Growing Stability
The Asia-Pacific region continues to be viewed favorably by international investors for its economic and political stability. According to LaSalle’s mid-year Investment Strategy Annual (ISA) 2017, the Asia-Pacific region experienced minimal impact from turbulent political events in the first half of 2017, with its two largest countries China and Japan meeting growth expectations year-to-date.
Increasingly, China, the dominant trading partner in the region, is expected to underpin steady positive economic growth in major countries such as Australia, Japan and South Korea. Investors, however, should remain wary and watchful for any signs of capital market volatility.
Elysia Tse, Head of Research and Strategy – Asia Pacific at LaSalle, commented, “The expansion of credit in Asia Pacific and the gradual withdrawal of monetary stimulus in the West are two trends to watch carefully -- both have the potential to disrupt the steady improvement of the global economy. That said, we expect slow and gradual improvement in economic indicators to stay on track at the macro level. We remain confident that a hard landing in China is unlikely over the near term, despite the headline news on the country’s debt challenge.”
The stability of the banking system is a vital constituent of a healthy economy. Asia-Pacific banks have had strong support from their governments as well as central banks, with comparatively stronger balance sheets and currency reserves than those in the West. As a result, we do not see significant credit shortages looming in the region. The various agendas of central banks in Asia Pacific are expected to lead to a divergence in the monetary policies from the U.S. Even if central banks in the region start to raise rates, they are unlikely to raise rates too high or too fast. As a result, the likelihood of the U.S. rate hikes leading to a significant yield expansion in Asia Pacific over the near term is low.
Real estate fundamentals across the region are generally healthy, and demand drivers continue to respond to structural changes in demographics, technology, urbanization, and environmental factors (DTU+E) across the globe. Across the region, the ISA shows that investor appetite remains strong for core products, leading to strong exit opportunities for value-add investors, but also a lack of attractive opportunities for core investors in the near term.
Said Tse, “The near-term outlook for Asia Pacific real estate remains steady, with no significant changes relative to LaSalle’s view outlined at the beginning of the year. Occupier markets are largely balanced with the exception of a few pockets of oversupply, such as in Singapore, resource-based markets in Australia, and several emerging cities in China.”
“One of LaSalle’s key themes for 2017 is the fiscal stimulus of major Asia Pacific governments through infrastructure investments or household subsidies. Our strategy continues to emphasize non-discretionary retail in Japan, China, Singapore and Hong Kong due to the sector’s defensiveness and support from fiscal stimulus. We also continue to favor modern warehouses, particularly in China and South Korea, riding on the rise of e-commerce and the institutionalization of the sector,” Tse added.