NETHERLANDS - The e71.5bn PGGM pension fund is increasing the Far East share of its real estate portfolio by 12% because of the region's strong economic outlook.
In a commentary contained within its Q4 2005 report, the pension fund said it aimed to increase the Far East share from 8% to 20% over a five year period, which began in 2005. Allocations to real estate currently account for 11.5% of the total portfolio, or e8.2bn as at 31 December 2005.
PGGM said China and India were the main drivers of structural economic growth in the Far East. The fund has spent the past two years building contacts in China, where it said the indirect Real Estate market was less developed, and plans to make its first investments there shortly.
Part of the attraction is that prices are lower than in Europe, and the outlook for a strong growth in returns and capital values is good, said the fund.
But it said an obstacle to the generation of good returns in the Far East was the need for intimate market knowledge based on, “many years’ experience, respect for and understanding of the local business culture, and confidence in one’s associates.”
The popularity of direct investment and investment via real estate funds meant the supply of suitable vehicles had not kept pace with demand, said PGGM. This was leading to substantial price pressure, already clearly in evident in Europe, it warned.
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