Global property firm Knight Frank rounds up the economic, policy and political factors that will define Asia Pacific property markets this year
BY Kate May
Understanding the underlying economic and political factors in specific markets is key to determining property market trends across the Asia Pacific region, says global property firm Knight Frank.
Nowadays, the ability to market intelligently requires more than a comprehension of statistical information and analyses; it also entails an understanding of what makes a country and its government tick.
According to Knight Frank Asia Pacific’s head of research Nicholas Holt, 2017 is likely to see markets respond to two things – the wider economic environment and policymakers’ actions.
In the world of post-Brexit and United States President-elect Donald Trump, and with the likely demise of the Trans-Pacific Partnership (TPP), there continues to be much uncertainty about economic growth prospects.
On the one hand this could directly impact residential markets, but on the other, the current uncertainty does drive money away from equity markets and into properties.
Policymakers who are either looking to withdraw measures or implement new ones, will continue to have an immense impact on Asian markets throughout 2017.
This means property observers should start thinking like political scientists, said Holt in Knight Frank’s round-up report of 2016 and its outlook for Asia Pacific real estate in 2017.
(Wikipedia defines political science as a social science discipline that deals with systems of government and the analysis of political activities, political thoughts and political behaviour.)
He noted that 2016 had been an interesting year for residential markets in Asia Pacific, with a huge divergence in terms of price performance and activity.
As always, China continued to dominate headlines, with residential markets in tier 1 and tier 2 cities continuing to see extremely strong price growth to such an extent that policymakers stepped in yet again with measures to cool off the markets.
Holt said policymakers were also making their impact felt in other markets. Hong Kong saw a further hike in stamp duties to slow a market that has continued to deft expectations.
In Australia, strong price performance led to further taxes for foreign buyers introduced in a number of states.
In much of Southeast Asia and India, the performance remains sluggish.
A mixture of cooling measures and disappointing economic performance continued to contribute to a weak performance in Singapore and Malaysia.
In Indonesia and Thailand, the region’s past two star performers, market activity has actively slowed.
Meanwhile, the market remains slow in many major cities in India in the wake of deteriorating consumer sentiments, which has made made trading difficult.
Holt noted that Asia Pacific’s commercial property markets faced different challenges with a strong link to the wider economic landscape.
However, one of the bright spots continues to be new sources of growth in the technology and creative industries, driving office markets in China’s Shanghai, India’s Bengaluru, South Korea’s Seoul and Australia’s Sydney.
He said regional cities that have struggled to find these new sources of growth are now seeing weaker commercial property performances.
Markets reliant on commodities, banking and finance, oil and gas, and shipping have all seen knock-on impacts on their commercial property markets.
Singapore, Perth and Kuala Lumpur are some of the markets that have seen weaker demand for commercial space over the last 12 months.
Holt added that in an increasingly interconnected region, events outside of Asia Pacific will be paramount, with the full impact of Trump’s election victory and events unfolding in Europe likely to continue to have a significant impact on occupier sentiment.
Countries less reliant on trade will be better insulated from any increase in protectionism and the demise of the TPP. Those which are seeking new sources of demand will be best positioned to experience a dynamic market in 2017.
Meanwhile, Knight Frank Singapore’s head of consultancy and research Alice Tan said should market conditions in the island republic weaken further in 2017, and if more units are released into the market as developers strive to meet project deadlines, further price adjustments are to be expected.
Secondary sales could contribute a slightly higher proportion of the total private home sales transactions in 2017 as the market shows greater interest for larger sizes and reasonably priced private homes, coupled with the potential onstream supply from homeowners affected by possible interest rate hikes.
Knight Frank Indonesia’s senior associate director of professional consultancy, Hasan Pamudji, said recovery is expected in 2017 as long-term confidence in fundamentals such as growing population, rise in middle-income earners and a stable political situation increases.
Indonesia’s new infrastructure budget and actions to accelerate major infrastructure such as toll roads, seaports, airports, high speed and light rail trains are expected to boost consumer confidence in the next few years.
Investors and buyers waiting on the side are expected to enter the property market again in H2 2017 after the local elections are completed in February.
Knight Frank Greater China’s head of research David Ji said the central government will continue with home purchase restrictions in 2017 and will include more cities should their housing markets overheat.
In Hong Kong, the government is keeping up various price cooling measures. However, as prices reached record levels, affordability remains a major concern for many potential homebuyers.
The trend of mainland developers buying residential land in Hong Kong will continue, Ji added.
Elsewhere, Knight Frank India’s chief economist and national research director Dr Samantak Das expects the market to discover a new normal in volume and price from mid-2017.
He said that with falling interest rates, higher liquidity as well as new real estate laws and the goods and services tax in place, India’s real estate sector is expected to be more transparent and the potential for growth to be supported by larger institutional funding at competitive rates.
Knight Frank Australia’s head of research and consulting Matt Whitby said the services industries, particularly technology and creative services, will continue to drive the major office markets Down Under in 2017.
Sydney’s office leasing market is expected to be the best rental performer globally over the next few years to 2019. Melbourne is also doing well while investment and occupier demand are envisaged to pick up in Brisbane.
Whitby said co-working will be one of the highest growth sectors in the office market across the global cities with Sydney and Melbourne leading the way in Australia.
Knight Frank Malaysia’s managing director Sarkunan Subramaniam expects the local market to see another subdued year in 2017 based on the current economic situation.
On the investment front, he noted vendors are adopting more realistic expectations and buyers are looking for bargains; therefore, he expects to see more sales activity.
He anticipates transactions in commercial properties and investment properties to be priced 10 per cent to 20 per cent below perceived market value with realistic and increased yields.
Cambodia on a roll
Meanwhile, Cambodia looks like the market darling of 2017. According to Knight Frank Cambodia’s country manager Ross Wheble, the property consultancy has secured exclusive contracts for major developments
to be launched on the international market.
Furthermore, it will be working with global brands on some of the country’s prestigious projects, elevating Cambodia to compete in the global arena.
Except for Myanmar, he said, Cambodia continued to outperform other Southeast Asian countries including Singapore, Malaysia, Thailand, Vietnam, the Philippines, Indonesia and Brunei in 2016 in economic terms.
Asian Development Bank has forecast Cambodia’s GDP growth to be 7.1% in 2017, underpinning demand for real estate across all subsectors, Wheble noted.