Residential real estate is particularly a concern and Coenraads sees mainland developers slashing prices in order to boost sales volume.
While there are pockets of opportunity, getting exposure to China’s residential market is a high risk propostion, he said.
“We just made an investment in China and we discussed the investment with the local partners to make sure we have an exit sooner rather than later.
“People are waiting for further declines and do not want to buy, so volumes are drying up. We also see [that developers face] credit squeeze problems in terms of the opportunity to refinance or leverage up these projects.
“If the sales dry up and developers do not have the financing mechanisms, then they would have to do more price reductions to basically kick start the volume in order to finance future construction. So we do see more aggressive [price] reductions by the Chinese developers.”
Best Asian investments
The real estate multi-manager team at Aviva Investors has made investments in 224 funds globally as of 30 June. The major chunk of investments (about 144) are in developed Europe, but the team has made 12 investments in emerging Asia and another 23 in developed Asia.
Coenraads said currently he finds his best investment ideas coming from Australia, where he is assessing hotel investment.
“Australia in general has high yield and decent economic growth. Through the global financial crisis and also in the aftermath, banks have not been providing structured finance to hotels, and there is a shortage of hotels.”
Japan is another market he likes, specifically the logistics sector. However, Coenraads sounded a note of caution on Hong Kong’s real estate sector, which he believes will be highly vulnerable when the US Federal Reserve hikes interest rates.
