Posted on 08 November 2021
Private Credit Opportunities Abound in APAC
With renewed investor focus on the Asia Pacific region amidst the global Covid recovery, the APAC private credit market offers attractive opportunities for investors seeking relatively safe growth in today’s uncertain climate.
For an in-depth look at property investment around the region, Sensus Magazine recently had a conversation with Trent Winduss, Director, Head of Australian Investments and Head of Asia Structured Debt Investments at Phoenix Property Investors, an independently owned and managed private equity real estate investment group that has managed over USD $12.4 billion in real estate assets to date.
Diverse Region with Unique Characteristics
Winduss noted that each of the APAC region’s major markets featured its own unique characteristics in terms of banking framework, market liquidity and growth potential.
“For example, Japan has experienced relatively low lending growth in recent years, and there is a high level of liquidity in the market now. South Korea is notable for its loan-to-value ratios, which are considerably higher than in other markets – although this is partially mitigated by recourse provided by large companies. Australia is highly transparent and private companies are deemed increasingly active. Banks have pulled back from lending in recent years, which means there are attractive returns available with the added benefit of a strong local legal framework,” he explained.
Winduss noted that the APAC region offers attractive returns on par with or higher than other major markets – allowing investors to secure deals and achieve solid returns in established APAC markets with developed legal frameworks such as Australia, Hong Kong, New Zealand and Singapore. This combination of low risk and relatively high returns holds obvious appeal for professional investors.
APAC Investment Environment
“APAC is traditionally well-banked compared to the US and European markets. However regulatory intervention into the banking sector has turned credit demand towards non-bank providers. For investors, high economic growth rates in the region translate into comparatively high yields and returns, while the more well-developed markets offer peace of mind in the form of strong legal and regulatory frameworks,” said Winduss.
He also noted that banks in APAC have a preference for relatively short-term loan durations which helped to stimulate market activity – making the region more attractive for investors and providing a unique opportunity for private credit to create a niche by offering increased tenure.
Commenting on the region’s leading economy, Winduss remarked, “China is an interesting market, although the economy is being affected by a high level of political intervention and aggressive deleveraging creating uncertainty right now. It’s obviously a very large market, with solid fundamentals for real estate. Urbanisation continues to be a major trend, with significant growth rates in major cities. There are also a lot of individuals and businesses upgrading – to better offices or larger homes. So, market fundamentals are strong, and future potential also remains strong.”
He added that many Chinese developers hold offshore assets, which may provide overseas investors with an extra layer of security and peace of mind. Most notably, the vast size of the market allows private credit to cherry pick the most appropriate deals and carve specific niches where they can operate effectively and strategically.
Investment Prospects Across the Region
For investors interested in entering the market today, Winduss suggested focusing on the relatively more developed markets of Australia, Hong Kong, New Zealand and Singapore – with a smaller, opportunistic allocation to China – given the attractive risk to return ratio available in these economies.
Turning towards specific investment sectors, he recommended sticking to major asset classes such as residential and office for lower risk, with opportunistic investments in hospitality, multi-family or student accommodation.
“Logistics is also popular across APAC, with active movement in online retail and distribution. At the right valuations, logistics is definitely attractive. Compared to the US market, APAC has a lower penetration of online business – so there is plenty of room for growth related to e-commerce, especially in Australia, Japan and South Korea. In Hong Kong and Australia, we’re seeing quite strong conditions for residential and multi-family for rent and for sale,” he noted.
Winduss concluded, “As long as liquidity remains in the system, along with reasonable employment and growth, the major APAC markets present attractive investment opportunities right now.”
This article was originally published in Sensus Magazine. Click the image on the right to flip through our most recent issue or browse through our previous editions of the magazine.