Overlook of 2017 and an outlook for 2018
According to Knight Frank, 2018 will see pockets of stronger sentiment across the region
Knight Frank, the independent global property consultancy, recently released its 2017 round-up and 2018 outlook on markets across Asia Pacific. From it’s study, the below reports significantly explain the various markets and what to look out for.
After studying the report, we believe that this will be a good indication to our readers on how the market was in 2017 across different countries as well as what to expect in 2018 for Asia Pacific in general as well as for Malaysia and our neighbouring countries.
ASIA-PACIFIC – According to Nicholas Holt, Head of Research, Knight Frank Asia-Pacific
2017 has been a relatively calm year for mainstream residential markets in the Asia Pacific region, with some of the strongest performers of last year seeing price growth moderate. China and Australia, most notably, have seen sentiment soften, due to measures including restrictions on mortgage lending, significant new supply, and in the case of China stricter home purchase restrictions.
Similarly, India continued to suffer from the fallout from demonetarisation and the introduction of the Goods and Services Tax (GST), with the market spending much of the year re-finding its feet.
One of the key themes in the major cities in the region continues to be affordability – and we are seeing both policy and market reactions to this issue. On the policy side, we have seen significant house building programmes in a number of markets, restrictions on foreign buyers introduced in New Zealand; while developers in a number of major cities across the region have responded by trending to developing smaller units.
The outlook for 2018 is positive but muted, with interest rate rises and a low probability of the lifting of restrictions likely to keep a lid on price growth in many markets. There will, however, be pockets of stronger sentiment across the region: Singapore is set for a stronger 2018 driven by the buoyant collective sales market; Manila continues to see strength in demand for condominiums; while the Indian residential market could start to emerge from its slumber as it absorbs the policy, regulatory and tax changes of the last 16 months.
Commercial occupier markets were buoyed in 2017 by higher than expected economic growth in the Asia Pacific region. Office and logistics markets were especially strong in terms of activity, the former seeing growth in demand from co-working space and technology related companies, and the latter a spill over in demand from online retailing. Traditional retailing formats continued to be challenged in many markets due to the growth of e-commerce, with secondary retail especially under pressure to re-position in order to cater to new market realities.
On the investment side of the equation, the capital controls more stringently applied to outbound real estate investment from China have put a brake on the investments deals in key global gateway cities, while the gathering momentum around the Belt and Road Initiative has opened up another key investment avenue for markets in Southeast Asia, Eastern Europe and the Middle East.
Otherwise, total regional investment volumes* in 2017 look to be up on 2016, with transactions recorded in the first three quarters of 2017 hitting USD 540 billion, up 31% on the same period of 2016. South Korea, Singapore and Hong Kong were especially active, with South Korea notably gaining more international attention on the back of attractive yields and solid occupier activity.
Looking forward to 2018, many eyes will be on Chinese policy makers, as to whether the restrictions on outbound investment are eased. Another interesting milestone will be the introduction of the first REIT in India and the potential this has of bringing more transparency and liquidity to the sector in 2018 and beyond.
With a significant weight of money still looking at real estate, we expect capital from a number of geographies and sources, including sovereign wealth funds and privates, to continue to be actively sourcing deals in 2018. Logistics assets along with office markets with sound fundamentals and strong drivers of growth, are both likely to see increased demand over the next 12 months – with China, Australia and Singapore most notably likely to attract significant attention.
AUSTRALIA according to – Michelle Ciesielski, Director of Research, Australia
Despite residential price growth cooling across the mainstream markets along the Australian East Coast, the prime residential market has continued to attract the wealthy population in 2017. Latest data on high net worth individual migration has followed a similar trend, confirming the strong and growing desire to live in Australia, with demand for prime property outweighing the limited supply being bought to market in both the established and new supply markets.
With recent changes to legislation in New South Wales, it’s likely 2018 will record a further increase in the number of collective strata site sales encouraging the upgrade of buildings not currently reaching their full potential.
This reform provides owners of freehold strata lots with an alternative way to end their scheme by allowing for the collective sale, or redevelopment, of their strata complex in circumstances where at least 75 per cent of owners agree.
With this reform, there are many potential development sites that could be unlocked across Greater Sydney.
The trend towards co-working spaces continued to gain traction in 2017. Knight Frank Research has reported the total number of co-working spaces stood at 309 in August 2017, growing 297 per cent between 2013 and 2017. This industry occupies 193,190 square metres across six capital cities, equivalent to 0.6% of total office stock where Melbourne accounts for nearly 50 per cent, followed by Sydney with 38 per cent of the total.
