Economic factors play an important role in the fluctuation of real estate cycles. Healy Consultants sources comprehensive information to provide clients with an understanding of the macro and micro economic factors that impact on buying and selling real estate in Asia.  Following are some considerations for investors interested in Asia property markets:

While the relationship between economic factors and the property market varies between countries, some general considerations for investors include:

What are the driving forces behind property prices in each Asian country? For example, the lack of available land, population growth and the popularity of tourist hot spots all affect property prices.

The tax efficiency of real estate investment opportunities across countries in Asia? For example, is there capital gains tax when selling real estate?

What are the legal restrictions on foreign ownership of real estate in different countries across Asia?

The economic outlook for the local economy.

The rental market potential.  Will rental income cover mortgage repayments?

Future impact of foreign exchange rate movements.  For example, the de-pegging of the Malaysia ringgit had a positive impact on the value of Malaysian property.

There are many variables that impact on the price of property. However, whether looking at buying real estate, selling real estate or renting real estate, a key factor is the relationship between supply and demand. 

In basic terms, economic factors that cause demand to increase faster then supply will lead to prices increasing, whereas if supply outstrips demand then prices will likely decline.  The degree to which supply meets demand determines the rise or fall in prices.   

Sudden drastic changes to consumer confidence can result in short term changes to supply in property markets.  However, changes in supply tend to be a longer-term factor than demand.  Factors such as the availability of land and the time to build new properties cannot be changed instantly. 

Changes in demand can occur over a shorter term due to the nature of factors that impact on the demand for real estate.  For example, the Australian government recently increased the first homeowners grant from A$14,000 to A$21,000 to instantly stimulate the demand new homes.  The demand for real estate can change due to factors including:

Interest rates – cutting interest rates can be a strategy used by governments to stimulate demand for real estate, as the cost of borrowing becomes less.  This has happened recently in countries such as the UK and Australia due to the current economic environment.

Exchange rate movements – changes in currency valuations can make real estate more appealing to international investors and expats working overseas as it improves affordability.

Economic growth – a burgeoning economy is likely to increase the real incomes of consumers, causing home affordability to improve and hence demand to increase.

Consumer confidence – the current economic downturn is a prime example of the negative impact which reduced consumer confidence has on the demand for real estate.

Availability of finance – the demand for real estate will increase when banks ease the guidelines for lending.  The reverse will occur when banks tighten guidelines, making it more difficult for buyers to obtain finance.

Demographic factors – age, net migration and marriage rates can all change the demand for housing.

Inflation – home affordability, and hence demand, can be reduced as a result of escalating inflation which increases general living expenses, costs of production, costs of borrowing and more.

Unemployment – low unemployment tends to come with economic growth, increasing buyer confidence and demand for housing.

Matching supply and demand in real estate is not as easy as with a manufactured consumer product. National economic statistics can be used to give an indication of the general property market, however, supply and demand issues impact at the local level and as a result price movements vary from one area of a country or a city to another.  For example, an oversupply of apartments in Sydney cannot be moved to the suburbs surrounding The University of Newcastle to meet the high demand for rental properties.

For more information specific to the real estate markets within Asia, see the following pages: i) Singapore Real Estate, ii) Hong Kong Real Estate, iii) Philippines Real Estate, iv) Thailand Real Estate, v) Bali Real Estate, vi) Vietnam Real Estate, vii) Australia Real Estate.

For more information on the impact of economic factors on property markets, please contact our Singapore office at (+65) 67350120 or email us at email@healyconsultants.com