Shoppers walk past a Christmas-themed decoration outside an upscale shopping centre in Shanghai on December 17. Chinese regulators recently broadened the scope of the real estate investment trust programme to include shopping centres, offering a fresh option to property investors in search of improved returns. Photo: Bloomberg
Opinion
The View
by Nicholas Spiro
The View
by Nicholas Spiro
4 bright spots for Asian property in 2024
The big worries in Asian real estate from 2023 will persist, but sources of resilience and strength will also endure
Trends to watch include Australia’s housing market, Chinese property beyond housing, an Indian real estate boom and retail property strength
In Asia’s property markets, there is no shortage of risks to preoccupy landlords, investors and developers. The big worries last year – the fallout from the sharp rise in interest rates, the deterioration in housing affordability, the crisis in China’s residential market and the threat of more geopolitical and economic shocks – will persist in 2024.
However, sources of resilience and strength will also endure. According to a Knight Frank index, several cities in India and Australia experienced some of the fastest growth rates in average residential prices on a quarterly basis in the third quarter of last year.
In the commercial market, transaction volumes in Japan – which continues to maintain ultra-loose monetary policy – rose 3 per cent year on year in the third quarter. They were buoyed by strong demand for hotels, logistics properties and multifamily rental flats.
Among the trends and themes to watch this year, four warrant close attention. First, it is worth keeping an eye on Australia’s housing market. Not only did prices in the capital cities bounce back 8.1 per cent last year following a nearly 5 per cent drop in 2022, in some of the capitals they barely contracted and currently stand at all-time highs, according to CoreLogic data.
However, in recent months, the recovery has slowed mainly because of intensifying cost of living pressures and deteriorating affordability. Last year, Australia narrowly avoided a recession. This puts pressure on the Reserve Bank of Australia (RBA) to signal a shift to less-restrictive policy as inflation starts to come down. However, cuts in rates could lead to even sharper gains in prices, exacerbating the affordability crisis.
People walk past a property agent’s window in Melbourne, Australia, on March 7, 2023. Photo: AFP
This creates an awkward policy dilemma. Stretched affordability is a hot-button political issue. The share of household income required to service a new mortgage is near a record high, according to CoreLogic. While the government has pledged to build 1.2 million new homes in the next five years, little will happen in the short term.
As a surge in net overseas migration maintains upwards pressure on prices and rents, expectations that the RBA will loosen policy could further stretch affordability. At a time when investors expect rates to fall more sharply in other countries where the problem of unaffordable housing is acute, the policy conundrum in Australia is just the tip of the iceberg.
Second, China’s housing crisis masks tailwinds in other parts of the property industry, some of which are popular among investors when sentiment towards offices has dimmed. China is leading a surge in investment in Asia’s nascent life sciences sector. A shortage of research and development facilities has turned business parks into sought-after commercial properties that benefit from the government’s prioritisation of technological innovation.
An additional incentive to deploy capital in the life sciences sector is the development of China’s listed real estate investment trust (Reit) market, which offers investors the opportunity to sell their assets in public markets. Chinese regulators recently broadened the scope of the Reit programme to include shopping centres, yet it is the launch of affordable rental housing-backed Reits that could prove more consequential.
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Anger mounts as China's property debt crisis leaves flats unfinished
Anger mounts as China's property debt crisis leaves flats unfinished
While still in its infancy in China, the multifamily sector – professionally managed rental flats owned by institutional investors – has been given new impetus by the housing crisis. Although investors are focused on Shanghai, other Tier-1 cities are attracting interest. A market-oriented rental housing sector in China could eventually emerge as one of the big investment themes in Asian real estate.
Third, the boom in Indian real estate is not about to end any time soon. Amid concerns about demand for office space in the post-pandemic world, India is the brightest of bright spots. Last year, leasing activity reached 61 million square feet as multinational firms rushed to set up their own back offices to develop technology in-house.
Take-up in the logistics and retail property sectors was also strong, while domestic capital is starting to play a more important role in the investment market, underpinned by regulatory and structural reforms. “India’s trajectory looks and feels very positive,” said Greg Hyland, head of capital markets, Asia-Pacific, at CBRE.
The country’s residential market is performing even more impressively, with the annual volume of units launched last year hitting a 10-year high and prices growing in all the major cities, according to Knight Frank data.
High-rise residential buildings are seen amid other homes in Mumbai, India, on December 1, 2023. Photo: Reuters
While there are concerns about India – expensive valuations in stock markets, an economy that fails to produce enough jobs and persistent obstacles to foreign investment – the long runway for further growth is a powerful narrative.
Fourth, retail property is not a contrarian bet in Asia. Although still out of favour with many global investors and less attractive than the logistics and multifamily sectors, shopping centres in city centre and suburban locations in leading cities across Asia boast healthier fundamentals than their peers in Western economies.
The combination of stronger demand, tighter supply, higher yields and better prospects for rental growth than in the office sector creates attractive investment opportunities. The results of a leasing sentiment survey published by CBRE last month revealed stronger appetite for expansion in retail.
Property markets the world over will continue to be under pressure. Even if major central banks start cutting rates this year, policy will remain restrictive for some time. Asia must also deal with threats from within the region, such as the normalisation of Japanese monetary policy.
Yet there are bright spots and sources of resilience in Asia’s real estate industry. This resilience can come at a price, as is the case in Australia’s housing market. However, it can also create significant opportunities.
