THE year has been a mixed bag for the global property markets; some have performed fairly well while some, like in Malaysia, are wishing for better days ahead.

New Zealand, driven by strong economic conditions, has had a pretty good year with prime retail taking the lead. The momentum of the current economic growth is expected to continue to benefit the property market in the next 12 to 18 months. Over in Australia, the fundamentals for property remain robust, with Melbourne and Sydney expected to continue to lead the property market.

Hanoi and Ho Chi Minh City in Vietnam saw good sales in their residential market. The low interest rates, low inflation and the perceived challenges from other markets such as Malaysia, Hong Kong and Singapore are expected to ­benefit Vietnam.

Meanwhile, Hong Kong, India, Indonesia and New York have had a rougher year and the outlooks are mixed. London and China have had a roller coaster ride this year. The former faced jitters from the shock vote to leave the European Union, while the latter saw the effects of policy easing for house ownership, which led to a reversal in housing policy by local governments later in the year due to rising prices. While China’s residential sales volume is expected to decline next year, property remains a safe asset class in London, with 2017 activity in central London expected to be dominated by Asian investors.

Read on to find out what the consultants have to say about their respective property markets.



Mark Ridley (Chief executive director, Savills UK and Europe)

Mark Ridley

In the past 12 months — with the Brexit referendum, a Trump election and the prospect of real uncertainty in the ­European elections next year — ‘expect the unexpected’ is now the norm, not the exception. Despite all this uncertainty, property remains a fundamentally safe asset class, giving strong income returns and, in many cases, is a refuge for capital preservation in the longer term.

In the lead-up to the EU referendum, markets were strong and the drop in transactional values was primarily due to lack of liquidity as opposed to waning investor appetite. Some market sectors experienced headwinds, with the absorption of higher stamp duty rates and concerns over rental growth in some sectors.

The seismic shock of the Brexit vote brought transactional activity in many cases to a halt. The much-­heralded run on the retail funds was headline news for several months, but with the realisation that life in the property world must go on, all the retail funds are now trading.

Nationally, the markets continue to appear robust in all sectors, although there remains some hesitation on what Brexit will mean in the financial markets, and also in an agricultural marketplace without EU subsidies.

The devaluation of the British pound has made UK property very attractive for international investors, with 2017 activity in central London likely to be dominated by Asian investors. American and Pan-European investors are also strong nationally.

In the residential sector, the average house price growth will be low over the next two years, but an extension of the low interest rate will prevent a price correction. Mainstream house price growth is likely to rise 13% by 2021, with east of England the top performer at 19%, and the north and Scotland averaging just 9%.

Transaction volumes will fall 16% over the next two years, recovering to 2016 levels by 2021, but individual buyer groups will be impacted differently. Lower transactions are expected to continue to drive demand into the private rented sector from frustrated would-be homeowners.

In the commercial segment, uncertainty, rising demand from pension funds, and low bond yields will continue to drive a global hunt for investments that deliver secure income. This will lead to strong demand for properties in the UK that have such characteristics, whether they are long-let city offices, index-linked warehouses, or ‘alternative’ asset classes. Demand for such assets is likely to exceed supply, and Savills expects to see improving capital value growth.

For the residential segment, the EU referendum vote has compounded the stamp duty effect on prime residential property, signalling two flat years before a return to growth in 2019. Prime markets are likely to outperform the mainstream over the next five years to the end of 2021.

Opportunities for private investors lie in restoration projects in the commuter belt where value can be added to take advantage of the price gap between London and elsewhere.

As for the commercial segment, lender and borrower risk aversion will lead to a 30% to 40% fall in the development activity across all sectors and regions, particularly in London, challenging tenants with forthcoming lease events but presenting an opportunity for developers to press ahead with projects.

Tenants may demand greater flexibility when signing leases but occupational demand will be maintained. Declines in development activity, which are likely to be the most intense in 2019 to 2021, will lead to falling Grade A vacancies and rising rents towards the turn of the decade. Non-domestic investor interest in the UK will continue to rise, with the next five years likely to see record levels of international investment in assets outside London.

Specific opportunities are available in logistic warehouses in strong locations such as the Midlands. With availability at record lows and demand unaffected by the uncertainty, this sector looks likely to continue to outperform the rest of the market due to its long and often indexed leases, as well as landlord-friendly dynamics in the occupational market.

High quality regional office assets should also perform well. Generally less affected by post-referendum uncertainty, availability in many markets is low, particularly of new and refurbished space, while demand is likely to remain high, supported by some larger organisations continuing to relocate some functions from London.



