Living sectors are the new targets for yield-seeking investors and developers

JLL reveals why different life stages each represent investment opportunities across Asia Pacific

January 23, 2019

Investors and developers are eyeing the living sectors, an emerging group of residential real estate products, to place their capital. The sectors encompass real estate where people live throughout their life stages: student housing, co-living, multifamily, senior living and aged care.

JLL’s latest report uncovers how rapid urbanization is shifting how and where people live. But, dwellers’ acceptance of the shared-economy is making the living sectors a successful alternative to traditional housing. This consistent demand is catching the eye of investors.

“We’re seeing rising investor interest in the living sectors across major Asia Pacific cities because the demand for affordable, alternative housing options is intensifying,” says Rohit Hemnani, COO and Head of Alternatives, Capital Markets, JLL Asia Pacific. “Investors in search of stronger yields, portfolio diversity and long-term holds should hedge their bets on these sectors now.”

JLL’s report found that investors can generate more consistent yields in the living sectors due to the non-discretionary nature of the asset classes. Top early opportunities identified for investors willing to venture out onto the risk spectrum and capitalize on healthy spreads include:

·                With Mumbai’s student housing benefiting from more than 34 million tertiary students across the country, the demand for this space is there. India’s relatively untapped and in need of capital to gain traction and is expected to command yields between 10 and 12 percent*.

·                Aged care and senior living spaces are more culturally accepted in Australia than elsewhere in Asia. Due to higher life expectancy and more single-person elderly households, the need for these units is likely to continue to push development demand. Sydney is a growth market with yield estimates between 6 and 8 percent*.

·                Multifamily, an en-bloc apartment building, is one of the most stable sectors. The proportion of renters to home owners is expected to rise as house prices across major Asia Pacific markets have outpaced rents. Tokyo remains a top target for investors looking to get into a large, liquid market early with deal flow and favorable financing arrangements. The yield estimates between 3.5 and 4.5 percent and the sector has very strong downside risk protection, and investors can achieve scale through portfolios.

·                Young adults are opting for city living, reducing the need for traditional residential housing. Co-living has gained traction in Singapore and Hong Kong and is growing rapidly in Australia. Tokyo remains relatively untapped. The city’s density bodes well for co-living, and yield estimates are between 4 and 5 percent*.

Ms Tay Huey Ying, Head of Research & Consultancy, JLL Singapore, comments: “The co-living market in Singapore saw unprecedented activity over the past 12 months with millions of dollars of funds being pumped into operators, enabling them to embark on an expansion spree. Even the government appreciates its role and has through JTC, awarded a site in one-north for a purpose-built co-living facility.”

“We estimate the supply of co-living space in Singapore, including those that are currently under construction, to stand at less than one per cent of Singapore’s total existing private housing stock of 366,826 units as of 3Q 2018. This, coupled with close to 2 million foreign population in Singapore (including permanent residents but excluding foreign domestic workers) and considering the many different models the co-living concept could potentially take, means there is scope for growth for the co-living sector in Singapore”, she continues.

“The return expectations for the living sectors in Singapore vary by category, but overall they are expected to outperform traditional residential properties,” added Rohit Hemnani, COO and Head of Alternatives, Capital Markets, JLL Asia Pacific. “There is plenty of opportunity for market penetration in the living sectors now. We expect that in five years there will be a much deeper pool of assets across the various categories, and in 10 years, significant levels of trading”, he concluded.

For more information, please download “The Living Sectors” report.

* All yields are JLL estimates *

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