Using offshore structures for real estate investment out of Asia

Moore Tokyo’s Andrew Pittom discusses the continuing drive towards international real estate investment among Asian investors and highlights the benefits of using offshore structures to hold property assets.

As investors continue to seek alternative investment assets that provide long-term capital growth and stable income yields, no market has proved as attractive as the global real estate market, which currently offers some of the best value in the developed world, supported by an increasingly positive economic outlook.

Real estate investment trends among Asian investors

For the last several years, investment strategies from across the Asia Pacific region have been shaped by a number of external forces that continue to drive capital toward particular types of asset classes and geographies. On the one hand, as bond rates sink ever lower, real estate becomes increasingly attractive as a means to deliver returns that fixed-income markets can no longer provide, driving up prices of core assets and creating intense competition in what is now a crowded field. On the other, fund managers with a mandate to deliver a certain level of return are being forced into uncharted waters as they seek out yield.

In terms of capital flows, Asia has seen a continuation of the huge outbound movements of cash that began in earnest about three years ago. Some of this is dispatched to other countries in the Asia Pacific region (in particular Australia), but most of it is finding its way to the West, especially the United States. Large amounts also continue to migrate to London in spite of Brexit.

Despite the challenges in the global economy, US, Australian, UK and European real estate has proved to be a safe haven for many Asian investors and continues to perform strongly. In particular, real estate assets in the major cities (London, Paris, Berlin, New York, Sydney etc.) remain highly sought after properties providing stable rental returns and affording a degree of protection against inflation. This, combined with the relative strength of the US Dollar against other currencies, makes it opportune for US Dollar investors to diversify their portfolios to include UK and/or European real estate.

Using offshore vehicles to invest in real estate

When acquiring and holding property, doing so through offshore real estate investment vehicles can provide real, tangible benefits. As such, large (and increasing) numbers of funds and holding vehicles are now being used by international investors for property transactions.

The holding structures available in most offshore jurisdictions include property unit trusts, companies and limited partnerships, all of which can be established as investment funds. In addition, private trusts and various types of partnership can be used. 

Well-regulated offshore locations such as the Crown Dependencies have long been jurisdictions of choice for fund managers looking to establish fund vehicles to facilitate collective investment schemes for the acquisition of real estate. Many ‘clubs’ and ‘syndicates’ of investors have used offshore registered vehicles to invest in commercial real estate portfolios. The various private fund regimes available in most offshore jurisdictions, including the Cayman Islands, Guernsey and Jersey, lend themselves well to this requirement of overseas investors.

Advantages of offshore structures

So what are the key benefits of investing indirectly through offshore vehicles?

• Asset protection – Offshore domiciles are popular locations for restructuring ownership of assets. Through trusts, foundations or through an existing corporation individual wealth ownership can be transferred from people to other legal entities
  
  
• Tax efficiencies – The use of a tax transparent or tax neutral offshore investment vehicle frequently enables investors to mitigate exposure to taxation in the jurisdiction where the property is situated

• Expertise – Many well established financial services businesses and professional experts are on hand to provide advice and guidance with all varieties of offshore structures
  
  
• Confidentiality – Many offshore jurisdictions offer the complimentary benefit of privacy legislation. These countries have enacted laws establishing strict corporate and banking confidentiality
  
  
• Regulation – Many offshore jurisdictions are very well regulated and stable locations in which to establish real estate investment structures
  
  
• Diversification of investment – In some countries, regulations restrict the international investment opportunities of citizens. Many investors feel that such restrictions hinder the establishment of a truly diversified investment portfolio. Offshore accounts are much more flexible, giving investors unlimited access to international markets and to all major exchanges

Expect Moore

If you’d like to discuss the benefits of using offshore real estate investment vehicles in more depth, or discover how offshore structuring could work for you or your clients, please don’t hesitate to contact me:

E: Andrew.Pittom@mooremanagement.com

T: +81 3 6441 0570