Where next for Asian residential investors? - June 2020 Asia-Pacific Residential - Knight Frank
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Asia-Pacific Residential
Where next for
knightfrank.com/research
Asian residential
investors?
June 2020
Highlights.
With countries coming out Asian investors, which made Supported by low interest Many investors are looking
of Covid-19 lockdown, we are up significant demand in many rates, currency fluctuations for stability, diversity
starting to see more activity global residential markets, are and some discounts, we and developed markets,
across the key markets in now increasingly looking both believe that the cross-border Singapore, Australia and the
Asia. domestically around the world activity will grow over the UK are likely to be three of
for opportunities. coming months. the markets most heavily in
demand.
Regional and global residential markets, Singapore and Hong Kong. In has so far seen enquiries and sales volumes
markets have been severely disrupted addition, it will look at current activity in pick up in a number of markets as most of
over the last four months, with two of the most important destinations the region entered into their easing phase.
lockdowns and aggressive social for Asian capital: London and Sydney. It
distancing rules significantly hindering will then consider some of the key themes, However, given the expected price
market activity with viewings unable to drivers and factors that could influence weakness going forward and considering
be conducted. In some markets, show buying behaviour and destination choice the historic performance, including
flats have been closed and developers into the second half of 2020 and beyond. previous recoveries from recessions, we
have postponed launches. next explore what the outlook for the
residential sector could look like and where
However, with lockdowns being How have Asian markets
are the potential opportunities?
eased, we are now starting to see performed year-to-date?
activity return, with a number of
With the COVID-19 outbreak staring to
markets seeing a strong uptick in
take hold only around mid-March, with
enquiries and potential activity. With
the exception of China, its impact on the
the importance of Asian buyers and
Asia-Pacific residential prices has yet to be
investors, not only in their domestic
fully felt. Hence, the region’s Q1 2020 price
markets but also in markets overseas,
performance across its major gateway cities
likely to be hugely influential, it is
was rather resilient with most markets
worth considering where they could be
recording either stable or improving rates
going next in their residential property
of price growth.
purchases.
This paper will take a look at current While Q2 2020 has been a quiet quarter
regional Asian market performance, with limited transactions as most markets
then drill down into two key regional were under lockdown, the month of June
SOURCE: KNIGHT FRANK RESEARCH
2
Hong Kong.
Resilience despite strong This highlights that despite the weak
headwinds economic conditions, buyer demand
remains resilient as potential buyers
Hong Kong’s housing market has faced
previously on the side lines are gradually
two major challenges since mid-2019
re-entering the market with many taking
when the ongoing social unrest erupted,
advantage of the current downturn to
followed by the COVID-19 outbreak.
bottom-fish on expectations for a market
However, housing prices within the
rebound once the COVID-19 outbreak
financial hub have remained relatively
abates. Some recent notable deals done
resilient, largely supported by low interest
include a 2,657 sqft house at 1 Shouson
rates and the government’s relaxation of
Hill Road East, which was sold for
mortgage caps for first-time home buyers
HK$198 million (HK$74,520 per sq ft),
in October 2019.
and a 5,128 sq ft house in Mont Rouge,
Kowloon Tong, selling for HK$350
Prices since the recent peak, in June
million (HK$68,253 per sq ft); showing
2019, had fallen 5.8% to the trough in
that the deep-pocketed buyer appetite in
February. Comparing this to Hong Kong’s
the city remains strong.
experience during the Global Financial
Crisis (GFC), the market witnessed a
peak to trough decline of 17.2% in the
second half of 2008. Furthermore,
as the government begins to resume Hong Kong Residential
public services and ease restrictions
on travel and social distancing, Hong
Kong’s residential market sentiment has
gradually improved with prices rising
0.4% month-on-month in April.
S O U R C E : K N I G H T F R A N K R E S E A R C H, R AT I N G A N D VA L U AT I O N D E PA R T M E N T
3
Singapore.
Steady ship despite new Looking at the residential market given that both market conditions are
potential transaction lows currently, prices are near their recent peak vastly different. Underlying demand
in Q4 2019 having only fallen 1% since. continues to remain resilient, as
Looking back to the GFC, the Urban
However, the residential market Q2 2020 witnessed by the 1.0% price decline
Redevelopment Authority’s overall
has been severely impacted by Singapore’s since Q4 2019, despite Singapore’s
price index for private residential
circuit breaker, and we expect the slowing economy from the US-China
properties decreased by 24.9% from its
possibility of further price weakness and trade tensions and the softer economic
price peak in Q2 2008 to its trough in Q2
potentially a new quarterly transaction outlook in Q1 2020 when COVID-19
2009. During this same period, private
historical low since the GFC. hit the country. Furthermore, most
residential sales in Singapore dropped
developers have sufficient reserves to
to a low of 1,627 transactions in the Going forward, a significant drop
tide through this difficult period and
fourth quarter of 2008, which continues in property prices during the current
we do not foresee significant price
to be the worst quarterly property COVID-19 outbreak is unlikely to happen,
reductions on primary homes, unlike
sales performance until now. When we when compared to the 24.9% peak to
during the GFC.
look at the post-GFC recovery, prices trough decline seen over a 12 month
recovered swiftly to its pre-GFC peak period during the GFC,
only one year later in Q2 2010.
Singapore Residential
S O U R C E : K N I G H T F R A N K R E S E A R C H , U R B A N R E D E V E LO P M E N T A U T H O R I T Y
4
Australia.
