Asia Pacific Real Estate Market Performance - Q2 2021

As the vaccination rates are gaining pace, many countries are starting to recover from the destruction of the pandemic. From the data of Knight Frank, most of the cities in Asia-Pacific recorded a y-o-y increase in price and even up to a boost of 29.2%. Apart from that, inflation and low interest rates under loose monetary policy of Asia-Pacific lead to the rising real estate price in 2021.

Inflation

China:

 

Singapore:

 

Apart from cities of New Zealand, the property prices of Beijing and Singapore are having the largest rise of 14.8% and 13.9% respectively. The above is the inflation rate of China and Singapore in 2021. We can see that both countries are in their post-Covid recovery with a positive inflation rate starting from 2021.

Property prices tend to move in line with inflation because property investment can be a powerful hedge against inflation. The decline in the purchasing power of money can be avoided by buying assets. Also, since inflation implies the rising price of everyday goods, the materials used to build a new house such as concrete and bricks would then be more expensive too. The price of real estate would then increase to cover the greater financial cost.

Low Interest Rate & Loose Monetary Policy

In a bid to prop up their pandemic-hit economies, central banks of Asia-Pacific countries hold their loose monetary policy by slashing the interest rate to record lows. From the data of Trading Economics, most of them kept their low-interest rates in 2020 through 2021. The interest rate of Singapore was last recorded even at 0.07% which decrease further from 0.22%.

When the interest rates are low, it usually encourages potential buyers to enter the real estate market. Since obtaining housing finance is more affordable, those who may be on the sidelines are more likely to apply for housing loans and purchase real estate. This increase in demand may lead to an increase in property prices.

From the American wealth information and insights provider Wealth-X, one in every 125 HK residents have a net worth of at least US$5 million. The data from the global wealth datebook 2021 written by Credit Suisse also shows that the median wealth per adult is ranked third among countries around the world. As the only place in the Asia-Pacific ranked top 10, Hong Kong is always seen as one of the most affluent cities in the world. 

Source: CeoWorld Magazine (from Global Wealth Databook)

With a larger and stabler yield of investment, property investment become a popular choice for Hong Kong people who have sufficient capital and regular income. Owning property was highly lucrative, especially the last twenty years from 2002 to 2021. However, the high-risk Hong Kong property, which provide limited capital gain, is slowly losing its attractiveness as the choice of investors. From the UBS Global Real Estate Bubble Index score, the score of Hong Kong has been continually increased which indicates the high risk of holding Hong Kong property as an investment.

In the meantime, we can see that the growth of HK property price is declining and even under the 20-year average. The capital gain of HK property in the future is uncertain especially when the government is actively seeking more new housing supply to cool down the market.

 

 

To avoid loss and gain larger return, Hong Kong people started to invest in the overseas property market for the potential capital gain and the rental return. The chance of getting permanent residency in some specific country also attract Hong Kong people.

Don’t Put All Your Eggs in One Basket

Since governments are expected to cool down the overheating property market through tightening the monetary policy such as raising interest rates and reducing borrowing, countries such as South Korea raised interest rates for the first time in three years in August 2021.

However, other countries in Asia-Pacific have different decisions on their monetary policy. As the most successful in the world to keep the COVID cases, New Zealand was expected to be the first economy to raise the interest rate. However, the central bank decided to hold rates at 0.25%. The Bank of Japan also decided to hold steady on her loose monetary policy.

We can see from the increase in property price that the property market is easily affected by the monetary policy of the government. From the different decisions of South Korea, New Zealand, and Singapore, whether the interest rate of other Asian countries would raise, or decline is uncertain. The trend of the APAC property market would then be less stable.  

It is a perfect time for property investors to review their investment portfolio. Concentrate all resources in one country would need to bear a larger risk under this floating market. For risk management and potential yield return, investors are advised to diversify their property investment in different countries.