At the end of last year, BDO's global Real Estate & Construction team surveyed real estate partners from 14 of our Asia Pacific member firms for their opinions on the Asian real estate market in the year to come. Partners from Malaysia, India, Singapore and China then analysed the survey results and have drawn the following conclusions for our clients to consider.
2016 is set to be a year of uncertainty for the Asian Real Estate market, with US interest rates and China’s economic slowdown rocking the positive foundations laid in 2015. But some doors to opportunity will remain open, especially when it comes to non-traditional assets. Local knowledge and detailed understanding of the sector in each market will be key to unlocking growth in 2016.
US interest rates
Unsurprisingly, the increase of interest rates by the Federal Reserve is top of the watch list. Thankfully for the property market, the short term impact of the rate hike will be minimal as the impacts of interest rate rises will have already been factored in by investors, so investors and developers should be taking a long term view on their assets.
Dato’ Feizal of BDO Malaysia noted that the strengthening of the dollar is not necessarily a bad thing. Though it will have a negative effect on local currencies, this means the US investment dollar goes further in emerging markets, bringing some fluidity to the market and leading to an upturn in the second half of 2016. Capital is invested where it goes further, so when US rates were at zero, investors looked further afield to ensure they got more for their money. India saw major investment from the west, as have Asian hub cities such as Manila and Bangkok.
The US rate change will affect the stock market, and local currencies, meaning investors returns get lower. By the second half of 2016, we expect to see an uplift in the market. Peter Leong (BDO Singapore) noted that local financing is more easily available, so urges investors to ride out lower yields initially and look forward to capital gains on savvy investments.
Slowdown of China’s Economy
China’s slowdown has been hot on the lips of investors and business leaders through the end of 2015 and we expect it will rightly occupy the minds of those looking at the Asian real estate sector in 2016. In particular, Singapore will see a flood of properties coming available as money and demand from the People’s Republic declines.
In India, it will impact supply-side as commodity price shifts reduce the cost of construction materials. With affordable housing set to be a key growth area in 2016, lower productions costs will only catalyse this opportunity for investors and developers alike.
Non-Traditional Asset Classes
In a sluggish market, it’s important for investors to think of what type of property they are looking for, and also where that property is. The old cliché location, location, location is as relevant as ever, particularly in slower markets. In Malaysia, for example, it is a very good time to accumulate a residential portfolio in desirable areas because of Malaysia’s My Second Home (MM2H) scheme, where foreign investors can buy multiple residential properties providing they meet certain criteria.
In December, BDO Australia released its Annual A-REIT
survey which ranks the highest performing REITs in Australia. It identified a surge in investments in Non Traditional Assets (NTAs) such as pubs, healthcare and educational facilities.
This trend is taking hold across the region. Nidhi Seksaria (BDO India) commented that our Indian firm are advising on an increasing number of NTA transactions, particularly around affordable or low cost homes and industrial & warehousing parks . We predict these to be key growth areas in 2016, driven by favourable demographics of the growing Indian Middle Class and government thrust to infrastructure and manufacturing. The plans for a regulatory body for the Real Estate industry - which currently does not exist – is a step towards transparency & speedy redressal of challenges making India more attractive to investors.
Our overarching advice to clients looking at Asia is proceed with caution. There are pockets of opportunity despite challenges from the West (US) and the East (China) as we enter the first half of 2016, and the region continues to have an excellent long term outlook, with Malaysia continuously ranking within the top 20 countries globally in terms of ease of doing business according to the World Bank. BDO’s local knowledge and understanding of local dynamics and regulatory practices will be key to unlocking those doors across traditional and non-traditional assets.
• Anna Simmons
(Marketing & Business Development, Global Real Estate)
In December 2015, BDO surveyed its real estate partners from 14 markets in Asia Pacific. Markets included: Australia, Cambodia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Singapore, Philippines, Taiwan, Thailand and Vietnam.