Market Trends Forecast 2018 - Hong Kong and beyond

Obviously, there’s a world out there beyond Hong Kong, and eachproperty market has its own strengths and weaknesses. Aside from a handful of prominent emerging trends — millennials are finally starting to buy, watch out for the rise of co-living in space-constrained urban centres — cities that have embraced technology and the resulting new work order are the go-to choices for investment this year. JLL predicts 2018 will be a good one (the global economy is in its best since the recession), with the barometer showing commercial markets trending up, even as investment drops: there is simply nothing to buy. Alternative sectors, such as student housing, data storage and carparks, could be a key to success in established markets, co-working will remain a driver everywhere, and London appears set to hold on to its investment crown — at least for now.

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Living together

Just when we all got used to co-working, the model evolved. Co-living is very much the same concept explains research director of capital markets, JLL Asia Pacific Myles Huang in Real Views. “Co-living is a form of housing where residents share living space and a set of interests and values. It’s part of a modern, urban lifestyle that values openness and sharing, and is in line with the general shift toward ride-sharing/car-sharing and co-working.”

As the sharing economy continues to grow alongside property prices and shrinking flats, particularly in Asia Pacific, co-living is quickly gaining traction. Chinese operator You+ boasts 25 locations, Kafnu has opened in Hong Kong and Taipei, Hmlet is an emerging co-living operator in Singapore, co-working behemoth WeWork has made rumblings about moving
into the residential sector and serviced apartment provider Ascott is field-testing co-living space. Co-living spaces generally offer cheaper rental rates than traditional flats, and are certainly no smaller than typical studio flats now flooding the market. Co-living is positioning itself as the next great driver in multi-family property. Co-working operators have become essential anchor tenants for commercial landlords, so how co-living impacts conventional residential landlords will be the coming years’ greatest mystery.

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Old favourites

Despite the mess that is Brexit negotiations, the UK remains as one of 2018’s best bets. “Instead of challenges, I see investment opportunities in 2018, especially in the UK market. This year, the UK Budget’s focus was most definitely on the domestic scene, meaning not much has changed for foreign investors,” says IP Global director Jonathan Gordon. With the UK still working on private investors to alleviate the supply crunch, regulations are going to remain favourable. Vendors have been given a relief period to pay capitals gains taxes, and the government has turned a spotlight on the buy-to-let market and hopes the subsequent investment can contribute to supply. “As a result, the market is expected to continue in its current state — a supply/demand imbalance which is likely to continue, gradually increasing prices, further supported by the recent changes in stamp duty.”

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Gordon sees second-tier markets like Leeds, Manchester and Birmingham as jewels in the crown for 2018 — Manchester for its liveability, place within the emerging Northern Powerhouse, and projected price growth of nearly 30% to 2021 and Birmingham for its long-term development vision, growing rental yields (24% in the last 12 months) and capital gains (17% to 2019). Manchester has “been attracting prudent overseas investors looking to diversify their portfolio,” says Gordon, while Birmingham is “the second largest city in the UK, in terms of population, [and] continues to thrive due to its 20-year Big City Plan.”

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Nevertheless, “continental European markets are benefiting from a relative slide in sentiment towards the UK, where despite some semblance of normality returning to investment volumes in 2017, there is nonetheless widespread concern over the economic impact of Brexit in 2018 and beyond,” said PWC in its Emerging Trends in Real Estate report for 2018. Germany remains Europe’s safest haven: four of Europe’s six best investment locations for 2018 are in Germany, with Berlin at the top of the list. “Berlin has experienced robust levels of overseas property investment within Europe due to its prosperous economy and population influx. Its current 40% housing deficit, which is expected to continue until 2030, meant that 2016 saw a year-on-year price increase of 13% for apartments, achieving the highest price rise of all cities in Germany. The rental market is strong, with between 5.1% and 6.9% rental growth in the past three years.” says Gordon. Also trending well are Copenhagen, Frankfurt, Munich, Madrid, Amsterdam and Dublin — all of which are embracing emerging industries and boast high standards of urban living.

New world prospects


Even though affordability has become an issue in many popular new world markets (Melbourne, Sydney, Toronto, Vancouver), all remain resilient. Australia’s gateway markets are still showing rental growth, and alternatives to CBDs — like Parramatta, 23 kilometres from central Sydney — are becoming viable options. Disincentivising taxes in Canada impacted British Columbia and Ontario markets in the short term, but PWC states, “Overseas buyers still see Canada as a safe haven and an attractive place to live so they will continue to buy in the Canadian market regardless of new taxes.” PWC forecast a 6% drop in Toronto after two record high years of growth, with Vancouver levelling off at just under 5% growth.

Even with the Trump tax plan looming, the United States’ home prices on average grew 7% in 2017, and the U.S. is still a favourite location for institutional investors. Prices are expected to continue climbing in 2018, but at a slower, healthier rate, and decentralised spots like Seattle, Austin, Salt Lake City, Raleigh and Dallas top the investment prospect list for the coming year. Seattle is an exemplar of the new economy: with 2018 prices expected to grow 4.8%, it has a strong “walk score” — the new metric for urban liveability — and an emergent 18-hour city gateway status. For investors, “traditional gateway markets have gotten so competitive that [they] are looking at adjacent submarkets and the top secondary markets” for the near future, says PWC. For 2018, usurping expectation is the name of the game.

Previous issues:
>> A review of property market in 2017
>> Best and worst of Hong Kong 2017