ASEAN: REVIVAL IN 2H; SURGE IN 2016

The opening up of residential markets in Vietnam and potentially Myanmar, and the likely lifting of cooling measures in Singapore and Malaysia in the run-up to AEC are expected to lift markets across ASEAN.

By end of this year, the ASEAN property market will be a more vibrant space with the bulls seen returning in early-2016. Optimism is in the air as almost all markets in ASEAN with the notable exception of Singapore are expected to return to the boom years of 2010-2012. The lift-off date could be as soon as October this year.

The diverse ASEAN region has just the right conditions to ensure sustained demand for private property; a rapidly urbanising population of 625 million (as of 2013), of which a large share is a growing middle class with new-found propensity to consume, and national governments willing to spend on infrastructure and future growth. To add to that, labour costs in the region remain competitive and supportive of foreign direct investment. Not to be discounted as a mere fad is the influx of Chinese capital to real estate. All these factors combined with increasing regional integration have created what is today the fastest growing region in the world. In the years ahead, ASEAN can look forward to a more dynamic economic landscape.

down2Concerns over rate hikes by ASEAN central banks to take place in the first half of this year have turned out to be over-exaggerated. The big hike in US interest rates the market was sounding warnings about never materialised. Instead, what has now happened is a divergence in monetary policy with central banks across the region from Australia to Thailand cutting interest rates to give their economies a boost and make their currencies more competitive. This despite the US Federal Reserve looking at the first increase in interest rates since before the Global Financial Crisis for later this year. As a result, interest rates in ASEAN are expected to trend at near historical lows although they could eventually inch up a little going into 2016.

Property cooling measures instituted by Malaysia’s Bank Negara and the Monetary Authority of Singapore to calm red-hot real estate markets in recent years have now led to lower transaction rates in 2014 and 1Q 2015 and even brought down home prices in some regions. The effectiveness of the cooling measures in both countries have led many to believe that the respective central banks will soon lift restrictions. When this happens, prices will get an immediate boost.

Malaysia, in particular has suffered a sustained slowdown in its property market over the last two years due in part to difficulties in obtaining loans. A banker, who declined to be named, admitted that liquidity remains very high in banks but due to the cooling measures, lending has been severely restrained. Speculation is rife that the central bank will lift some of the property cooling measures towards the end of 2015 in response to weakening market sentiment, which is also partly due to the implementation of the Goods and Services Tax (GST) in April. As a result, expect to see more launches and higher take-up rates towards the second half of 2015.

In contrast, Singapore’s property market is expected to continue to soften over the next few months due to large incoming supply in the office market, as well as the dampening effects of the various cooling measures especially the Additional Buyer’s Stamp Duty (ABSD). Although there are reports that high end (above SGD5 million) residential properties are being snapped up by foreign buyers, the overall mood is cautious among the local populace. The strengthening of the SGD which follows the USD closely will see interest rates edge higher which will have a further dampening effect on the property market. There is talk that the central bank may lift some of the cooling measures in an attempt to boost market sentiment.

OPTIMISM BACK

Elsewhere in the region, a sense of optimism appears to be coming back with a vengeance. The biggest economy in ASEAN, Indonesia, is gearing up for an economy boom following the dismantling of crippling fuel subsidies and a commitment by President Jokowi to spend big on infrastructure development. Underlying domestic demand is expected to remain strong and the growth of its consumer economy will enable the Muslim-majority nation to reach new heights. And with Jakarta’s first metro line scheduled for completion in 2018, there is finally real hope that the megalopolis’ notorious traffic jams will ease and hence facilitate smoother and more efficient business transactions. Despite the risk of a weaker Rupiah, which could lead to capital outflows in search of property overseas, overall, business is booming in Jakarta and Surabaya.

The Philippines too will see increasingly strong demand in the months ahead as it seals its reputation as the top business process outsourcing (BPO) centre in ASEAN. This has led to massive demand for Grade A offices. Demand for both office spaces and residential units will continue to drive the real estate market in the Philippines especially Manila in the next few quarters amid the improving US economy, increasing rural-urban migration and high liquidity from repatriated earnings.

Thailand has always done well in the retail and tourism sectors regardless of political conditions. Despite a recent military coup and countless protests, things are still moving along albeit more modestly. This is due to its huge middle class which has strong purchasing power and an inherent confidence in their country. As such, expect the Bangkok retail sector to do well in the next half of the year, while real estate gets a boost from pent-up demand and renewed confidence from foreign buyers.

In recent months, Vietnam has generated a lot of excitement following an amendment to its Housing Law which will allow foreign individuals and institutions to purchase any type of residential property, including condominiums and landed assets beginning July 1. Currently, ownership is limited only to foreigners who are married to Vietnamese and those deemed to have made significant contributions to the nation’s development. This recent development has encouraged an increase in interest in the real estate market since last year. Local developers are beginning to launch projects targeted at foreigners. Lower interest rates, improvement in transportation infrastructure with a proposed metro line in Ho Chi Minh City, higher FDI inflows and GDP per capita on the back of strong political will power will ensure a very vibrant market in the next few quarters.

Myanmar’s real estate market too may get a boost in the second half of 2015 if its long-delayed Condominium Law gets off the ground. The law, if passed, will allow foreigners to purchase up to a maximum of 40 per cent of the condominium units provided the units are on the sixth floor and above. Currently, foreigners are barred from buying condo units and the ones who have purchased have done so under a spouse’s name or through locally incorporated companies. Despite the hype surrounding the Myanmar market, insiders say most foreigners are adopting a “wait-and-see” position especially after a series of scandals rocked the property market. Caution is advised as property laws and land structure contain many grey areas. This against a backdrop of simmering political conflict. However, the impending ASEAN Economic Community (AEC), to be established at the end of 2015 could potentially attract more interest from the increasing number of expatriates and international visitors. Expect the market to perk up in the near- term.

In conclusion, ASEAN’s property market outlook is positive in the next six months with underlying strength coming from domestic demand. In the coming months leading up to end 2015, AEC might hasten cross-border transactions and encourage more foreign participation especially with the opening up of residential markets in Vietnam and potentially Myanmar, and the likely lifting of cooling measures in Singapore and Malaysia.

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