Asia, Mideast to unleash "go west" property drive

By Eriko Amaha and Kim Yeon-hee

SINGAPORE/SEOUL (Reuters) - A wave of capital from the Middle East and Asia could be on its way into ailing U.S. and European property markets, as a weak dollar and falling asset prices lure sovereign wealth funds and institutional investors.

Since Japanese investors bought a string of U.S. offices in the 1980s only to be burnt by a market crash, global property investment flows have been mostly one way -- from the West to Asia.

But that looks likely to change.

"Instead of talking about emerging markets in Asia, now emerging markets could be in the U.S.," said Yu Lai Boon, chief investment officer of Dubai World, a state-owned investment firm.

"As investors in the Middle East, we're seriously looking at the U.S. and European markets right now as the beginning of investment for the next golden era."

The New York Post reported on June 11 that the Abu Dhabi Investment Council was negotiating to buy a 75 percent stake in New York City's landmark Chrysler building for $800 million.

Last year, North American investors pumped about $8.4 billion directly into Asian property, while the reverse flow reached only $2.7 billion, according to Jones Lang LaSalle.

They handed over another $30 billion, treble the Asian contributions, to global property funds, which invested $25 billion in Asia and $29 billion in North America.

At a Reuters Global Real Estate Summit this week, several executives said capital flows could become more balanced, with Chinese, South Korean and Japanese investors looking abroad.

With the U.S. dollar falling about 3 percent against the yen so far this year, and around 13 percent over the last 12 months, their spending power has been magnified.

Investors are just waiting for U.S. office blocks and shopping malls to suffer the same fate as the London office market, which has fallen 18 percent in value since a peak last year.

"UP FOR SALE"

U.S. commercial property prices had dropped about 5 percent in the last year and would probably fall another 10 percent in the coming 12 months, said Asieh Mansour, chief economist at Deutsche Bank's (DBKGn.DE: Quote, Profile, Research, Stock Buzz) property investment arm RREEF.

A global credit crunch, sparked by the U.S. subprime mortgage crisis, has dried up the kind of private equity deals that had buoyed commercial property in 2006 and early 2007.

And although office vacancies in many cities are low, the prospect of layoffs in the financial industry has cast a pall over future occupancy.  Continued...