Southeast Asia’s key property markets are undergoing a period of transition
With political machinations, China’s travails and economic sluggishness impacting markets around the region, 2015 was an overall slow year for Asian property sectors
The belief that nothing is permanent is firmly entrenched in many eastern philosophies. Even so, the recent slowdown in Asian economies and real estate markets has undoubtedly been a shock to the system following a boom unprecedented in length and proportion.
Since the turn of the millennium, rock-bottom interest rates, booming economies and the steady growth of consumer classes with spare money to invest in bricks and mortar combined to fuel something of a property miracle in the region. Indeed, it seemed that perpetual forward momentum in Asia’s property sector was as much of a fixture as the ancient teachings of Confucius.
After several years of double-digit percentage increases in property prices in many of the region’s markets, however, 2015 was a year that could most kindly be described as a holding pattern.
With the exception of a few (admittedly major) hiccups along the way – the dramatic bursting of Vietnam’s property bubble being one of these – major markets in the region have largely been on a steep upward curve. But in the last couple of years, reality has increasingly begun to bite.
“We’ve been on a pretty extended bull run in many parts of this region,” says Nicholas Holt, Asia Pacific head of research at Knight Frank. “It had to burn out to a certain degree, and it has.”
Holt, however, goes on to emphasise the extremity of the previous market highs in the context of the current regional slowdown.
“From the outside it might look as though several countries in the region are experiencing trouble, but in reality there remains huge grounds for optimism,” he continues. “You can’t keep having 10-20 percent house price rises every year. There’s still growth and largely solid foundations in property markets – even in countries perceived to be in the doldrums – so it is far from a disaster.”
Another point experts are united in highlighting is the differing drivers impacting each market. Thus, while wider issues such as the strengthening US greenback and the stuttering economy in China resonate throughout the region, other market influences vary wildly from country to country.
Political stasis or instability has certainly been a factor in a lacklustre year.
In Thailand, a second year of military rule has not halted a slide in the economy and previously healthy property markets, especially in Phuket, have performed poorly, according to Holt.
Over the border in Malaysia, disaffection with the corruption-tainted government of Prime Minister Najib Razak has caused jitters among potential investors.
In Singapore, meanwhile, vote-winning pledges made in the lead-up to this year’s general election such as making it harder for foreigners to achieve permanent residency and the continued maintenance of robust cooling measures, have hardly served to jump-start a residential property market that has seen seven consecutive quarters of decline.
In its latest World Residential Market Report, global real estate services provider Savills refers to the ailing market in the Lion City. Noting that transaction levels are down by 53.8 percent year-on-year and that prices for residential property have fallen by up to 6.7 percent, the report states: “These [cooling]measures, coupled with a general slowing in Singapore’s economy has resulted in significant reduction in transaction levels and falling prices in the prime residential market.”
The most disappointing performer of the year, however, has been Indonesia. After riding a wave of optimism into power, President Joko Widodo has, many feel, had a poor first year in office. His government has been accused of flip-flopping following several policy U-turns, damaging investor confidence. Controversial plans to introduce a 20 percent luxury tax on properties valued at more than INR2 billion (USD145,560), for instance, went down badly with developers and investors alike.
“The Indonesian economy has lost quite a bit of momentum and will continue to perform below potential in the near term,” explains Sigrid Zialcita, the Singapore-based managing director of research at Cushman & Wakefield. “It will be vital for President Widodo to accelerate the necessary reforms to create a more business-friendly environment in order to spur growth.”
Other, non-political, forces have also hindered the region’s poor performers. In Thailand, the retreat of Russian investors due to the falling rouble and a slowdown in Chinese investment has arguably hit the mass market in the country’s coveted resort destinations. Malaysia’s problems, meanwhile, have been exacerbated by the struggles of Iskandar Malaysia – the main southern development corridor in the state of Johor – which has been plagued by stalled projects, scrapped development plans, oversupply and the wait-and-see approach adopted by foreign, primarily Singaporean, buyers.
Analysts commonly cite oversupply as a reason for sluggishness around the region.
“We do have an oversupply in a number of areas,” says Clayton Wade, managing director of Premier Homes, a leading real estate firm based in Pattaya, Thailand. “However, as long as there are emerging investor markets, such as the Chinese, there is confidence that the slack will eventually be picked up.”
There was mixed fortunes too during 2015 for the region’s so-called “frontier” markets. With its relaxed foreign ownership laws and upsurge in high quality residential development, Cambodia’s capital Phnom Penh has become a favourite with adventurous investors from a range of countries including Taiwan, China, Japan, Singapore and Hong Kong. The country’s often fractuous political climate, questions of sustainability and a disappointing uptake on new office stock over the last year are all seen as significant minus points.
In Myanmar, the nationwide elections held at the end of 2015 were a huge factor in a very slow year for the country’s property sector. Experts, however, are confident that a period of political stability will give the real estate market the kick-start it requires.
“In markets worldwide a general election often causes a slowdown in activity as people hold off from making investment decisions until the future political and economic environment is clearer,” says Richard Emerson, country manager for Savills Myanmar. “We expect the market to recover as investors position themselves to benefit from the country’s enormous future potential.”
Yet while the region-wide boom looks, conclusively, to be over, two countries in particular enjoyed an impressive 2015 – namely the Philippines and Vietnam.
The Philippines has continued to be a solid performer and although analysts are predicting a slight slowdown in growth, they see plenty to be positive about – especially in an office market likely to be the beneficiary of a thriving BPO (business process outsourcing) sector.
“The growth pillar in the Philippines, its BPO industry, is powering ahead thanks to sound economic management, a stable political landscape and a large young and well-educate population,” says Zialcita of Cushman and Wakefield. “The next five years could still see BPO companies enlarging their footprint across the country to ensure high occupancies and a platform for long-term moderate rental growth of more than 5 percent.”
