Patrick O'Neill, chief executive of property agency and developer O'Neill Group. With talk of bubbles in markets such as Hong Kong, the mainland and Singapore, "some investors want to take their money off the table in Asia, and are thinking where else would I go?"

The answer for Lim and those like him is to go West. Born in Indonesia and raised in Australia, Lim moved to Hong Kong after he met his locally born wife. His company Creations Group has raised a US$2.5 million (RM7.83 million) fund, Creations Group USA, in Hong Kong and recently closed it to new investment. It has invested US$2 million of the money to buy 35 homes, with offers out on another seven, and Lim is now looking to raise a second fund.

The US market is attractive to Lim and other Asian investors because home prices there fell 31.8% from their peak in April 2006 to their trough in May 2009, according to the Case-Shiller Home Price Index. Although they have since rallied, they are still almost one-third off their previous highs.

As well as the United States, Asian buyers are very active in central London, where they now account for 49% of the investment purchases made over the past year, according to research put out earlier this year by brokerage Knight Frank. Asian investors spent £761 million (RM3.77 billion) on property in the British capital in 12 months, with a healthy mix of investors from Hong Kong, the mainland, Singapore, Malaysia and other parts of Asia.

In the United States, buyers from the mainland and Hong Kong are now the fourth-most active international purchasers, according to a report released in June by the National Association of Realtors, behind only buyers from Canada, Mexico and Britain. The 8% share of foreign buyers from China is rising, while the 9% figure for the British is slipping, meaning Chinese buyers may soon be the most influential in the US from outside North America.

Financing is the main deterrent for foreigners looking to buy in the US. Whereas 92% of US buyers get a mortgage on their home, more than half — 55% — of foreign buyers pay cash.

Lim's cashed-up fund targeted lower-end housing near good neighbourhoods. By setting requirements that the properties be single-family homes in move-in condition and at least 1,000 square feet on sites of at least 5,000 sqft, he hoped he was identifying solid prospects. He also requires they produce rents of US$800 to US$1,200 per month but have a price tag of not more than US$200,000.

The purchase prices of property in places like Detroit and South Florida are so low that the fund can recoup its investment in a few years just through rental income.

With the cheapest properties, "we figure we can get our money back in three to four years, net", Lim said. "So even if the properties went to zero, it didn't matter. You've still got the homes that are producing that return."

The properties he has acquired so far are averaging rental returns of 13%, net of all expenses for renovation and management

The company is now looking to raise a second fund that will target more opportunistic plays, buying whole apartment blocks and selling them off piecemeal.

"We'll try to buy wholesale and then sell retail," Lim said.

"Even in the really good areas now, you can still get some really good deals," he said. — South China Morning Post