German fund manager Union Investment Real Estate plans to invest up to 4 billion euros ($6.21 billion) in Asia over five years, hoping its drive for diversification will also give returns an extra kick.
German open-ended property funds, including those run by Union Investment, have been busy snapping up property abroad since a redemptions crisis forced them to sell many assets in their home market in 2005 and early 2006.
Union Investment opened an office in Singapore in 2006, and is keen to ramp up its investment in Asia from the current 600 million euros, according to its Asia head, Steffen Wolf.
Globally, the firm has around 15 billion euros of assets under management. "Asia is very much top of our priority list," Wolf said in a telephone interview from Singapore. "We should be looking at between two and four billion euros over, say, five years."
A pall was cast over Germany's entire open-ended property funds industry in 2005 when attempts to correct inflated valuations of assets spurred thousands of investors to try to cash in investments before fund units were repriced.
Deutsche Bank took the unprecedented step of freezing redemptions in its flagship Grundbesitz-Invest fund, and funds managed by Germany's biggest open-ended fund manager DekaBank were also hit. But Wolf said Union Investment had seen more money flow into its funds in the last year, despite a global credit crunch that has weakened commercial property prices in several markets, including the United States and Britain.
"Investors are quite aware of our risk and return profile, and are shifting from stocks to safer alternatives - savings accounts, government bonds or property," he said.
Union Investment's funds, such as Unilmmo Global and Unilmmo Europa, usually give annual total returns of 4-6 percent, while its investments in Asia are giving 5-6 percent, Wolf said. Despite signs that the Tokyo office market is weakening, Japan tops the firm's list of favourite Asian markets, which also includes South Korea, Singapore and Malaysia.
Analysts believe prices for second-grade and small offices in Tokyo will fall this year, sending yields higher by as much as 200 basis points from about 4 percent now. Wolf agreed the office market was softening, but said the type of top-notch buildings it wants to buy will hold their value.
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