SINGAPORE (Reuters) - Asian property stocks are ultra cheap but investors could be losing out because they prefer private equity property funds to property securities funds, Hong Kong fund manager LIM Advisors said on Tuesday.
Japanese real estate investment trusts (REITs) are trading at more than 40 percent discount to net asset values, while shares of Thai and Philippines property developers are all bargains, according to Peter Churchouse, director for LIM Advisors.
“Private equity guys are having an easier time raising capital today than securities guys,” Churchouse said at the Reuters Global Real Estate Summit in Singapore.
“In a way you should be looking at it the other way around, because these private equity guys are going to pay full dollar, full price, to buy real estate and you can buy real estate stocks at half the price of the assets.
“Logically, you should be buying Japanese REITs, not Japanese property.”
Mori Hills REIT (3234.T), for instance, is trading at 35 percent discount to NAV, Churchouse said.
Amid lingering concern about the global credit crunch and its impact on the real estate sector, many property stocks in Asia and other parts of the world have headed south. Japan’s property sector has fallen 10 percent so far this year, Singapore’s 14 percent and Hong Kong’s 25 percent.
As a result, shares of high-profile developers and property companies are now trading at discount. As of June 13, Japan’s largest property firm Mitsui Fudosan (8801.T) was trading at 37 percent discount to NAV while Southeast largest developer CapitaLand CATl.SI was at 40 percent discount, according to a UBS report.
There has been a significant mismatch between the capital markets and the physical property market which underpins the value of share prices and this mismatch is offering buying opportunities.
But investors are not ready to jump into the market and for LIM Advisors, which is in the process of raising a fund to invest in Asian property stocks, the going has been slow.
“Appetite for real estate debt and equity dwindled pretty significantly,” Churchouse said.
While there are many bargains in the region, Churchouse said there are some exceptions and Chinese property stocks are one of them.
“Earnings are extremely pretty vulnerable. Companies are too highly leveraged. There are huge amounts of land premium payments these companies are committed to, but they don’t have cash to pay them,” he said.
“Chinese companies are in a little bit of a bind.”
Churchouse said some funds raised or being raised by private equity may head to Europe and the United States where many distressed assets have come onto the market.
“A lot of big private equity guys who are raising lots of money right now, or intending to, are basically taking back to that money to Europe or the States,” he said.
(For summit blog: summitnotebook.reuters.com/)
Editing by Kim Coghill