2020 Market Outlook Brief
2020 is shaping up to become a significant turning point for several key property markets around the world. The interesting confluence of different factors is driving them through long term growth and short term fluctuations. For most who are less keen to read up the reports, here’s a summary of the various markets and their key takeaways.
Economic challenges are altering the market dynamics in Australia. Record low-interest rate environment and weak AUD are driving both domestic and foreign demand in a market where population and job growth continues to be positive. As mortgage lending loosens spurring a strong property comeback, infrastructural developments are adding to the momentum. The growth spurt over the last quarter of 2019 was evident and that will likely flow through the first half of 2020.
Affordability remains a sensitive topic for the government. If prices were to get out of hand we will likely see the government tackling it through regulations. However, this time around we are guessing that the granularity of the rules might be more specific to Sydney and Melbourne. A good rule when investing in Australia at the moment would be to focus on the top 3 factors that will likely drive growth - affordability, infrastructure development, and foreign participation - in that order of priority.
Brisbane and Adelaide would be our top selections for Australia currently. Both BIS Oxford and QBE both forecast Brisbane as the city to see the highest growth over the next 3 years. Perth on the other hand has and will likely remain at the bottom through 2020 as we continue to see little reasons for its recovery over the next 12 months.
The recent record win by the Conservatives against Labour in the recent UK election looks to finally put a firm timeline to Brexit. UK is scheduled to exit the EU by 31 Jan 2020 with a transition period that will stretch to 31 Dec 2020. GBP is recovering on the back of the news and the interest for UK property from foreign investors is brimming. Given that Boris Johnson will need to score a win quickly for the country the likelihood of him riding the property wave to get it is an easy guess and we should see a short term rush into London over the next 12 months.
However, to think that it will all go smoothly through 31 Dec 2020 would be delusional given the UK’s record in managing this crisis. That and the uncertainty of how the economy will be reshaped over the next 12 months should provide plenty of entertainment for the naysayers. The market might be ripe for bottom buying, but it is certainly not without risks.
The Northern markets of Manchester, Liverpool and most recently Birmingham will likely continue its steady growth being driven by fundamental growth to their economies, population, and demographics rather than politics. However, the expected surge of interest in London will likely take some shine off these northern markets in the short term although their long term prospect remains positive. One thing for sure, the UK property experts should be all busy over the new year holidays rewriting their forecasts with the turn of events and the rocky roads ahead.
SINGAPORE AND MALAYSIA
Market across Singapore and Malaysia are entering a different phase as the Hong Kong protest continues to not only drive capital out of Hong Kong but also severely discredit it as a market for investors. We are witnessing a surge of interest in Malaysia and Singapore properties from the traditional buyers of Hong Kong as agencies forecast continual price falls for this distraught city.
Singapore has been struggling with the high cost of living and doing business for a while now. To continue to attract foreign companies key to its economy, Singapore needs to continue to keep itself competitive. To keep the political domination going for the current government, home affordability needs to be maintained. Balancing prosperity and property is no doubt a tough game for this little red dot and hence the government will likely maintain the current state of the market to avoid tripping over the delicate balance.
About 12 months ago our forecast was that if the Singapore market were to ever run significantly upwards again, it will likely be driven from external demands. While we were expecting migrants and visas to lead that, it appears that the Hong Kong fiasco got to it first as capital flowed into assets in Singapore from the battered city. While that got some local pent up demand excited as well, we expect the run to be short-lived and insufficient to drive long term demand unless we see changes that can significantly alter population or income fundamentals.
The Malaysia market, however, is driven by weak MYR, market bottom and desperate developers throwing in the proverbial kitchen sink for buyers especially out of Hong Kong and China. Interestingly while many parts of the world are on the verge of a “Hong Kong" experience, Malaysia’s last election was a coup that saw the incumbent Barisan Nasional losing its 61 years of reign over the country. The power of the people is imprinted in the minds of the current politicians and thus, in a strange manner, provides certain political stability to the market.
We do think that Malaysia is at a bottom that investors can consider participating but it should be nothing less than completed, high-quality top tier assets.
REST OF ASIA
The Vietnam boom is quickly fading as its second wave is seemingly breaking. While there might be opportunities still in Hanoi, wages and growth are failing to keep up with property prices. We reckon that the rooster will come back to nest this year as the property price growth will taper off to wait for fundamentals to play catch up.
The China market as a whole has proven more resilient than expected and insofar the policies curbing capital outflow seems to be working well as more and more are lifted out of poverty hence supporting home prices. Oversupply conditions proved not to be a match for the rising middle class and while there are price adjustments, it will be hard to imagine any major corrections under the highly policed market. What we deem interesting, again driven somewhat by the Hong Kong protest, is the Greater Bay area. While Shenzhen prices might be held back, the bordering locations will be good bets in our opinion.
Japan is what we would term as acquired taste with ski resorts and Olympics 2020 driving demand. Key economic. Other than that, the recent 2019 economic growth of 1.8% was already surprising and most economists don't seem to have any great things to say about its outlook. Trade wars, rising Yen that will threaten export and its little spat with Korea seems all bad news for 2020. Its perennial population decline is, of course, no help for housing so while there are short term opportunities we do think that long term challenges remain. That said, tourism-driven assets are quite a different animal and largely yield driven as most commercial assets are. However, do note that such assets can be tricky when it comes to liquidating.
Cambodia is on its first wave of property growth and given the previous examples such as Vietnam, it should soon see a peak and a fall in the coming years. Already word is spreading on the market about oversupply and both Knight Frank and CBRE have stated in their reports that there will be a five-fold increase in the number of new units on the market in 2020. Rental remains relatively affordable and hence buying momentum is falling with most choosing to rent in fear of a pending price correction. We would deem the market unsuitable for investment entry at this point generally speaking.
And finally Hong Kong. The market is reporting a 25% drop in value over the last 12 months and it doesn't take much to know why. In case you think the worst is over, we think that is but the tip of the iceburg.
Businesses disrupted by the last 6 months of unrest that is seeing no light at the end of the tunnel will likely translate into further distress sales and further losses not to mention discrediting of its international reputation. The rise of Shenzhen and the Greater Bay area all pose as challenges to this distraught market. It is my personal opinion that Hong Kong was a time bomb that timed out. The writings were on the clearly years back but greed and complacency brought it to where it is today. Don't just point fingers at the rich developers. The whole market took part and jolly well should share the guilt as well. And that serves well as a warning to those who thought having the most expensive city is an achievement. I'll say think again.
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