With China's economic growth stalling and regulators there and in Hong Kong and Singapore trying to restrain their property markets, investors are turning their attention to Southeast Asia, and particularly Indonesia.
John van Oost, managing partner of Singapore-based Yishan Capital Partners, visited Hong Kong recently on a fund-raising mission. His company has launched a fund to invest in Southeast Asia, targeting US$250 million in assets, and has already committed US$25 million.
Indonesia is where he sees the best opportunity and Yishan has made four investments there. Singapore, Thailand and Malaysia, as well as the frontier markets of Cambodia and Myanmar, also are on the radar.
"We have been very vocal that there is not going to be a lot of excitement about real estate in Europe - it's going to be pretty static," he said. "In terms of yield, you can get that in Europe. But the growth has to be in Asia."
There are good reasons for that kind of optimism, particularly in Indonesia. It has stabilised politically and its fundamentals look strong, with real estate brokerage Jones Lang LaSalle calling it "one of the bright spots in the regional economy".
Chinese investors are often attracted by the way Chinese Indonesians control large parts of the economy, while Dutch investors like their historic connections to the former colony.
The country posted 6.2 per cent GDP growth in the third quarter, only marginally lower than in the previous three months. Exports are slowing but domestic demand provides a strong underpinning.
IHS Global Insight is forecasting growth of about 6 per cent both this year and next, thanks to buoyant consumer demand and investment spending. That's the second-fastest economic growth in Asia, behind only China.
It is partly because China's growth is slowing that Indonesia has started to attract institutional investors. Both the rents and capital values of office property are rising in Jakarta, with rents up 26.6 per cent this year alone.
The Indonesian capital has an investment-grade supply of 1.5 million square metres, with the WTC II project having just been completed and the DBS Tower due to finish construction shortly. Jones Lang LaSalle says there are only three investment-grade projects scheduled for completion next year and 2014, although there are more due the year after that.
Van Oost also likes investments in warehouses, which benefit from Indonesia's strong domestic demand and growth in consumer spending. His fund has invested in logistics centres in Jakarta and Surabaya, as well as a residential project in the capital and a shopping centre in Bali, just south of the airport at Denpasar.
Not everybody agrees that Indonesia holds great potential. The Asia Pacific office of Grosvenor, the property investment arm of the Duke of Westminster, has expanded rapidly in Asia, including Hong Kong residential projects in Repulse Bay, on Castle Peak Road, and at Jardine's Lookout. It had HK$7.6 billion in assets under management at the end of last year, and aims to increase its allocation to Asia to 20 per cent of Grosvenor's portfolio.
When it comes to investing in Indonesia "Good luck" is the comment from Nicholas Loup, chief executive of Grosvenor's Asia Pacific office. From his Hong Kong base, he prefers more established markets.
Van Oost agrees that Indonesia isn't for everybody, given the lack of understanding of its property market and economy. "People have a lot of preconceived ideas," he said. "People either love it or don't. Even if they like it, it's often for no real reason."
Slowing growth in China is creating the interest in Indonesia, according to John Saunders, the Hong Kong-based chief executive for Asia of MGPA, a private-equity property specialist in opportunist investments.
"There is certainly an interesting property story going on in Indonesia at the moment," he said. "My slight concern is that in some of these markets there is a lot of land available. The rents will go up and then everybody starts building because there is not too much of a constraint on supply. But it doesn't have the constraints of Hong Kong or Singapore."
MGPA has a US$3.9 billion Asia-focused opportunity fund, as well as a core-plus fund that raised €85 million (HK$837 million) in its first close, and expects to have a second close at the end of this year at €100 million.
But Indonesia is a market that Saunders is watching for potential future investment, while he seeks more reliable office and shopping-centre investments in Japan, Australia and China.