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Home Business RealEstate

2016 round-up and 2017 outlook for real estate

The FINANCIAL by The FINANCIAL
December 23, 2016
in RealEstate
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2016 round-up and 2017 outlook for real estate
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The FINANCIAL — Knight Frank, the independent global property consultancy, presents a round-up of 2016 and its outlook for 2017 on real estate markets across the Asia-Pacific region.

ASIA-PACIFIC

Nicholas Holt, Head of Research, Knight Frank Asia-Pacific 

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RESIDENTIAL 

2016 has been an interesting year for residential markets in Asia-Pacific, with a huge divergence in terms of price performance and activity. China, as always, 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.

Policymakers were also making their impact felt in other markets: Hong Kong saw a further hike in stamp duties in an attempt to slow a market that has continued to deft expectations, while 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 story continued to be one of slow or sluggish performance. In the case of Southeast Asia, a mixture of cooling measures and disappointing economic performance continued to make for weak performance in much of Singapore and Malaysia, while in Indonesia and Thailand – two of the region’s past star performers – have seen a slowdown in activity. In India, the market continues to be slow in many of the major cities with weak sentiment continuing to make trading difficult.

2017 is likely to see markets respond to two things: the wider economic environment, and policymakers’ actions.

In the post-Brexit and Trump world, and with the likely demise of the Trans-Pacific Partnership (TPP), there continues to be much uncertainty about economic growth prospects. While on the one hand, this could directly impact residential markets; on the other, uncertainty does drive money away from equity markets into property.

Policymakers, whether looking to withdraw measures or implement measures, will continue to have an impact on the market throughout 2017 – which makes residential property observers increasingly in need of becoming political scientists.

COMMERCIAL 

A number of different challenges and headwinds face the Asia-Pacific commercial property markets, with a strong link to the wider economic landscape. One of the bright spots continues to be new sources of growth in the technology and creative industries, driving office markets in places like Shanghai, Bengaluru, Seoul and Sydney.

Those cities that are struggling to find these new sources of growth have tended to see weaker commercial property performance. Markets reliant on commodities, banking & finance, oil & gas and shipping have all seen knock-on impacts on their commercial property markets – Singapore, Perth and Kuala Lumpur, for example, are some of the markets that have seen weaker demand for commercial space over the last 12 months.

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, while those which are actively seeing new sources of demand will be best positioned to experience a dynamic market in 2017.

SINGAPORE 

Alice Tan, Head of Consultancy & Research, Knight Frank Singapore

It has been a year of twists and turns with unprecedented global events unfolding in 2016 – namely the Brexit referendum, Trump’s victory and slowing Chinese economy – impacting Singapore’s economic growth and business sentiment. As economic restructuring and moderating employment prospects set in, almost all segments of the property market – residential, commercial and industrial – have experienced weaker performance in price and rentals, hitting new lows in Q3 2016 since their previous peaks. Despite speculation that the market will continue to bottom out for the private homes sector, there has been recovery for high-end home prices in H1 2016, and encouraging sales performances in a number of new launches. Yet, these projects that are better-received mainly stems from either their attractive location or pricing. Developers cognizant of high price sensitivity from buyers have also offered reasonable price levels to spur sales.

Looking into 2017, should market conditions weaken further and more units be released into the market as developers strive to meet project deadlines, there could be further price adjustments expected. Secondary sales could contribute slightly higher proportion of total private home sales transactions in 2017, as the market shows greater interest for larger-sized and reasonably-priced private homes, coupled with potential onstream supply from home owners affected by possible interest rate hikes.

Overall private residential sales transactions could range between 14,000 to 16,000 units in 2017. For the commercial and industrial markets, the looming supply overhang, prospects of muted economic outlook and rising tenants’ market situation could weigh on prices and rentals, with at least -5% year-on-year rental corrections by end 2017.

INDONESIA 

Hasan Pamudji, Senior Associate Director, Professional Consultancy, Knight Frank Indonesia

The Indonesian property market has entered into a mature or consolidation phase due to global and domestic economic conditions. As such, 2016 saw an overall slowdown.

Recovery is expected in 2017 as long-term confidence in fundamentals, such as growing population, rising middle-income earners and stable political situation, increases. We will see both opportunities and challenges arising from economic and political developments in the new year.

The 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 and optimism in the next few years. Investors and buyers waiting on the side lines are expected to enter the property market again in H2 2017 after the local elections are completed in February 2017.

GREATER CHINA 

David Ji, Head of Research, Knight Frank Greater China

The Mainland’s residential market improved throughout 2016 with more cities seeing price increases. Home prices in first-tier cities and major second-tier cities in particular, recorded strong growth, prompting the government to maintain or re-introduce home purchasing schemes in these cities. On the other hand, destocking inventory remains a major task in 2017, particularly for lower-tier cities. Looking ahead, the Central Government will continue home purchase restrictions on these cities in 2017, with more cities set to join should their housing markets overheat.

