Long been a safe investment haven and the premier choice for all levels of investors, the Asia Pacific is looking at its most complex 12 months in years.
Real estate moves in cycles, and heading into 2020, the cycle appears to be on the verge of turning—it’s just no one is confident of what it’s turning towards. It’s an election year in the United States with all eyes once again on Donald Trump, his trade war, and how it’s going to continue to affect APAC markets. Cooling is the name of the game in China, policy shifts could make sleeping giant India the second half darling, and risk is off the table for now.
“As the end of the current real estate cycle approaches, investors in Asia Pacific real estate are doubling down on large, liquid, defensive markets. Emerging economies … are on the wane,” said pwc in its annual Emerging Trends in Real Estate Asia Pacific 2020. pwc’s five best bets for institutional investment this year are Singapore, Tokyo, Ho Chi Minh City, Sydney and Melbourne. These are the large, liquid, mature markets pwc refers to, the exception being HCMC. Vietnam’s strong economic growth, stellar demographics and ability to absorb China’s manufacturing bleed are positives that offset negatives such as relatively poor (though improving) transparency and capital misdirection, like into luxury housing rather than affordable mass market homes. Dead last of pwc’s 22: Hong Kong.
While pwc argues Hong Kong has become a question mark, many see the volatility in the commercial and retail market as part of a larger cycle the protests are a coincidental part of. Though Knight Frank predicts declining office rental rates this year and business sentiment remaining cautious, it is just—caution. “Many tenants have placed great emphasis on cost saving … Although the market continues to face rising uncertainty, we note that firms are accepting and adapting to Hong Kong’s new market norm,” said Knight Frank in its December research. “Therefore, a significant drop in rents is unlikely, but we expect overall rents to decline 6 to 8% next year.” Mass residential prices will also drop, but a 1997-style crash is unlikely. Relaxed mortgage regulations should buoy the secondary residential market, particularly in the HK$6 to $8 million range.
Singapore could benefit this year from Hong Kong investors seeking a safe haven in luxury residential and commercial markets, and Tokyo is sustaining its top five position, thanks to the region’s lowest borrowing costs and the buzz around the upcoming Olympics. Airbnb rental regulations have put a crimp in Tokyo’s hospitality market but savvy buyers are already looking forward to post-Olympic sales, where quickly built, newly opened and poorly managed hospitality properties could provide strong distressed investment opportunities.
Sydney and Melbourne will maintain their positions as favoured locations in Australia, but Brisbane, once again, is proving itself a disruptor. With price growth projected at 20% between now and 2022, Brisbane is outperforming its starry rivals thanks to smart infrastructure development and positive immigration numbers, combined with the benefits of the Bank of Australia’s December rate cut and a favourable currency.
Slowing emerging markets
Past favourites such as Manila and Jakarta are still on pwc’s list, but various factors have pushed their prospects down. Fears of an American recession are making emerging locations less favourable, as those are the first to suffer the consequences of economic turmoil. In addition, China’s second-tier is also losing some of its sheen, though southern locations such a Shenzhen and Guangzhou are expected to perform better than traditional Beijing and Shanghai on the back of the Greater Bay Area and the associated infrastructure development that’s increasing connectivity (ironically of which Hong Kong is a lynchpin) and luring investors. Because of the slowing price growth in China, Hongkongers interested in investing in the GBA are facing eased buying restrictions. “Zhongshan, Jiangmen, Zhuhai and Dongguan… have the highest growth potential, attributable to the infrastructure development coupled with currently lower housing prices,” theorises David Ji, Knight Frank director, head of research and consultancy, Greater China. “Prices in GBA cities are expected to increase a little faster at 3 to 5% with the improvement in connectivity.”
The rise of the subcontinent
After a sluggish 2019, India is on the rise. As an investment market, India is largely for institutional players and Indian passport holders, but there’s no denying the influence one of Asia’s fastest growing middle classes can potentially have on the rest of us. Until now, India’s size had made it self-sustaining on nearly all fronts, but downtrending domestic consumption, muted investor sentiment and wobbly global economic headwinds impacted overall growth. But 2019 also saw the implementation of a rash of policy measures designed to boost the market, including stimulating corporate tax cuts, relaxation of FDI norms, particularly for retail brands, and tax relief in interest deductions for first time homebuyers among others.
Much of India’s success is rooted in its IT and emerging pharmaceutical and biotech industries; projections for the latter to be valued at nearly US$50 billion (HK$390 billion) this year came back in 2013. Supported by new policies, active environmental protections (India ratified the Paris Agreement in November 2016) and a refocus on affordable housing, India could be the dark horse for both big ticket and private investment this year.
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