What a difference a few weeks can make. At the end of 2012, there were warnings, if not terribly dire, about cautious property markets being the norm for 2013. But better than expected economic data from some sectors has some pundits and analysts already revising their forecasts. Naturally that doesn’t preclude any sudden shifts, unexpected policy measures or unforeseen turmoil, but in Asia-Pacific at the very least, this year could be better than previously believed.
A great deal of the suddenly sunny outlook stems from three key factors according to Knight Frank’s just released Asia-Pacific Property Market Outlook 2013: The European Central Bank’s decision to ensure Eurozone stability is reason for optimism; the United States did not fall off a so-called fiscal cliff; and China’s economy took a turn for the better at the tail end of the year. “These factors have all contributed to a more positive sentiment in the real estate markets in the Asia-Pacific region,” Knight Frank stated.
Regional Investment Boom
International property advisor DTZ agrees. Citing a swing in sentiment in the key commercial sector at the end of 2012, DTZ speculates that this year could be a strong one. Foreign investment in the region increased in the fourth quarter of 2012 but it was a minor blip when compared to the considerable 36 percent bump in domestic capital flow. “Inter-regional activity was largely driven by international investors, with limited activity by US and European players,” said DTZ’s Asia-Pacific Investment Market Update.
But that optimism isn’t without its qualifications. While CBRE’s Asia Luxury Residential Marketview agreed that the European, American and Chinese news was favourable to property markets overall, it warned that, “The uncertain global economy will likely continue to weigh on buyers’ interest in the Asian luxury residential market.” CBRE wouldn’t be surprised by more off-putting anti-speculation measures, and predicts a weak leasing sector as multinationals aim to control costs, which could have a negative impact on rents.
Still, investors looking around the region have a reasonably strong palette to choose from. Commercial, industrial (particularly in Japan) and retail property remains almost universally strong, whereas residential property is often at the mercy of market cooling policies and local demand.
Investors keen to stay in the Greater China area will find the core markets are as diverse as the cities themselves. Beijing’s new subway lines are expected to have a considerable impact on the city’s property market, with office and luxury leasing demand remaining strong. CBRE predicts price increases on the strength of continuing demand, where as luxury residential purchases account for the bulk of activity in Shanghai. “The sales market will continue with the upward trend seen in the fourth quarter of 2012 and residential prices will increase at a moderate pace,” noted Knight Frank. In Guangzhou, the luxury sector is strong due to upgrading demand, however high vacancy rates and cautious multinationals — the city’s bread and butter — have slowed rental growth. CBRE predicts emerging districts with new developments in Luogang and Panyu could leap to the front of the interest line.
Not surprisingly, Australia and India are the region’s other powerhouses. Luxury demand in New Delhi and Mumbai is still strong, even with a supply glut on the horizon and foreign investment is high. Increased affordability and lower interest rates are helping to buoy a fundamentally strong market in Sydney, and Australia remains one of the most popular investment destinations in the region. “Australia was the most favoured destination for foreign investors, accounting for US$3.8 billion of foreign investment in 2012,” DTZ noted, adding, “Investors are attracted by the market’s high yielding status, the high degree of transparency and good governance.”
Once and Future Stars
But investors are often seeking the Next Big Thing, and emerging markets, with lower base costs and more room to grow are always on the radar. Jakarta is among the region’s strongest rising stars, with Knight Frank predicting home prices to rise by 5 to 10 percent across the board in 2013 and up to 20 percent in the luxury sector. Despite slowing economic growth, “The residential market in general is expected to maintain its positive momentum as demand continues with a rising young population, expanding middle income group and supporting urbanisation.” The story was similar in Manila. Though some would argue its status as an emerging market, DTZ’s forecast for Thailand was bright as well. Foreign investment there was strong in 2012, and the old rules of supply and demand made it a smart buy. “The lack of product and the dominance of domestic players make it difficult for foreign investors to penetrate the South East Asian markets. The new REIT framework in Thailand, effective 1 January 2013, is expected to further boost investment activity going forward.”
No one will state that the dark clouds have passed — risk still exists and many locations have singular problems, like Kuala Lumpur’s oversupply and Seoul’s waning demand and wobbly sentiment. But it’s getting brighter. As Knight Frank sums up, “One thing is certain, that is with Asia Pacific continuing to be the growth engine of the world economy, the region’s property markets will continue to be monitored and analysed by investors, corporates and individuals.”