Three key themes that could affect APAC real estate market in 2022

Inflationary pressures and the ever-present threat of new Covid-19 strains will play a part in how the real estate market will perform in 2022, but the economy is showing strong signs of recovery.

 1)      Structural fundamentals intact

While a resurgence in caseloads has crimped growth forecasts, reflecting the uncertainty caused by the fast-moving Delta variant, and potentially Omicron variant, the structural fundamentals of the Asia-Pacific (APAC) region have stayed resilient, underpinned by external trade.

Foreign Direct Investment (FDI) remains an important growth driver for the region and the revival of inflows to pre-pandemic trends is also crucial for the world’s supply chain.

The region continues to be an attractive investment destination, evidenced by the strength of FDI into APAC. This is because the Chinese Mainland remains the most attractive destination for FDI, accounting for 9% of the total FDIs in the entire world. Meanwhile, the Southeast Asia (SEA) region will also continue to benefit from the supply chain re-adjustments, attracting higher levels of FDI in years to come.

 2)     Interest rate rises to remain benign for APAC

Inflationary pressures due to supply chain disruptions have compelled central banks in the west to respond. It is now almost certain that the Fed will roll back support late into the year and will look to hike in the second half of 2022. While several economies in the region – New Zealand, Singapore and South Korea – have moved to combat inflationary pressure, we expect interest rate rises in APAC to remain benign.

The region, particularly its emerging markets, is in a better position to mitigate the impact of the Fed’s tightening, having built up significant currency reserves. This will render the region some space to chart its own monetary policies without severely denting recovery prospects.

While the pandemic’s trajectory could still evolve, the world and the region are better equipped to cope with challenges from new variants, as vaccinations and oral medications for Covid-19 continue to gather pace. We expect most governments to move beyond lockdowns and transition to an endemic stage. This will set the tone for the region’s real estate markets to benefit from a reopening and recovery theme.

 3)     Back on growth trajectory as the world transitions to endemic phase

Economies in APAC are back in positive territory after shrinking by an average of 1.5% in 2020. The region is expected to grow by over 6% in 2021 to remain the world’s fastest growing region, sustaining a trend that is expected to be maintained well into the decade. The prospects for a significantly stronger rebound in 2022 remain intact.

Economies that have been snagged by lockdowns in 2021–  particularly Southeast Asia's emerging markets, Australia and Japan –  will enjoy a growth spurt while the rest will revert to longer-term averages.

Supply constraints, power shortages, and increased policy intervention in the Chinese Mainland, already weighing on momentum, is expected to persist into 2022, with growth projected to slow dramatically from over 8% in 2021. The market is one to watch as the region's largest economy remains a huge source of demand.

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