KK Fung (Managing director, JLL Greater China)

KK Fung

Several rounds of policy-easing measures announced in 2015, mainly lower downpayment requirements and lower mortgage rates, stimulated China’s residential market and led to a rebound in housing sales and consequently a price rally in the first nine months of 2016 across China’s high-tier cities.

Rising prices prompted the local governments to reverse their housing policy in October, with many cities aiming to curb investment demand by increasing downpayment requirements and re-imposing home purchase restrictions. Following the implementation of tightening measures, housing sales have been declining while prices have stabilised.

In China’s office property market, overall demand, supported by domestic companies, held up well in the tier-one cities [Shanghai, Beijing, Guangzhou and Shenzhen], with rents on the rise. However, the tier-two and three markets were impacted by the crackdown on the peer-to-peer lending industry. The overall take-up rate in tier-two and three cities was lower than last year, which weakened the landlords’ pricing power. Coupled with large new supply, rents in most of China’s tier- two and three cities were falling in 2016.

In the retail property market, operating shopping malls remained challenging as e-commerce continued to grow its market share. Shopping mall rents in some tier-two and three cities started to fall due to strong competition in 2016 after several years of growth. In the warehouse market, demand from e-commerce and third-party logistics (3PLs) remained strong in 2016, thanks to the continuous boom of online retailing in China.

These new tightening measures will impact sales volume in China’s residential market, which is very likely to fall next year. However, we do not expect housing prices to see any meaningful correction in the short term. After nearly a year of robust sales, housing inventories in most of China’s high-tier cities are now at record lows, which strengthen developers’ pricing power.

Over the medium to long term, the fundamentals of China’s residential market remain largely unchanged. The high-tier cities will still be the most attractive locations for domestic migration, which will provide continual strong support to the local housing markets, while lower-tier cities will struggle to find growth engines and consequently their ability to absorb excessive inventories will be limited.

In the office market, the four tier- one cities are expected to see moderate rental growth next year as demand and supply remains largely in balance. Office rents across China’s tier-two and three cities are likely to decline further as large new supply of office space continues into next year. In the retail market, landlords of shopping malls will continue to put emphasis on experience-related retailing to retain customer traffic. We expect to see sharper divisions between winners and losers. China’s warehouse market will continue to see strong demand coming from e-commerce and 3PLs to drive up rents, although at a slower rate.



Dominic Brown (Head of Southeast Asia, Australia and New Zealand research at
Cushman & Wakefield)

Dominic Brown

Sydney was the leading market in Australia across most, if not all, real estate sectors in 2016, with Sydney central business district office arguably the leading commercial sector. Tenant demand in the office sector, supported by service sector employment growth, has remained strong over the year. This, coupled with stock withdrawal due to infrastructure development, has seen rents rise by over 18% year on year as at 3Q2016. Robust investor demand has compressed yields further, which, together with the rental growth, has driven annual capital value growth of about 30% — the highest in 28 years.

The fundamentals for property in Australia are robust, but variations in city performance are expected to remain — Australia continues to be a two-speed economy. Sydney and Melbourne are forecast to continue to lead the country, supported by positive economic and employment growth. Limited new office supply will keep downward pressure on vacancy and so support forecast rental growth of about 11% for the year. Momentum is forecast to continue in Melbourne with slightly stronger rental growth next year. Indicators suggest flat rental growth in Brisbane in the new year.

Australia is a key investment destination not only in Asia-Pacific, but also globally and as such, Australian property in general is an attractive investment proposition. Commercial properties in Sydney and Melbourne will continue to be sought after due to their stronger growth fundamentals. With core CBD office assets in these cities becoming more tightly held, investors should also look at fringe and metropolitan precincts.

The Sydney and Melbourne industrial and retail markets are showing robust signs of growth, supported by a strong housing market and growing logistics sector, respectively. Brisbane is now past the worst of the recent decline. Investors may see attractive investment opportunities in this market, notwithstanding the weaker growth fundamentals across its commercial real estate sector.

At the national level, the main downside risks are macroeconomic and tied to the global economy. A higher inflation environment will erode some of the commercial property’s relative value. However, with the spread between Australian commonwealth government bond yields and commercial real estate still above the historical average, there is room for bond yields to move upwards before impacting property. More positively, stronger growth in the US should see the Australian dollar depreciate, which would support export-oriented industries including tourism, education and manufacturing.


New Zealand

Zoltan Moricz (Head of research, CBRE)

Zoltan Moricz

The New Zealand property market has benefited from strong economic conditions, with the country being one of the few in Asia-Pacific to experience regular upgrades of its economic performance as 2016 unfolded.

