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Capital Markets

Emerging markets real estate: moving in for the long run

Property continues to be popular. The big sovereign wealth funds appreciate the long-term prospects of developing countries, and have the flexibility to chase opportunities across structures, markets and cycles.

Shanghai property-600

A Shanghai residential estate

Emerging market real estate is sometimes seen as the playground of speculative capital: the soar and plunge of apartments in Shanghai, São Paulo or Dubai, a regulatory arbitrage here and a fleeting new opportunity there. But what about the investors who are in it for the really long term – the professionals who can ride out the peaks and troughs and look for what the asset class can represent if approached properly?

There are plenty of them. Last year BlackRock surveyed 169 of its largest institutional clients, with $8 trillion in assets between them, about their investment intentions for 2015. Real estate, with 61% of respondents saying they would increase their allocation, was by far the most popular asset class, with most of the capital apparently coming from selling out of fixed income. The same survey found increasing appetite for emerging markets. Invesco, in its own study of sovereign wealth fund investment appetite, found real estate the second highest area of focus last year, and is preparing its findings for 2015.

Anticipated 2015 asset allocation changes

“We do think that real estate, and certainly within the context of emerging markets, is going to continue to be quite significant,” says Nick Tolchard, head of Invesco Middle East.

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