Making sense of Brexit in Asia Pacific

No big impact on PE flows into Indian realty

SINGAPORE, 4 July 2016 – In the aftermath of the UK deciding to exit the European Union, the markets are volatile and the value of the pound has declined sharply. With considerable uncertainly and no real precedent, Asia Pacific real estate investors and corporate occupiers are looking to mitigate risk.

According to JLL experts, Brexit could bring short term opportunity for international investors although market sentiment will remain cautious. In Asia Pacific, local occupiers and multinational companies serving domestic economies will help to insulate the region from volatility.

JLL Asia Pacific CEO Anthony Couse says: “The repercussions are being felt around the globe and we are likely to see a temporary slowdown in demand from Asian occupiers with operations in the UK. However, in the long term, once clarity emerges about the UK’s exit negotiations, we expect a resumption in confidence.

“For property markets, there will be a correction but that should be followed by an upturn as opportunities re-emerge in core markets and the benefits of a weaker sterling are recognised. As the political and economic situation in the UK continues to unfold, we believe that most Asia Pacific investors and occupiers will take time to digest the implications before taking medium to long-term decisions.”

Alistair Meadows, head of JLL’s International Capital Group, Asia Pacific, says: “There remains a substantial weight of capital ready to be deployed from Asia into international investments. The short term effect of Brexit is likely to be that this Asian capital will potentially seek opportunities closer to home, in markets that are comparable in transparency to London, such as Sydney.

“However, for long-term institutional Asian investors, London will most likely continue in its position as one of the world’s foremost investment destinations. Indeed post Brexit market volatility may create attractive buying opportunities in the UK for Asian investors in the next six to 12 months.”

Anuj Puri, Chairman & Country Head, JLL India, says, “Out of the total PE investment from overseas into Indian realty, UK accounts for just USD 500 million (about 2%) while the whole of Europe (including UK) accounts for USD 1.9 billion (about 8%). In other words, Europe-based funds have only a small influence on FDI in realty in India. Thus, Brexit will not make big impact on PE flows into Indian realty. It is possible that money from UK and from rest of Europe gets invested in Indian realty as FDI through PE funds headquartered in USA and Asia PAC; both categories have invested heavily in Indian realty.”

Dr. Megan Walters, head of research for Asia Pacific Capital Markets, JLL, says: “It is possible we may see a short term hold up of some Asia Pacific deals, involving funds containing a high proportion of European based investors. However, the weight of global capital is such that any gap left by European investors will be rapidly filled by other capital sources.”