In Hong Kong, total residential sales are expected to reach over 50,000 in 2016, largely on par with previous years. Given the recent price recovery partly prompted by investor interest, some of which are from the Mainland, the Hong Kong Government is keeping up various price cooling measures such as lowered Loan-to-Value ratios, tightened stress test requirements and a set of stamp duties. It has recently increased stamp duty for second home buyers to 15% in an effort to curtail price.

However, as prices reached record levels, affordability remains a major concern for many potential homebuyers. Meanwhile, in recent years, Mainland developers have been increasingly active in residential land site acquisitions in Hong Kong, a trend that is likely to continue in 2017.

INDIA 

Dr. Samantak Das, Chief Economist & National Research Director, Knight Frank India

The Government gave clarity on important reforms regarding Goods and Services Tax (GST), Real Estate Regulatory Act (RERA) and REITs during H1 2016. These reforms definitely created positive ripples for various stakeholders. As a result, residential markets of the major Indian cities grew after three subdued years and the office market improved and maintained pace. However, the recent demonetisation move by the Government is expected to substantially hit transactions during Q4 2016. The resale market is expected to be hit harder than the primary market in the residential sector. Any green shoots of recovery that were there in this sector during H1 2016 will lie low for at least the next six months.

From mid-2017 onwards, however, we expect the market will discover a new normal in volume and price. With a falling interest rate, higher liquidity and RERA and GST in place, India’s real estate sector is expected to be more evolved, transparent and corporatised. The sector has potential for growth and it will be supported by a larger institutional funding at competitive rates.

AUSTRALIA 

Matt Whitby, Head of Research & Consulting, Knight Frank Australia

The services sector, including technology and creative services industries, will continue to drive activity in Australia’s major office markets in 2017, while the growth from mining investment declines. Investment in Australia, particularly office and hotel buildings, have been growing strongly. This is supported by the relatively higher yields still to be found in the market. Sydney’s office leasing market is expected to be the best rental performer globally over the next few years to the end of 2019.

There continues to be divergence in the short-term market conditions and rental growth performance in favour of Sydney and Melbourne. However, we expect investment and occupier demand to pick up in Brisbane in 2017 as investors begin to embrace more risk and seek higher relative returns. Co-working will be one of the biggest growth sectors in the office markets across the global cities, with Sydney and Melbourne leading the way in Australia.

In the retail sector, global brands will continue to expand their presence in Australia, however, location and foot traffic are critical to their success.

MALAYSIA 

Sarkunan Subramaniam, Executive Director, Knight Frank Malaysia

This year has been a subdued year and we expect the same in 2017. Developers will face lower demand whilst implementing strategies to attract and improve sales to counteract the lower consumer demand due to the current state of the economy.

On the investment front, vendors have more realistic expectations and purchasers are looking for bargains, therefore we expect to see more sales activity. We anticipate transactions in commercial properties and investment properties to be priced 10% to 20% below perceived market value with realistic and increased yields.

CAMBODIA 

Ross Wheble, Country Manager, Knight Frank Cambodia

With the exception of Myanmar, Cambodia continued to outperform Southeast Asian countries including Singapore, Malaysia, Thailand, Vietnam, the Philippines, Indonesia, Laos and Brunei, during 2016 in economic terms. According to the Asian Development Bank, Cambodia’s GDP growth is forecast to be 7.1% in 2017, underpinning demand for real estate across all sub-sectors.

In 2016, increasing foreign investment into the Kingdom enabled Knight Frank Cambodia to strengthen its position as one of the country’s leading professional real estate advisors, working with some of the top developers, investors and multinational companies in Cambodia and within the APAC region.

Looking ahead to 2017, Knight Frank has secured exclusive contracts for major developments to be launched into the international market. We are excited to be working with global brands on some of the country’s most prestigious projects, elevating Cambodia to compete in the global arena.

TAIWAN 

Andy Huang, Associate Director for Research, Knight Frank Taiwan

The real estate market performance remained lacklustre in 2016 with commercial property transaction volumes declining 48% year-on-year. However, rents and vacancy rates of the office market remain stable.

In the residential market, transaction volumes declined by 35% from last year; Taipei experienced its worst decline at 68% from last year. The prime residential segment was not spared either – as a result of the Government’s cooling measures, including high holding taxes and credit controls – with transaction volumes slumping by 63% from the year before to a four-year low.

Come 2017, price correction is expected in the real estate market in Taiwan. The Nanshan Plaza in Xinyi district is expected to complete in 2017, bringing one million square feet of new supply to the office market. We expect this to increase the movement of some tenants outside of the CBD into CBD Taipei. With that, we expect the demand for office space in Taipei to be active in 2017.

In the residential market, severe restrictions on mortgages for luxury houses resulted in a drop in transactions and prices of such assets. Since the cooling measures in Taiwan are targeted at luxury housing, the market for occupier residential property is expected to bounce back.

To sum up, the cooling measures in Taiwan are easing with the residential market expected to rebound with the low interest rate. Interest rates are expected to rise 0.25% in H2 2017. However, Taiwan is still in a low interest rate environment and it is therefore, expected to have limited impact on residential markets. We may see some plateauing both in commercial and residential price growth, and some downward pressure in price, but it is unlikely to underperform 2016.

 

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