Knight Frank Asia Pacific Insights: June 2021

Australasia

Net Zero goal for new Sydney CBD buildings from 2026

The City of Sydney is proposing that development applications (DAs) to build or redevelop hotels and shopping centres must achieve a minimum of 4 stars in the National Australian Built Environment Rating Systems (NABERS) going forward. For offices, a minimum of 5 to 5.5 is proposed. From 2026, the council said all commercial DAs will have to demonstrate how the proposed development can achieved a net zero carbon emission. Were the proposed changes to go through, it will put an increased focus on ESG concerns and sustainable development in Sydney in future.

Victoria’s build-to-rent investment landscape put at risk by land tax increases

Victoria’s status as a preferred destination for build-to-rent (BTR) projects has been called into question following the recent state Budget which announced a raise in land tax rates. Victoria had previously announced a 50% land tax discount for eligible BTR projects, but the latest increase partly offsets the impact of the discount. This news has raised concerns from notable players such as Greystar, who have pointed out that the change will make it more difficult for schemes to achieve targeted returns in Victoria and may lead them to allocate more capital to NSW instead.

East Asia

Mainland China’s housing market continues its upward march

New home prices across Mainland China’s top 70 cities rose 0.48% month-on-month in April, accelerating from the 0.40% rise recorded in March. During the month, prices in Tier-2 cities saw stronger growth compared to their Tier-1 counterparts, due to further tightening of restrictions imposed in the latter cities in early 2021. Going forward, while we expect housing price growth to remain on its current trajectory, an out-of-control market is unlikely to occur given the government’s recent rhetoric that could signal the implementation of cooling measures.

Local HK JV acquires rare Causeway Bay site with record bid

A JV between Hysan and Chinachem Group recently won a government commercial land sales site in Causeway Bay for c.HK$19.8bn or HK$18,400 psf, paying 15% above the HK$11 to 17.2bn market range estimates. This was the first commercial site in Causeway Bay sold by the government since 1997. The site is strategically located opposite Hysan’s existing Lee Gardens luxury shopping centre and presents synergistic opportunities for the developer once the 1 million sqft GFA building is completed around 2027. While Hong Kong’s commercial market has been under pressure for several years, the bullish bid does signal a positive outlook for the market, and that it could be nearing its cycle bottom.

Southeast Asia

Malaysia’s central bank opts to keep interest rates unchanged

Bank Negara Malaysia kept its overnight policy rate (OPR) unchanged at 1.75% at its May meeting, with the move widely expected by many economists. The OPR rate has remained at its recent historical low since July 2020 when it was cut by 25bps as Malaysia entered the height of its battle with COVID-19. The move will come as a relief to indebted homeowners along with landlords who have seen commercial demand and effective rents fall over the past 12 months. Given the recent infection rate surge within Malaysia and the risks of a downgrade to the IMF’s 2021 6.5% GDP growth forecast, our expectations are for interest rates to remain unchanged till the year end.

Bangkok land price index contracts for the first time since inception

Data from Thailand’s Real Estate Information Centre (REIC) showed land prices in Bangkok contracting 2.20% quarter-on-quarter in 1Q21, marking its first quarterly contraction since the index’s inception back in 2012. On a year-on-year basis, the index still grew 11.2% year-on-year, albeit being at a slower average pace than the five-year average.  The drop is an indication that developers in Bangkok have started to turn slightly more cautious on their outlooks and have slowed their land purchases for new project developments as a result. With infection cases on the rise recently, the country’s re-opening and subsequent recovery pathway looks to be further delayed which will likely weigh on housing demand for the near term. Developers looking to clear their inventories will look to offering buyers incentives, which could potentially weigh on prices for the rest of this year.

Indonesia sees greater data centre investments

Data Centre (DC) provider ST Telemedia Global recently announced its partnership with Singapore’s Temasek and Indonesia’s Triputra Group to develop a new DC campus. It will add an additional 72MW in Greater Jakarta, almost doubling the 75MW current estimated available capacity for the city. Indonesia has long been a target by DC operators given its large population and its growing consumption of tech; many of the region’s top unicorns are Indonesian based. Policy transparency and infrastructure are a must to serve the players in this business. Going forward, we expect the market to continue its growth with new capacity consistently being added, as barriers to entry ease and smaller quantum of transactions become more common.

Singapore developers maintain bullish outlook for the private residential market

Recent land bids in Singapore continues to point to a bullish outlook for the market despite the price increases and warnings from policy makers that cooling measures are lurking on the horizon. The top bid in the recent land tender in suburban Ang Mo Kio was submitted by a local consortium who beat 14 others with a sale price of S$1,118 psf ppr. This bid was 6.3% ahead of the next highest, by another local consortium. Market commentary has suggested the project could potentially hit the market above an estimated S$2,000 psf ppr sales price which will be a new price benchmark for the area. The top bid and number of bidders involved was on the bullish side, as developers faced dwindling inventory and limited land sales in recent months. Hence, our expectations are that prices paid for land sales in the coming months will remain elevated and this will have a knock-on effect on the market sentiment.

South Asia

India’s Flexible office spaces continue to grow amid second wave

Despite the second wave of COVID-19 in India, managed office space providers are continuing to expand. Operators with large enterprise clients have said that delivery on their expansion plans is on track. This is occurring as companies are embarking on continued exploration of hybrid working models amid the healthcare crisis and co-working service providers will be well placed to offer this flexibility in workspace strategy for occupiers.

Because of their strong economic potential and dense social infrastructure, the Tier-1 cities will remain main target of the sector’s continuing expansion strategy. Besides that, some incremental demand will also be captured through Tier-2 and -3 cities, which help manage a spread-out workforce in the work from anywhere culture. In addition to safety concerns, much of the workforce is also seeking to cut commute times by avoiding working in offices that may be in busier parts of the metropolitan regions, which will be a driver for longer-term demand growth for the co-working sector in India.

Coronavirus wave dampens Indian housing market outlook

A Reuters poll of 12 analysts in May shows that expectations of Indian house prices will stagnate this year, as the second wave of COVID-19 hurt the market’s previously very positive outlooks in 2021. The lockdown has forced some property registrations to stop, and generally, demand for the market has slowed due to cashflow problems among buyers. Given that a cash crunch was already slowing activity levels before the pandemic took hold in 2020, seven of the 11 analysts expected further dampening. India’s housing prices was previously expected to rise 4.5% in 2022 but is now being downgraded to 3.0%. However, the continued work-from-home situation should see demand for prime residential stay relatively resilient, as the workforce seek more comfort in their work and live environment.