You should never put all of your eggs into one basket, or so the old saying goes. The Asian property market is no exception to this rule and while there is undoubtedly growth, several factors call for trepidation, if not outright concern. According to Nicholas Holt, research director at Knight Frank Asia Pacific, open economies in the region are lagging behind their more insulated counterparts. There are also murmurs that China's current level of real estate investment is unsustainable, with calls for speculative development to be curbed, the South China Morning Post reported.
With uncertainties hiding below the surface of what seems like a period of glorious growth, it is perhaps time for investors - both foreign and domestic - to show a degree of caution. Yes, it is tempting to invest in local markets, especially if they are enjoying a boom, but there remains an undeniable logic to diversifying portfolios and putting money in safe havens such as London.
This is especially true during a time of global financial upheaval, with buyer confidence discernibly low. Mr Holt explained that in open economies such as South Korea, Taiwan and Singapore, which rely on trade, 2012 was undoubtedly a challenge. "With the problems in Europe and America, these places have seen rents drop off and tenant occupier demand has softened a bit," he said. "Companies are a little uncertain about how much space to take so they are waiting until the world economy is on a more stable footing, especially if international firms are exposed to Europe and America because they are not sure how that is going to go."
This reluctance is understandable, with South Korea already trying to fend off a mortgage collapse. GDP growth dropped to 1.6 per cent year-on-year in Q3 2012, with the economy expected to expand just 2.1 per cent in 2013. This is having an impact on the financial stability of citizens and their ability to function in the property market. In a bid to encourage lending, the Financial Services Commission is to submit plans to parliament to allow banks to sell securities such as "covered bonds", Reuters reported. This will allow banks to lend money to homeowners for longer periods of time, preventing mortgage defaults.
Nevertheless, according to Jones Lang LaSalle, as an entirety, Asia is a region earmarked for growth. In the latter part of 2012, the Asia Pacific economy increased faster than the rest of the world, with the Chinese economic slowdown "bottoming out". South East Asian economies such as Indonesia and the Philippines are also proving to be resilient. Mr Holt stated: "We're expecting more robust performance from more insulated economies. Indonesia is one - Jakarta has been one of the best performing commercial and residential property markets over the last 12-24 months. They're less reliant upon exports. They have got solid, robust growth forecasts, and grew suddenly in 2012, so we're expecting Indonesia to be quite a good performer in 2013."
Moreover, a resurgence of industrial activity in China is helping to give the region's property market a further boost, specifically in terms of commercial real estate. Offices are performing particularly well in Beijing, with a tight supply driving up rents. The retail sector is continuing to thrive, with demand for well-positioned, well-designed and accessible property soaring. However, Mr Holt stresses that China - unlike other parts of Asia - does not stand alone and is well connected to other parts of the world. For industrial real estate this means that its fate is tied up with the ebbs and flows of global demand. "Everything is being impacted by what is happening in Europe and America. Fears of a double dip world recession are receding to a certain extent but there is still a lot of uncertainty there and China is not totally insulated from that," he said. Speculative development is also a potential time bomb that will implode should the country hit a bump in the road.
So what does this ultimately mean? Will Asia sink or swim? Investors cannot ignore that the region is emerging on the world stage as an area of considerable growth. Over the next couple of years it is expected that countries will recover from the financial crisis and begin to realise their growing potential. However, global economic volatility should not be ignored and playing it safe with a diverse portfolio is still the best defence.
- Monday 21 January 2013