Ongoing occupier demand for prime space drove strong take-up rates in the central business district as well as in the suburban office and industrial markets. At the same time, supply has also increased and has resulted in increased vacancies and slowing rent growth. Prime retail has been the best performing sector, aided by growing interest from global retail brands entering the country.

Investment appetite continues to be strong, with the past two years setting records for a number of transactions. Syndicators and domestic investors remain very dynamic. Offshore parties were both active purchasers and sellers and their net investment position remained largely stable in the past year.

Economists expect the current momentum in the economy to be accompanied by greater fiscal stimulus and a second round of growth drivers such as wage pressures. These combined effects could sustain economic growth in the 3.5% to 4% range over the next 12 to 18 months. If such growth occurs, it could well mitigate the effects of the increasing vacancies that have emerged in 2016. The mitigation could be done through improved net absorption next year to offset what will remain an active supply environment. In this setting, the recent slowdown in rent growth could be temporary and stronger growth should resume in the new year if concerns over the vacancy overhang diminish.

There is a broad base of investor demand for New Zealand property assets and all types of real estate will continue to attract investors. We think that if the interest rate rises, higher yielding property that offers tenure and occupational security with solid underlying market dynamics will be the most sought after.

Monetary yield drivers appear to have run their course, with current trends in capital cost and availability providing an upward rather than downward pressure on yields. Resurgent rent growth would offset some of these pressures and bolster investment in property at current yield levels.


New York, the US

Wei Min Tan (Licensed associate real estate broker, Castle Avenue Team at Rutenberg, Castle Avenue)

Wei Min Tan

In the New York market, particularly Manhattan, sales volume slowed down starting in the second half of 2016 and it became a (rare) buyer’s market. For example, in 3Q2016, numbers showed sales volume dropped 20% as buyers adopted a wait-and-see attitude as the US presidential election got underway. Pricing, however, continued to go up and price psf increased 18% in 3Q2016. The best performing sector in New York has always been residential condominiums because this sector has demand from both local primary residence buyers and global investors.

Sales volume has picked up since after the election. Currently, it is the winter season, the slowest time. I expect 2017 to be the year of the investor. Investors globally would seek the stable haven of Manhattan property because there are no yields anywhere else. The new year would provide more certainty.

The type of real estate that would attract investors in the coming months is residential condominium because it is easy to manage. A factor that would encourage the property market’s growth are the pro-business initiatives of the Trump administration; for example, deregulation of the banking industry, investment in infrastructure and reduction in tax rate. On the contrary, the interest rate hike may hinder growth.



Willson Kalip (Country head, Knight Frank Indonesia)

Willson Kalip

Overall, the Indonesian property market saw a weak performance this year. Residential [middle to low] and hotel sectors were still able to maintain better momentum in terms of sales volumes compared with the rest of the property sectors. However, competition remained very tight due to a massive supply of new hotels. Many hoteliers rely heavily on the meetings, incentives, conferences and events [MICE] business as the key driver, with spending coming from private corporations and government agencies.

Real demand for housing remains strong due to an expanding middle-income segment, high productive age class, high urbanisation rate and housing backlog of 13.5 million property units. The majority of the investors in the upper segment adopted a wait-and-see stance due to uncertainties such as tax amnesty programme, local elections and demonstrations (over religious and wage issues).

The demand from middle to lower-income buyers (genuine buyers/real users/first-time home buyers) remained strong, but affordability and purchasing power remain the major factors sustaining the residential sector. Lower interest rate and additional incentives offered by developers such as longer downpayment period, instalment payments and discounts/gifts to increase sales also helped sustain the residential sector.

Taking into account all factors such as global and domestic economic conditions, the Indonesian property market has entered into a mature or consolidation phase. The outlook for next year remains cautiously optimistic with opportunities and challenges.

While 2016 saw a slowdown overall, there are justifications for expecting the years ahead to see some recovery. Long-term confidence remains strong and fundamental factors such as growing population, middle-income class and stable political situation remain appealing for investors/buyers.

New infrastructure projects are underway and plans for their acceleration are expected to see increased consumer confidence and optimism in the years to come.

Investors and buyers, who are temporarily waiting on the sidelines, are expected to enter the property market again after the local elections are over in the second half of 2017. Economic and political situations remain the key factors affecting Indonesia’s property market.