Tenants in the Technology, Advertising, Media and Information (TAMI) space and Small and Medium Enterprises (SMEs) will continue to drive demand growth in 2018. The challenge will be availability in the CBD with net supply of office space in Sydney and Melbourne extremely low over the next two years, expected to drive down vacancy and push up both prime and secondary face rents.
INDONESIA according to – HasanPamudji, Senior Associate Director Professional Consultancy, Knight Frank Indonesia
With the ongoing efforts to improve public transportation networks, including the rapid light transit rail line (LRT) and the mass rapid transit project (MRT), we now foresee a growth trend that is primarily based on mixed-use developments, many of them new, built along transportation lines.
New urban development will increasingly follow public transport lines. More and more integration among residential townships in the fringe of Jakarta will be in trend connecting with the upcoming public transportation networks such as high-speed trains, light-rail trains and toll roads.
The growth of co-working spaces for commercial office because of technology and internet developments. Logistics spaces for warehouses as internet on-line businesses have been growing rapidly. We will see those new sectors being developed and affecting the market trend at a steady pace.
MALAYSIA according to – Judy Ong, Executive Director Research & Consultancy, Knight Frank Malaysia
Housing affordability remains a key issue in Malaysia, particularly in the capital and key cities. House prices which have been trending up since 2010 continue to outpace the rise in income levels and with that, the prevailing median house prices are beyond the reach of most Malaysians.
Coupled with the slew of cooling measures implemented progressively since 2012 to curb excessive speculation in the property market, sales volume has continued to decline.
To address weaker sales number and falling revenue, many developers have turned their focus to the affordable housing segment, while under Budget 2018, the government has increased allocation to address rising cost of living and affordable housing issues among the lower to middle income segments of the population.
In 2018, the recent freeze on four components of the property market that include condominiums and serviced apartments priced RM1 million and above is expected to provide a breather to the challenging luxury residential sector.
Developers are expected to take stock of the situation by reviewing and re-planning their proposed products and may further defer property launches.
We expect to see more bite-size units which translate to lower quantum pricing (< RM1 million) coming into the market although moving forward, there may be risk of oversupply in this category of units.
Completion of the Sungai Buloh–Kajang [SBK] mass rapid transit line (MRT Line 1), with full operations (for both Phases 1 and 2) since 17 July 2017. Together with the existing LRT and KTM lines improving connectivity within the Greater Klang Valley region, we continue to see positive demand for office space in established and upcoming decentralised locations along the rail transportation routes.
The development and infrastructure progression at the upcoming international financial district of TunRazak Exchange (TRX) is expected to revive demand for office space in the KL city. The TRX MRT station is one of the two interchanges between the SBK and the upcoming MRT Line 2 (Sungai Buloh–Serdang–Putrajaya [SSP] line).
Kuala Lumpur offers opportunities that parallel other western and regional markets, supported by improving pool of premium and good grade office space and transport infrastructure, a multi-lingual educated workforce and competitive cost of doing business amongst others.
With changes in technology supporting flexible working culture, the serviced office and co-working segments are gaining popularity. With strong government-led initiatives by MDec, leading to the launch of Malaysia Digital Hub and the Malaysia Tech Entrepreneur Programme (MTEP), demand for serviced office and co-working space is expected to grow across a diverse mix of industries and professions such as technology start-ups and SMEs.
Greater Klang Valley continues to see the expansion of global as well as the emergence of local co-working operators.
SINGAPORE according to – Alice Tan, Head of Consultancy & Research, Knight Frank Singapore
The collective sales fever has gained rapid traction in Singapore since May 2017, with a total of 25 collective sale deals achieving a total of over S$7.9 billion in sales value. The property developers’ hunger to replenish their land bank amid the record low unsold inventory this year of below 17,500 units for the past two quarters, has further contributed to the wave of investment sales at higher than expected prices.
The prospect of a continuing price recovery of private residential properties in Singapore, fuelled by high land bid prices, could gradually erase the past price decline of 11 per cent over four years that the government has tried to achieve. We foresee that the price increase of private homes could range between 3 per cent to 7per cent, year-on-year by Q4 2018.
The office market saw an injection of renewed confidence with the sale of Asia Square Tower 2 for S$2.094 billion to CapitaLand, yet another big-ticket deal and a reflection of certainty in the prospects for office property.
As the nature of office space needs evolves rapidly with new ways of business operations and engagement, we foresee the demand for flexible, activity-based working (ABW) spaces to gather pace for the office property market in 2018.
ABW is expected to be a predominant workplace strategy going forward, adopted not only by the technology sector, but by all organisations looking to foster knowledge sharing, collaboration, staff well-being and productivity in a flexible and inspiring workplace environment.
Plans for rejuvenating existing precincts that matter to Singapore’s image and future could be on the cards in 2018 as the Singapore government continues designing the country’s map of transformation.