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Where is the most profitable residential real estate in Asia Pacific?

According to a new study by Knight Frank, most of Asia-Pacific residential markets look set to soar after the reopening of the Chinese Mainland.

Singapore – Knight Frank has released its Asia-Pacific Residential Review Index for H2 2022. This report tracks the movement of average residential prices within the Asia-Pacific region across 23 cities. Although Asia-Pacific markets persist in having a cautious outlook due to increasing interest rates, high mortgage rates, and high inflation, most Asia-Pacific markets remain stable and optimistic due to the Chinese Mainland ending its Zero-covid strategy and the near full re-opening of the economy post-pandemic.
Victoria Garrett, Head of Residential at Knight Frank Asia-Pacific, shares: “Annualised home values in the region’s residential sector rose noticeably slower in 2022, decelerating to 0.4% from 5.7% six months ago, as more homebuyers are priced out by the rise in mortgage rates and an inflationary environment sparks caution. Still, the slowdown belies the underlying resilience across the region. In markets that have corrected the most, such as Australia and New Zealand, home equity has stayed positive while the lagging property cycle in emerging Southeast Asian markets is now on a strong recovery footing. Across the region, residential markets continue to be well supported by robust economic fundamentals and are well positioned to weather the ongoing uncertainty."
Christine Li, Head of Research at Knight Frank Asia-Pacific, adds: "2023 is turning into a pivotal year for real estate in the region. The abrupt reversal of Zero-Covid strategies on the Chinese Mainland has firmed prospects of residential markets in the region. While there are renewed inflationary pressures, the net effect can still be mitigated by more integrated trade flows and efficient supply chains. Although some time is needed for the impact to flow through, the return of Chinese buyers will likely boost transaction volumes for residential properties, particularly in the prime segments of the region’s gateway cities. As capital flows normalise, we believe there is scope for unlevered investors to take advantage of the current soft market for attractive entry opportunities."

Key highlights of The Asia-Pacific Residential Review H2 2022
  • The average YoY residential price growth within Asia-Pacific in H2 2022 stands at 0.4%.
  • 14 out of the 23 cities tracked recorded positive annual price growth in H2 2022.
  • Southeast Asia: Metro Manila is the top-performing Asia-Pacific market with 24% year-on-year (YoY) growth. The information technology-business process management (IT-BPM) sector continues to stabilise, and job creation has resulted in a boost in demand for housing. The recovery is broad-based, anchored by the new launches in the luxury segment. Although the overall economic recovery remained fragile and demand for housing is still moderate, developers in Bangkok remain cautiously optimistic, holding firm asking prices in H2 2022. The prices are up by 0.7% YoY with a positive outlook in the next 12 months. The main driver comes from an interest in the suburban industrial areas, where most buyers are working.
  • Australasia: Australia’s economy has sound fundamentals with full employment for a large portion of the second half of 2022. The official cash rate has been raised from the historic low of 0.1% in April 2022, to stand at 3.1% heading into 2023, reducing the mortgagee's serviceability under the responsible lending regime. Sales transaction volume has fallen into negative growth territory over the past 12 months for every capital city and regional area across Australia, except for Greater Perth, Greater Adelaide, Regional Queensland, and Regional Western Australia. Despite the muted transaction volumes, Perth was the best-performing market in 2022 with a 3.1% YoY growth. With regard to New Zealand, the past 12 months have seen reductions in residential values with prices in Wellington and Auckland falling 21.6% and 17.3% YoY respectively compared to a year earlier. Recent economic data indicates that inflation may be peaking and interest rates stabilising which could lead to prices stabilising later in 2023, although in the short-term prices may continue downwards due to momentum in the market.
  • East Asia: In December, the Hong Kong Monetary Authority (HKMA) increased its base rate by 50 basis points (bps) to 4.75%, close to the rate last seen in January 2008. Rising interest rates and the weak domestic economic outlook have prompted more people to delay buying decisions. Developers have significantly slowed down the pace of sales of new properties, given the annual decline of the city stands at 13.8%. With the territory ending the Zero-covid stance together with the Chinese Mainland, the return of Chinese mainland buyers could lend support to the price decline. A handful of notable transactions were recorded, which helped explain the positive prospects for the luxury residential market.
  • South Asia: Despite the Reserve Bank of India raising policy rates (interest rates) by a cumulative 225 basis points (bps) in 2022, residential demand in the country has not only remained resilient but surged to a nine-year high in terms of annual sales in 2022 with 153,961 units sold during H2 2022. This constitutes a healthy 15% YoY growth in volume due to heightened savings during the lockdowns, relatively little income disruption in the mid and high-income categories, and a comparatively strong economic growth outlook.

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