Despite China’s recent economic struggles, it is not all doom and gloom in the east. 2016 looks set to be a strong year for the continent’s fringe markets. Cambodia’s GDP is expected to grow at a rate of 8.7%, partially thanks to burgeoning capital Phnom Penh.
Meanwhile, data from Vietnam’s General Statistics Office suggests that the country will gain the most from China’s slowdown, thanks to increased foreign investment, which saw a rise of 17.5% in 2015 on the previous year.
However, many of Asia’s markets are inextricably linked to the success of the world’s largest economy. Nations such as Malaysia and Singapore are reliant on China for trade and face a difficult year. But there is opportunity.
As more investors begin to pull out of China, opportunities arise for international investment, with falling interest rates providing the impetus. Five-year loans were down to 4.9% as of October 2015.
Similarly, rising interest rates in the US do not look likely to cause damage across the board. According to Rasheed Hassan, head of cross-border investment at Savills, a rising economy in the US means outbound opportunities will be sought.
Meanwhile, as of 2015, India has leapt up the rankings to become the world’s fastest-growing large economy. Its estimated GDP growth of 7.3% puts it above former top spot holder China’s 6.9%.
“India is well positioned from the effects of the Chinese slowdown. Liquidity is coming back, thanks to legislative changes,” says Nicholas Holt, Asia Pacific head of research at Knight Frank.
Japan slipped into recession in 2015, but a low unemployment rate of 3.3% and a robust commercial industry mean it remains a strong prospect for investment.
Conflict in the Middle East makes it likely there will be little inbound activity. This is despite an increase in the size of the middle class and a steady population growth in the UAE boosting demand for high-quality residential property. The population of Dubai is set to rise from 2m to 3m by 2020.
Commercial hotspots
There is high demand in the Japanese hospitality sector. According to Savills’ World Tips report, Osaka has seen a 40% growth in hotel room rates in the past three years. Rates in Tokyo have increased by 20% over the same period, with the region presenting an attractive prospect in advance of the Tokyo 2020 Olympics.
Opportunistic investors could look to Lujiazui in Shanghai where there is a growing demand for premium office space as a result of free-trade zone policies, which have encouraged financial institutions to expand rapidly.
Rental yields in India increased in 2015, with yields in Bangalore reaching as high as 11%. Between January and September last year Bangalore, Delhi-NCR and Pune collectively contributed 65% to commercial absorption in the nation.
Residential hotspots
Rapid urbanisation and a young population have boosted demand for residential property in Vietnam, where a rise of 17.4% in disbursed foreign investment in 2015 brought about a record high of $14.5bn. The population is growing rapidly, with an increase of 974,900 bringing it to 91.7m in 2015.
Price rises in China’s second-tier cities suggest that residential developments in Nanjing, Xiamen and Suzhou would be a worthwhile, if not risk-free, choice for the opportunistic investor.
Growth areas
Tourism in south-east Asia is on the rise. International visits to Laos increased from 2.7m in 2011 to 4.1m in 2014, with further growth expected this year. Thailand expects record tourism figures, the industry making up 10% of the country’s GDP.
The construction sector is thriving in Cambodia, with investments in 2015 amounting to over $3bn, contributing to the country’s GDP increase of 7% in 2015.
Risks and challenges
The aforementioned developments in the world’s two largest economies represent a risk factor throughout the globe, and many Asian nations rely on their trade for sustained growth.
While in 2015 South Korea saw the value of apartments reaching KRW2,000tn ($1.7tn), an ageing population and oversupply of apartments threaten to drag prices down.
But the housing bubble in Hong Kong is set to burst, with prime property prices expected to diminish by 5% in 2016.
Must-have contacts
Nicholas Holt
Asia Pacific head of research, Knight Frank
nicholas.holt@asia.knightfrank.com
Simon Smith
Senior director, Asia Pacific, Savills
stsmith@savills.com.hk
Faisal Durrani
Partner – head of research, Cluttons
faisal.durrani@cluttons.com
Anthony Yeung
Associate director, M&G Investments
anthony.yeung@mandg.com
City guide: Singapore
Overview
Singapore, the world’s only island city-state, is a hot, buzzing, modern, entrepreneurial gateway city. Popular for its easy liveability, the city is diverse in terms of ethnicity, but united in its two central loves: shopping and eating.
Why invest?
Singapore is a mature market and investment is a long-term, reliable play. Tax rates are low, English is the main language, and the business environment is very investment-friendly. The Singapore office investment market has been very active this year, including the sale of trophy assets such as BlackRock’s Asia Square Tower 1, a 50% stake in Keppel Land’s Capital Square, and the Axa Tower, one of Singapore’s tallest skyscrapers.
“Singapore is the most mature economy in south-east Asia, very investment-friendly, with relatively low taxation, and good for long-term investments,” says Desmond Lim, head of CBRE research for Singapore. “It is a good place to park your capital because of the strength of the Singaporean dollar.”
The numbers
67% – increase in transactions year-on-year
25% – the amount Singapore office rents will increase by 2019, according to Knight Frank’s Global Cities report
$2,000 – value per sq ft on premium floors of Singapore skyscrapers
The opportunities
Many investors are seizing opportunities in the office market, given the forthcoming strong supply pipeline and active investment market. Residential continues to be an attractive investment, with sales of new homes up by 61.4% quarter-on-quarter in Q2, while the secondary market grew by 47.9% quarter-on-quarter – the most activity in more than two years.
Stand-out scheme
The Marina One development in Marina Bay, Singapore, includes two 34-storey residential towers, two 30-storey grade-A office towers and a retail centre. It is a joint venture between Malaysia’s Khazanah Nasional and Singapore’s investment company Temasek, and forms part of the land deal between the two countries. The scheme should be completed by the end of 2016.
Top tips
- Singapore is a very clean city for a reason – it is illegal to litter, eat on public transport, smoke in particular places, or drop cigarette butts. If caught, you will be fined.
- Singapore is hugely diverse in terms of ethnicities, with four national languages: English, Mandarin, Malay and Tamil.
- Tipping is not common in Singapore; a service charge will be automatically added to the bill in restaurants.
- Singapore is one degree north of the equator, so the weather is predictably hot and humid all year round.
