2020 is going to go down as a year to remember if the mid-year state of APAC property markets is any indication.
It’s coming up to mid-year and to no one’s surprise, COVID-19 is still making headlines. The virus discovered in late 2019 has wreaked havoc on stock markets, employment statistics, summer travel plans and school exams. It’s also made itself known to property markets, with varying degrees of negative — and occasionally not so negative — results.
Since Wuhan went into lockdown on January 23, real estate activity has been at a virtual standstill. With funds, people and goods barely moving, by mid-year most sectors had been impacted, even as markets in Asia Pacific were well ahead of North America and Europe of the recovery curve. Research by Knight Frank indicates a swing in favour of tenants and purchasers, and investors with a high tolerance for risk and a good deal of patience (recoveries are predicted for 2021) could benefit from the current environment. Markets including Sydney, Jakarta, Shanghai and Hong Kong are favourable to commercial tenants right now, residential prices in Singapore, Manila, and Guangzhou are dropping, while sky high Sydney and Hong Kong, as well as Kuala Lumpur, Bangkok and Beijing are holding steady.
Nonetheless caution was the word of the day by May, and though many locations in China, Japan, Taiwan and South Korea had eased lockdown measures, developers across the region were postponing residential project launches; secondary market viewings were also a challenge. The silver lining, however, is China, whose early recovery will hopefully be a beacon for Asia Pacific. Shanghai recorded 260% more sales transactions in March than in the first two months of the year, and that figure was 262% in Shenzhen.
Of course with crisis comes myriad forms of opportunity; purchasers were laughed at during SARS and 10 years later it was they who were doing the laughing. Colliers International in Hong Kong named the hotel sector the most affected across five key APAC locations (Hong Kong, Singapore, China, Japan, Australia), but other sectors are scattered. Colliers’ data suggests that at mid-year the strongest investment markets for the immediate future are Singapore, Australia and Hong Kong itself. All three make good arguments for investing before GDPs return to a positive 4% (approximately) in ’21. Ideal assets include offices, hotels, biomedical property and industrial spaces. Residential investors are facing discrete challenges.
In Singapore, the work from home (WFH) mandate is impacting buyer demands — as is economic uncertainty — and as result is moderating interest in residential real estate. The sector is stagnant in Australia, where income growth is under threat, but currency devaluation is making the country an attractive offshore destination. In Hong Kong, now is the time for investors and upgraders to move on the traditionally resilient luxury sector. Rents and prices have fallen to lows not seen since 2017 — 8.6% in capital values and 5.8% on rents in the second quarter according to JLL — largely due to dwindling expatriate tenants. More repatriations due to social tensions, COVID, shrinking housing budgets and the shift to personal leases are driving potential tenants to housing alternative (like serviced apartments). That said, sales opportunities are limited by owners switching to rental models; they’re not distressed quite yet, but more construction completions could have a negative impact on rental rates.
“The luxury residential market has always been more volatile. Buying and selling decisions generally depend on market sentiment,” says Henry Mok, senior director of capital markets at JLL in Hong Kong. “On the other hand, the mass market is driven by the supply and demand dynamics in Hong Kong. In light of this, it can be expected that the luxury market will be subject to more price and rental pressure than the mass market, particularly during this period of economic uncertainty.”
Dark Horse Winner
According to Colliers Vietnam, not only did Ho Chi Minh City post over US$10 billion in export revenue in the first quarter of the year, the country as a whole is now poised to be the post-COVID property winner.
Early, efficient and transparent COVID-19 diplomacy has left Vietnam with fewer than 300 infections and zero deaths as it eased its lockdown measure in late spring. People are getting back to work, and the country’s generosity with the medical equipment it manufactures (it made donation to the US, the UK, Italy and Spain among others), — and international calls to reduce supply chain reliance on one location — and a drift towards Vietnam’s more fiscally responsible manufacturing sector have already made it a prime destination for multinationals looking to avoid tariffs as a result of the ongoing Sino-US trade war. Colliers forecasts a second wave of factory relocations that make Vietnam the beneficiary of decoupling, diversification and international good will. The economy is expected to bounce back much faster than most Southeast Asian nations, particularly if the US, Japanese and EU multinationals relocate en masse. That’s good news for its increasingly transparent and investor-friendly property markets.
“The shift of multinational companies to Vietnam has resulted in an expanded pool of local and expat professionals looking for high-quality and prime location homes,” theorises Terence Chan, managing director at Hong Kong-based Golden Emperor Properties. “Commercial districts with injected foreign capital and districts with new MRT lines promise a lucrative prospect for international investors.”