The year’s other major success story is Vietnam, which is riding into another boom with construction starting in its economic hub, Ho Chi Minh City (HCMC), on two of the world’s tallest skyscrapers and buyers snapping up new projects fast at locations around the country including HCMC, Hanoi and Danang. This retrenchment after the crisis of just a few years ago has been due to various factors including state purchase of billions of dollars worth of non-performing loans, stronger financial requirements on developers and government stimulus.
Another boon has been moves to open up the country’s property market which saw the government relax strict rules on investment by foreign firms, foreign buyers and “Viet Kieu”, the overseas Vietnamese whose families fled their homeland when the communist north conquered the US-backed south in 1975.
“We are very optimistic about the forthcoming few years,” says Dung Duong, a director of research at CBRE Vietnam. “The property market in Vietnam has been supported by a stable economy and, due to the growing strength in the US dollar, the Vietnam dong has become one of the strongest currencies in the Asia Pacific region. Both decreasing interest rates and a strong currency are expected to attract foreign investors.”
Looking ahead to 2016 many analysts forecast another relatively flat year for most of the region’s property markets. The Chinese economy is likely to continue to wobble, potentially impacting outward investment by Chinese while the strengthening US dollar is expected to see interest rates forced up across Asia – something that is also likely to staunch the stellar growth of recent years.
“It is an interesting point in the cycle,” concludes Knight Frank’s Holt. “Countries are certainly feeling the slowdown. However, any ripples from China have largely been offset by the healthy state of the dollar. The situation is a little slower than before, that’s for certain, but it is far from a disaster.”
With the ASEAN Economic Community (AEC) – a cross border trade agreement between the nations of ASEAN now officially implemented, shifts in the property markets of member countries are virtually certain. In a region as reliably dynamic as Asia, more flux is only to be expected.
Property picks for 2016
Developer: SC Asset Development Corporation
Location: Silom, Bangrak, Bangkok
Average size: 55.08-106 sqm
Average price: THB320,000 (USD9,030) per sqm
Completion: Q4 2017
X-factor: Landscaped Sky Terrace
Location: Thalang, Phuket
Units: 183 (Bldg A), 32 (Bldg B), 151 (Bldg C), plus seven shops
Average size: one-bedroom, 40.40-49.40 sqm; two-bedroom, 71.60-94.40 sqm
Project value: THB1.082 billion (USD30.53 million)
X-factor: Comprehensive health centre within the complex
Developer: S P Setia Berhad
Location: Johor Bahru
Average size: 2,600 sqft
Average price: MYR958,000-1.813 million (USD216,000-408,000)
X-factor: Eco-themed community only 20 minutes away from Johor Bahru centre
Astaka @ Bukit Senyum
Developer: Astaka Padu Sdn Bhd
Location: Johor Bahru CBD, Iskandar Zone A
Units: 438 (phase 1)
Average size: 2,207-5,700 sqft
Average price: MYR2.5 million (USD562,000)
X-factor: Stainless steel covered porte cochėre enhanced by a circular fountain
Developer: Kencana Graha Global
Location: Central Jakarta CBD
Average size: 500 sqm
Average price: USD5,000 per sqm
Completion: October 2017
X-factor: Bentley car service on standby
Bask Gili Meno
Developer: PT Bask Gili Meno
Location: Gili Meno
Average price: USD380,000-450,000
Completion: October 2015 (stage 1)
X-factor: Nest, an underwater installation by Jason deClaires Taylor
Seventy Saint Patrick’s
Developer: UOL Group Limited
Location: 70 Saint Patrick’s Road, Singapore
Average size: 101 sqm
Average price: SGD1.742 million (1.25 million)
Completion: Q3 2016
X-factor: Pinwheel shape that offer unblocked views of Singapore for each unit
Developer: Fairview Developments Pte Ltd (a unit of Tong Eng Group)
Location: Belgravia Drive, off Ang Mo Kio Avenue 5, Singapore
Average size: 3,600 sqft
Average price: SGD2.8-3.7 million (USD2.01-2.66 million)
Completion: Q1 2017
X-factor: Part of the rejuvenation of the Selatar area
Developer: Thanh Do Investment Development and Construction JSC
Location: Hoa Hai Ward, Da Nang City
Land area: 1,980 sqm
X-factor: Innovative landscaping
Gateway Thao Dien
Developer: SonKim Land & Hamon Developments
Location: District 2, HCMC
Average size: 48-143 sqm
X-factor: Luxury lifestyle plaza
Diamond Inya Palace Condominium
Developer: Mandalay Golden Wing Construction Ltd
Location: Mayangon Township, Yangon
Average size: 947-11,668 sqft
Average price: USD300 per sqft
X-factor: Yangon’s future tallest residential tower
Galaxy Towers at Star City
Developer: Yoma Strategic Holdings Ltd
Location: Thanlyin Township, Yangon
Average size: 728-1,188 sqft
Average price: USD135,000-500,000
X-factor: Part of the award-winning Star City complex
Developer: Ayala Land Inc
Location: Arnaiz Avenue, Ayala Center, Makati
Average size: 92 sqm
Average price: USD334,400
Completion: : 2015 (Tower 1), 2016 (Point Tower), 2017 (Tower 2)
X-factor: First Ayala Land project built with Performance-Based Structural Design (PBD)
Century Spire Residences
Developer: Century Properties Group
Location: Century City, Kalayaan Avenue, Makati
Average size: 70 sqm
Average price: PHP37.6 million (USD808,000)
X-factor: Designed by Daniel Libeskind, with interiors by Armani/Casa