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Southeast Asia real estate excel other countries

2020-08-13
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Summary:Speed of real estate market recovery: emerging countries are better than Europe and the United States.

Economic recession, real estate market must be affected

Real estate performance is an important part of measuring the economic situation. When the macro environment declines, the real estate market will be suffer.

Among emerging countries, take Thailand as an example. During the Asian financial crisis, Thailand was looted by currencies such as Soros and other international condor groups, resulting in negative GDP growth in 1997 and 1998 (-2.8% and -7.8%, respectively). Thailand's economy collapsed and the real estate market fell greatly. The residential price index was 122.46 in 1997 and only 83.19 was left in 1999. During the 2008 financial crisis, the economic growth rate fell from 5.4% in 2007 to 1.7% and -0.7%. Property index also fell by 10%, from 102.02 to 90.92.

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                            Thailand's actual residential property price index (data source: CEIC)

Even in developed countries, real estate cannot escape the influence of the economy.

In 2008, the US economic growth rate dropped from 1.87% to -2.53%, and the housing price index also fell below 100. The UK's GDP growth rate fell from -2.431% in the previous year to -4.248%, and the real estate market has fallen by 21.37%.

Speed of real estate market recovery: emerging countries excel developed countries

The real estate market is affected by the economy, and the speed of recovery varies greatly depending on the degree of development of the country.

It took the US real estate market 8 years to return to the level before the 2008 financial storm. The UK real estate market almost returned to a level above 100 until 2014 after the 2008 financial storm. However, the most highlight 2007 could not go back any more.

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                  US Housing Price Index (Source: MacroMicro.me)

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                UK actual residential property price index (data source: CEIC)

In contrast, the real estate market in emerging countries is recovering faster, and the Thai real estate market spent 1 year and 2 years in these two stages to reverse the decline.

Development potential determines real estate market prospects

Why is there a huge difference in the recovery speed of the real estate markets in developed countries and emerging countries?

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The developed countries are basically highly developed, with limited economic growth. Conversely, emerging countries have development potential and are superior to developed countries in terms of both industry growth space and demographic dividend. Therefore, even if the economy suffers a severe setback, under the national development prospects and rigid population demand, the real estate market can still quickly return to its original level and climb all the way.

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Comparison of housing market performance between developed countries and emerging Asian countries during the financial crisis

After 1990, China's economy took off, and the huge economic potential and demographic dividend made the value of real estate rise all the way. No matter what period of time, house prices have skyrocketed, even if the financial turmoil that swept through Asia and the world in 2000 and 2008 did not damage the value of the property.

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Trends of second-hand house prices in China (Beijing,Shanghai,Guangzhou and Shenzhen) (Data source: Fang Tianxia)

The real estate renaissance after the epidemic has huge potential in Southeast Asia

In recent years, Southeast Asia has performed well in many economic circles, with an average GDP growth rate of 5.35% in the past 10 years. According to IMF estimates in November 2019, the region will also grow by more than 5% in the next five years. Coupled with the global supply chain transfer effect, more and more international manufacturing industries have moved their production bases to Vietnam, Thailand, Indonesia and other countries. The region is expected to become a new global production center.

In addition, Southeast Asia has a large and young population and the fifth largest population in the world, after China, India, Africa and Europe, with a median age of 30.2 years.

Therefore, Southeast Asia is regarded as the seat of the next regional economy. With these favorable conditions, Southeast Asian real estate is more likely to recover quickly during this pandemic.

For overseas investors, the exchange rate is an important consideration. It is necessary to choose a market that is free of exchange risk. Cambodia, which uses the US dollar, is a good investment destination in Southeast Asia. Only investing in a market with a stable exchange rate can ensure profit, while avoiding foreign exchange losses.

 


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