The type of real estate that will attract investors in the coming months is mixed-use developments. Having a mixed-use development or self-sustained township on a larger scale is always the trend due to traffic jams and increasing number of vehicles. Pedestrian-friendly development with a smart city concept remains popular, but implementation is a challenge due to habit, cost and lack of support for public infrastructure from the government.

Manageable inflation and growing confidence of foreign developers (especially from China, Japan, Malaysia, South Korea and Singapore) are plus points for the property market. It is important for foreign investors to find suitable local partners who are reputable and trustworthy.

The government’s real commitment to accelerate infrastructure development will spread real estate development outside the core central business district locations, presenting new opportunities for investors. The improvement in real estate licensing process will also help the market.

The new year will not be without challenges. The global and local economic slowdown, upcoming elections, political demonstrations, higher minimum wages, higher electricity and fuel costs and currency fluctuations can hinder the growth of the property market.

Affordability remains a key driver to sustain the residential sector. However, due to the economic slowdown and high prices, affordability is decreasing for those in the middle- to ­lower-income bracket. Therefore, developers came up with incentives such as longer payment terms, subsidised instalment payments, and developers’ financing, among others.



Anuj Puri (Chairman and country head, JLL India)

Anuj Puri

India’s real estate market showed rather unspectacular growth this year, though it did perform well in certain parts of the country. Residential property remained subdued in most cities because of depressed sentiment and a fence-sitting stance by end users who have been awaiting further correction in prices. Since rates have more or less bottomed out in most cities, this has not happened. There is also a significant trust deficit among end users, who are not very confident that developers will complete their projects on time.

Commercial real estate did show signs of revival, with several large domestic and international companies going ahead with their expansion plans, with the start-up segment also contributing significantly in cities like Mumbai, Bangalore and Pune.

The federal government’s recent demonetisation of high-denomination currencies came as a shock to most Indian business sectors, including real estate. The after-effects of this move are expected to be palpable over the next two to three months, with the residential resale market, the luxury homes market and land sales likely to remain suppressed in the interim. However, this move will also help infuse greater transparency and confidence into the Indian real estate sector, which is also likely to see the nation-wide implementation of the Real Estate Regulatory Act (RERA) in mid-2017.

A lot of the pent-up demand for homes will return to the market and begin translating into purchases in the first half of the year. Overall, we will definitely see 2017 usher in a period of holistic and sustainable growth for the industry.

Both residential and commercial properties will continue to attract investors. Since the ticket sizes for office spaces are bigger, this segment will find favour with institutional investors focused on long-term returns. Smaller investors will focus on the residential sector, concentrating on projects by reputable and established developers who are showing good construction progress at their sites.

The enforcement of RERA is likely to infuse a massive dose of confidence and positive sentiment towards mid-year, bringing back a lot of the pent-up demand for residential and commercial properties. The Reserve Bank of India is also likely to announce more agreeable lending rates on the back of increased liquidity in the system brought on by the demonetisation move. This will help make housing more attractive again. In the commercial real estate, we are likely to see the first real estate investment trust (REIT) being listed next year, and this will prove to be a game-changer for the office sector as it will help increase investments.


Hong Kong

Denis Ma (National director, head of research, JLL Hong Kong)

Denis Ma

In the residential sector, housing prices were declining at the beginning of the year before rallying in the second half on the back of a volume recovery brought about by incentives in the primary market and further mortgage rate cuts by the city’s largest banks.

The market for ultra-luxury properties [more than HK$100 million] remained rock solid with capital values holding steady even as the mass market underwent a correction early in the year.

Leasing demand for commercial property remained weak against another year of moderate economic growth. With few multinational companies expanding, growth in the city’s office market was primarily underpinned by demand from China.

The retail market continued to be the worst performing sector amid the ongoing slump in the inbound tourism market and retail sales. Rents in prime shopping centres, which are usually more resilient than street shops, started to sag in the second half of the year.

Demand for industrial properties also started showing signs of slowing down, with leasing volumes easing over the course of the year. Still, rental markets were able to advance against a tight vacancy environment.

In terms of total returns, the city’s warehouse sector was the best performing this year, providing annualised returns of 17.9%. The next best was office at 7.7%. Short-term challenges emerging in leasing market were offset by the potential for a structural uplift in demand arising from the completion of new transport infrastructure and limited availability of new supply over the medium term. This sector has, however, been very difficult to enter given the lack of assets available for sale in the market.

With another year of moderate growth being forecast for the local economy, demand for rental properties is likely to remain weak. Coupled with increasing supply and rising vacancy rates, we expect the rental markets to soften. The central office market will likely be the only exception, given its low vacancy environment and concentration of demand from China, which is still able to push rents higher at the margins. Still, rental growth will slow from 2016 levels.

