At the same time, capital from Mainland China, South Korea and other Asian nations began to look for opportunities overseas and became a significant player in an emerging pool of Asia-Pacific cross-border real estate funds. We also saw a boom in Asian tourism which proved hugely beneficial for the hotel and retail industries across the region while the impact of e-commerce transformed the supply chain and the outlook for the logistics sector.

We believe that many, if not all of the factors which have driven historically unprecedented levels of asset price inflation, and an unusually long upcycle, are now unravelling and that risks are emerging around the region. At what point these factors force a correction in real estate values is being hotly debated at the moment. Looking to the past, it has tended to be some unforeseen overseas crisis which has precipitated a downturn such as the Asian Financial Crisis and the Global Financial Crisis of 1998 and 2008 respectively. And here we are in 2018…

Since late-2015 there have been seven rate hikes by the Federal Reserve signalling an end to ‘easy money’ and an inflection point in the interest rate cycle resulting in a higher cost of capital and a stronger US Dollar. At the same time, China has begun to tackle a domestic debt mountain which has been accumulating since 2013/14 while also restricting the outflow of capital and policing imprudent overseas investments and their backers. In addition, a weaker Renminbi and cooler economic growth at home are expected to have an impact on mainland overseas travel and spending in the near term.

The trade war between the US and China continues and will have a damaging effect on trade and perhaps more importantly confidence. However, Asian nations are pressing on with the Trans-Pacific Partnership, so the overall trajectory is towards increasing freedom of trade.

The Asia Pacific region is not homogenous and there are cities and sectors in different stages of the cycle; however, as all markets were positively affected by a decade of cheap money, so all will be affected by tightening. On a positive note, Asia’s strong demographics, particularly the growth of middle class consumers, and continued urbanisation will underpin the region’s long-term prospects. Cities and sectors with potential for income growth will prove most resilient in the next few years.

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Simon Smith