A Review of the Global Property Market 2016

As if David Bowie, Leonard Cohen, Alan Rickman and Prince passing away weren’t bad enough, 2016 brought us new stamp duties in several parts of the world and political shocks that could remake the world as we know it. We look back at the year that was before banishing 2016 to the annals of history.

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Looking Abroad

It comes as no surprise that the UK Brexit and Donald Trump presidential election victories were the most earth-shaking events of the year, having impact that was both immediate — and strangely beneficial to property investors — and predicted to be felt for years to come. Whether or not the UK actually separates from the European Union remains to be seen: Article 50 (the divorce papers) are subject to parliamentary approval and blockage, so despite UK Prime Minister Theresa May’s vow to invoke Article 50 in March, 2017, Brexit is far from a done deal. As of late-November, May was facing a legal challenge from the Supreme Court (widely expect to unanimously reject proposals to bypass Parliament) as well as a simmering MP revolt over strategy. Regardless, the Brexit brouhaha has done little to stymie the UK property markets, with London posting numbers as strong as ever, and Manchester becoming the country’s hottest market. Central Manchester’s rental yields are double central London’s, a trend that’s expected to continue beyond 2016.

In the United States, incoming president Donald Trump has already started making noises about the country’s forthcoming isolationism. The signed, but not ratified Trans-Pacific Partnership (TPP) is alleged to be the first casualty in Trump’s war on the outside world, which could be disastrous for emerging economies such as Vietnam. Widely considered the agreement’s major beneficiary, failure to ratify the TPP “Will be quite difficult, because certain factions in the Communist Party will be saying ‘Why aren’t we doing this will China or Russia?’ Either way it’s not going to happen in its current format,” suggests CBRE Vietnam Managing Director Marc Townsend. “One just hopes the fallout won’t be too drastic. It is part of the re-assimilation of Vietnam into the global market.” There’s been no sign yet that the TPP’s other partners — Australia, Canada, Chile, Japan, New Zealand, Mexico, Peru, Singapore and Malaysia — would pull out without the agreement’s lynchpin member.

China’s property sector performed well amid a cooling economy. Price growth in most major first and second tier cities was strong, with Shanghai (37.4%), Shenzhen (32.1%) and Beijing (30.2%) performing best over the previous year and prompting the central government to reintroduce purchasing restrictions. Despite that, destocking inventory and controlling oversupply remains an issue in China, with some centres requiring nearly two years to clear existing stock.

Things were more subdued in other parts of the world: Canada and Australia tightened up residency laws and added stamp duties on purchases by foreign investors in 2016, most drastically by slapping a 15% tax on property in Vancouver, and by raising the existing duty to 7% in Victoria state. Critics screamed protectionism, while both authorities claimed it was a measure to bring runaway prices under control and increase affordability for residents. Tokyo and Sydney were Asia-Pacific’s most active markets in 2016, with a relatively low Yen continuing to drive investment, and Sydney’s building boom and population grown showing no signs of slowing down. And where institutional investors lead, individuals follow. Market segments that gained significant traction in 2016 included data centres, student housing and senior housing. Investors looking to get ahead of the curve should be looking at those sectors for future growth.

Close to Home

Here in Hong Kong, it’s been a typically up and down year. On the upside, Trump gave us a strong dollar and Brexit gave us someplace to spend it. However, though marked by some ups and downs, the year ended on a high note according to Colliers International — despite new stamp duties.

Overall, Hong Kong’s economy weathered the year’s storms nicely, evidenced by a surge in office leasing in Central, low vacancy rates in prime towers and stable prices. Colliers’ notes office rental rates grew 2.2% in 2016 and a whopping 7% in capital values, and industrial space (on the strength of online retailing) grew 2.5%. Even the retailing industry, the weak link in the chain right now, is feeling more confident, regardless of its 8.9% rental hit this year. That may not be too disastrous in the long run, as it is compelling retailers to reinvent their offerings. Food and beverage outlets are on the rise, pop-up shops are becoming more common and bringing more choices to consumers, and retailers have refocused on the stable, long-term local market rather than tourist spending.

That said, those aforementioned stamp duties are unlikely to bring mass market housing prices down — or make flats bigger. Colliers’ research states the new 15% uniform “DSD” will put price growth on hold, but just on hold. JLL agrees. “Under the latest cooling measure, residential sales volumes will shrink over the short-term as buyers adopt a wait-and-see attitude,” says Joseph Tsang, managing director and head of capital markets. “But this measure is unlikely to have a huge impact on capital values, given strong pent-up demand, large number of cash-rich buyers in the market (including mainland Chinese buyers), and still low mortgage rates.”

According to Knight Frank, as of 2016, over 30% of residential stock measured less than 430 saleable square feet (what JLL calls Class A units) and that number is going to rise between now and 2020, which could be the beginning of the city’s residential reconfiguration. Upwards of 25% of residential land made available by tender was sold to PRC developers who are coming into the market. Often overpaying for land, how these new players will influence the residential sector remains to be seen but local developers no longer have a stranglehold on how we live. “In 2016, Hong Kong’s heavyweight developers faced increased competition from both mainland developers and new local players,” explains Dorothy Chow, regional director of valuation advisory services at JLL. “Mainland developers will remain active in government land sales to expand their business in Hong Kong while local developers will likely focus more on opportunities in the New Territories and MTR projects.” Strap in, 2017 could be a bumpy ride.