Family offices are reevaluating their strategic asset allocations and exploring new avenues of investment diversification beyond traditional vehicles as financial markets face unprecedented levels of uncertainty — and real estate is emerging as a favoured asset class and preferred replacement for fixed income.
For family offices, the fundamental objective remains unfettered: grow the value of assets to preserve wealth and manage the transition intergenerationally. As the winds that propped up asset prices during the pandemic subside, a new era dawns for family office real estate investors searching for novel avenues of returns, sacrificing liquidity and turning to alternative asset classes.
Unpredictable geopolitical headwinds and inflationary increases have underscored the importance of safeguarding portfolios through diversification. Market trepidation has inherent risks. However, it also offers optimism for family offices primed with enough capital to take advantage of opportunities during shifting tides. In this evolving landscape, family offices are reassessing their investment strategies and exploring alternative investments to yield longer-term returns.
In a market environment where uncorrelated returns are becoming increasingly scarce, family offices that invest in commercial real estate and residential properties turn to this alternative class as a preferred diversification vehicle (21%) to generate wealth and manage risk over the long term.
The recently released UBS Global Family Office Report 2022 reveals that while a majority of family offices globally (54%) invest in real estate and rental/leasing of properties, this asset class only accounts for a small portion (12%) of their total investments with Asia-Pacific lagging at a modest 11% of investments compared with 22% in the Middle East and Africa.
In the Citi Private Bank 2022 Family Office Survey Report, continued commitments to real estate were one of the top two key portfolio actions for family offices, with real estate representing 37% of direct investments. The outlook for family offices is largely positive, with more than 80% anticipating positive investment returns in the forthcoming 12 months, largely attributed to increases in private equity (52%), real estate (43%), and public equities (34%) portfolio actions.
The report findings highlight the potential opportunities in real estate as an attractive asset class for family offices seeking to diversify their investment portfolios and capitalise on long-term growth.
Singapore Emerges as Ultra-High-Net-Worth Families Reassess Investment Strategies
Family offices are established with the sole purpose of investing and managing funds on behalf of a family with significant wealth. Ultra-high-net-worth (UHNW) families have reassessed their wealth management and succession plans in response to the pandemic, aiming to bolster future resilience in the face of current uncertainty.
Families increasingly looking to secure a lasting legacy for future generations tend to be mindful of wealth preservation when setting up family offices. Real estate, therefore, offers an interesting long-term opportunity for family offices; portfolios are increasingly adjusting their allocation toward this asset vehicle and Singapore is becoming poised as the jurisdiction of choice for family funds.
In the last five years, Singapore has become one of the world’s most dynamic centres for family offices, experiencing rapid growth in the sector with the number of family offices doubling from 400 in 2020 to 700 currently — Singapore is rapidly becoming a ‘safe-haven’ destination to limit exposure to risk during times of market volatility. The growth is expected to continue as more than 200 single-family office tax incentive applications and one multi-family office application are currently awaiting approval (as of March 2023).
Family offices in Singapore will invest, in many cases, parallel to and overlap with investment strategies similar to families throughout the Asia-Pacific region as well as in Europe, the Middle East and the United States, with diversified portfolios are comprised of public equities, fixed-income, and alternative assets such as private equity, venture capital, hedge funds, and real estate.
The surge in demand for real estate investment opportunities shifts beyond geographic borders. Besides Asian offices, an increasing number of international families are setting up offices or satellites in Singapore to support regional investments across Asia Pacific.
Singapore’s stable economic and political environment, the strong rule of law, and clarity in tax and regulatory regime provide family office real estate investors with a reliable and predictable operating environment to steward wealth across generations as an alternative to liquid markets. Single-family offices, which manage assets belonging to only the family, are not subject to the licensing needed for multi-family offices in Singapore — similar to other major jurisdictions in the United States, United Kingdom, Europe, Switzerland and Hong Kong.
Debt can be a potential means of enhancing returns, but for higher-yield portfolios, property developments, especially residential developments, have been of particular interest to family offices real estate portfolios. While some families have hired their own development teams, co-investments with well-established local developers are preferred, as these local partners provide market knowledge, sites, experience, and the ability to interpret planning policies, even at the cost of some future upside.
With the growing number, family offices’ influence on real estate development, co-investments and urban planning will become more and more intertwined making Singapore a smart choice.
Family offices have a strong focus on long-term investments for the preservation of wealth as well as a reasonable rate of returns, which has had a significant impact on the commercial and residential real estate market in Singapore. Unlike other investors who prioritise quick returns, these investment funds aim to hold onto their investments for extended periods for long-term, multi-generational wealth preservation, providing stability and reducing market fluctuations.
The approach has contributed to a more sustainable and robust real estate market in Singapore, which the Monetary Authority of Singapore (MAS) seems to support as part of stricter criteria around minimum requirements for capital, local investments and business spending for family offices to qualify for tax incentives.
Real Estate Investment Portfolios, a Niche Expertise
Singapore continues to develop as an institutional hub for wealth, growing in reputation as the home to more and more UHNW families.
As highlighted in The Straits Times, Singapore’s surging number of applications has created an increasing demand for talent and expertise. As such, MAS is collaborating with the Institute of Banking and Finance to develop a deep pool of talent to service the relevant skills needed for family offices.
Tax and legal advisory firms may possess the technical knowledge to structure and protect a family’s wealth and investments; however, the real estate asset management class remains highly specialised. According to UBS research, 53% of family offices with real estate portfolios perform this function, whereas 31% outsource it.
A certified family office advisor, Singapore Luxury Homes Founder Sunita Gill guides, structures and manages complex real estate portfolios for family offices in Singapore and international satellites. With an unmatched commitment to set new standards in the representation of real estate assets, our team has transacted more than $2 billion in real estate in Singapore and abroad.
Family office insiders remain confident in real estate as an alternative to traditional asset classes and see the dynamic market conditions as a time for opportunities, but working with a trusted family office real estate advisor with deep expertise in real estate can effectively structure and manage multiple real estate investment portfolios to leave a legacy for future generations of wealth.