Investment markets are now at the crossroads. With China clamping down on overseas real estate investments [capping at US$1 billion], much of the liquidity that had been driving the markets higher has now evaporated. The impact of this latest policy measure, aimed at stemming capital outflows, will be felt mostly in the office sector where China corporates have been active. Still, we expect capital values to continue to hold steady given the still low interest rate environment and reluctance of vendors to sell portfolio assets.



Marc Townsend (Managing director, CBRE Vietnam)

Marc Townsend

There is a big supply in the residential market this year and good sales in Hanoi and Ho Chi Minh City. A large portion of the units were bought by local buyers who make use of mortgage home loans and other forms of payments.

The hospitality market has seen an improvement with many new hotels in all segments, from one- to five-star hotels. This is especially seen in the central areas such as Cam Ranh, Danang, Hoi An, Nha Trang, Hanoi and Ho Chi Minh City. A new tourist destination, Phu Quoc, has emerged as well.

The office market in Ho Chi Minh City has performed well, favouring the landlords for the first time in six or seven years. The good signs include high occupancy rate in Grade A buildings, limited new supply in 2017, and a pickup in rental in Grade A, B and C office buildings.

Large launches in the high-end and luxury segments in Hanoi and Ho Chi Minh City are expected in 2017. The manufacturing sector may slow down without the Trans-Pacific Partnership (TPP) going ahead. There will be continued improvement in the hotel, resort and hospitality sectors as Vietnam stands out as a tourist destination. The office market in Ho Chi Minh City will continue to strengthen with more locals and foreigners chasing limited spaces and opportunities.

The condominium sector will attract local and foreign buyers because Vietnam has price advantages and higher yields compared to other regional countries. The income-producing assets include offices, hotels and serviced apartments. These assets offer higher occupancy rate, returns and an increase in liquidity.

There are a few advantages and disadvantages that can be seen. The advantages are low interest rate, low inflation, steady dong value and slowing growth in Hong Kong, China and Singapore. The likelihood of TPP not going ahead, poor infrastructure system, increasingly polluted environment and an oversupply of residential products are the few disadvantages. Also, with Vietnam being viewed as an emerging market, it is prone to uptick in inflation and interest rate.



Cyril Robert (Partner, head of research, Knight Frank France)

Cyril Robert

The amount invested since the start of the year totalled close to €3.4 billion in the central business district, which is an increase of 77% compared with 2015. The upsurge in activity in the second quarter enabled the CBD to return to its traditional position in the greater Paris region, attracting 27% of volumes invested over nine months in the region.

This activity is boosted by several major transactions, notably the sale of the portfolio comprising 1-5 rue d’Astorg and 14-16 rue de la Ville l’Evêque, sold by Société Générale to the Singaporean GIC for €500 million, or that of Paris Bourse sold for over €350 million. The success of the CBD shows that investors are attracted to core assets, despite the continuous increase in their prices and the prime yield staying close to 3%.

Prime yields are currently at a historic low, between 3% and 3.25% in the CBD. Despite this trough and the increasing gap separating it from most of the other markets in the Paris region, the CBD remains popular with investors. In a more discrete and more moderate way, the squeezing of prime yields is spreading to other markets in the greater Paris region such as La Défense, whose prime yields are falling below the 5% level this year.

The yield gap between core, core- plus and other asset classes tends to increase within each geographical sector, generating interest among investors for core-plus and value-added assets, which opens up opportunities in less saturated segments. The spread between prime and bond yields, a key factor in the success of the real estate segment among investors, continues to show a big advantage for real estate assets (293 basis points).

Average rents remain stable: the users vary their consumption according to the characteristics of supply and marketing conditions. Incentives remain significant, even if they tend to be reduced in the CBD, notably for small and medium-sized areas; they regularly exceed 20% outside Paris.

Forecasts are positive for the Paris market, with expected results in line with those of 2016. However, changes in monetary policy should be monitored vigilantly. Investors should place greater emphasis on speculative assets as a result of the lack of Grade A supply for tenants and the drying up of prime investment opportunities.

Strength, depth and size of the Paris market are seen as means of enhancing the attractiveness of the market in the eyes of new international investors [2016 was, for instance, marked by the entrance of Asian investors, mostly from South Korea]. The attractiveness of Paris is also spurred by dynamism of French start-ups and new tech companies.

This article first appeared in City & Country, a pullout of The Edge Malaysia Weekly, on Dec 26, 2016. Subscribe here for your personal copy.

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