Getting back on its feet
Australia Residential
Australia’s residential market
remains on the path to recovery
boosted by a credit environment
which continues to ease with historical
low interest rates, currently at 0.25%,
combined with the recently launched
federal HomeBuilder Scheme. As a
result, this has supported median
residential price growth which have
risen 8.6% year-on-year in Q1 2020;
reaching a new historical high just 12 S O U R C E : K N I G H T F R A N K R E S E A R C H , A U S T R A L I A N P R O P E R T Y M O N I TO R S
months from its recent trough.
With Australia now seeing the
light at the end of its COVID-19
outbreak, the government has started
to ease its lockdown restrictions and
allowing more economic and social
activities to take place. This, coupled
with the record low interest rates
mentioned previously, should firm
market sentiment against the forecast
economic headwinds which should
lead to a positive market recovery by
the end of 2021.
5
London.
Heading out of troubled waves
into calmer seas Prime Central London Residental
The residential market in prime
central London has seen many
disruptive factors over recent years,
from the stamp duty reforms in 2014
and 2016 to Brexit. The uncertainty
surrounding Brexit and the volatile
political situation meant prices and
transaction volumes became more
subdued.
However, given London’s continued
S O U R C E : K N I G H T F R A N K , LO N R E S
global appeal there has been growing
pent-up demand as new buyers register
to a greater extent than new properties Prior to COVID-19, the market was
have come onto the market. rebounding given a renewed confidence
following the decisive general election
As political uncertainty receded
in December. As restrictions begin to
following the general election in
lift and activity resumes we have seen
December 2019, prices saw an uptick at
a surge in new buyer registrations. The
the beginning of 2020 for the first time
pent-up demand from lockdown and
since 2015.
previous years, combined with the fact
When we look back at the prime that some areas have seen their prices
central London market during the GFC, correct by as much as 25% since the
prices fell 24% from peak to trough over peak and currency advantages could
a 12-month period. Comparing this to place London at the beginning of a new
the current market performance, prices cycle.
have fallen by only 17% from their
August 2015 peak to the latest May 2020
reading. They still remain at 11% above
the pre-GFC peak.
6
Key themes and drivers 3) Education What next?
going forward
Education has always been an important Stable markets likely to be the
1) Economic stimulus driver of property purchases for Asian priority
Most of the Asia-Pacific gateway investors. Traditionally the US, UK
In terms of internal enquiries, we
markets have seen their governments and Australia have been key markets
have seen Asian investors continue
implement various fiscal and monetary for study, whether it be secondary or
to look for stable markets, with
relief policies to minimize the impact tertiary education. Due to the COVID-19
Singapore and Japan among those
of COVID-19 on their economies. The pandemic, many are now postponing
most in demand. Outside of Asia, the
most relevant being lowering interest sending their children for the September
UK remains an important destination
rates which would on one hand lower intakes as they look at local education
although Australia and the US have also
borrowing costs for existing owners or have taken the opportunity to take a
continued to see interest. The latter is
and minimize distressed sales and “gap year”. While this is likely to have an
likely however to depend on the on-
making it more affordable for buyers impact in the next year, many investors
going and rapidly shifting US-China
who had been waiting on the side lines. looking at buying for their children’s use
tensions which could especially impact
Furthermore, with many economies are often planning many years in advance
Chinese buyers.
forecasting their GDP’s to contract this and purchasing property years before they
year, we believe the low interest rate go overseas for education.
Economic downturns provide
environment will persist for some time
challenges and opportunities
and will be a positive tailwind for the 4) Currency
residential markets within the region. Currency continues to be driver for Going forward, with much of
cycle. property purchasers, with fluctuations the future still uncertain and the
potentially providing significant economic toll of the COVID-19 outbreak
2) Travel restrictions discounts in local currency. Since continuing to pile on; there will be
The travel restrictions introduced COVID-19, there has been significant further macro headwinds impacting
across the region have had an impact depreciation of the Australian dollar the residential markets across the
on those looking at cross-border and the UK pound. Although both major global gateway cities. However,
purchases. The restrictions have meant have recovered to some extent, future while this is generally negative news,
that as markets slowly start to recover, fluctuations as the full economic impact we believe this also creates a buying
the only way to view is via virtual of COVID-19 is more clearly understood opportunity for investors as some of
methods. While the travel restrictions could provide opportunities for Asian their market fundamentals remain
will continue to be a brake on demand investors. resilient.
until they are truly lifted, the reality is
that many Asian investors are prepared 5) Risk diversification Asian buyers likely to remain key
to buy off-plan without visiting the With the volatility witnessed in the global buyers
project. stock, bond and commodities market
The last ten years has seen Asian
over the past several months, and the
buyers emerge as key purchasers of
toll of COVID-19 on the global economy
residential property around the world.
expected to last for some time, interest
Investment diversification, wealth
in real estate, especially residential due
preservation, education, lifestyle
to its wider accessibility, will see greater
and business remain key drivers of
interest as a risk diversification tool for
this activity. As Asia emerges from
investors. As such, we believe this should
COVID-19, and with the region set to see
drive more interest into residential
some of the strongest growth over the
markets, especially within the key
coming years, Asian buyers in major
Asia-Pacific gateway cities where there
gateway markets will continue to be a
is a larger population of high-net worth
major market trend.
individuals.
7
We like questions, if you've got
one about our research, or would
like some property advice, we
would love to hear from you.
Victoria Garrett Nicholas Holt
Head of Residential, Asia-Pacific Head of Research, Asia-Pacific
+65 8823 5502 +86 137 1895 6135
victoria.garrett@asia.knightfrank.com nicholas.holt@asia.knightfrank.com
Georgina Atkinson Justin Eng, CFA
Manager, Residential, Asia-Pacific Associate Director, Research & Consultancy
+65 8799 0880 +65 6429 3583
georgina.atkinson@asia.knightfrank.com justin.eng@asia.knightfrank.com
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