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OpinionComment
Nicholas Spiro
Nicholas Spiro

The View | Why the resilience of Asian real estate prices is not such good news

  • There has been a glaring lack of a meaningful adjustment in prices in Asia’s real estate markets, which is most apparent in the commercial sector.
  • As buyers push for steeper discounts but sellers hold out for an improvement in sentiment, Asian commercial property could become less attractive

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A view from the Shibuya Sky observation deck at the rooftop of Shibuya Scramble Square in Tokyo on April 25. Commercial property prices in Asia have held up remarkably well, unlike in Europe and the US. Photo: Bloomberg
Nicholas Spiro

For financial markets, one of the most consequential shifts in policy this year was last week’s unexpected decision by the Reserve Bank of Australia (RBA) to continue raising interest rates despite pausing its tightening campaign in April, and in the face of growing evidence that the rise in rates is taking its toll on the economy.

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The resumption of tightening – Canada’s central bank also raised rates following a brief pause – shows the degree to which the scale and persistence of inflation have been underestimated. It also casts doubt on the prevailing narrative in markets that rates have reached their peak and will start to fall later this year.

For the rate-sensitive real estate industry, the prospect of borrowing costs remaining higher for longer increases the risk of sharper falls in prices and transaction volumes. Mounting uncertainty over monetary policy, moreover, comes at a time when the property sector is under intense scrutiny, mostly because of concerns that demand for offices is weakening further, particularly in the United States.

In Asia, Australia’s housing market has long been viewed as one of the most vulnerable segments of the region’s property sector due to worryingly high levels of household debt. The pace and scale of rate increases over the past year caused home values in the capital cities to drop 9.7 per cent in the space of 10 months, the sharpest decline on record, according to CoreLogic.

Yet, since the beginning of this year, the resilience of Australia’s housing market has manifested itself. Since February, prices in the capital cities have risen 2.8 per cent, and as much as 4.8 per cent in Sydney since January. A tight supply and a surge in net overseas migration have helped values recover. Indeed, the swift rebound in the housing market contributed to the RBA’s decision to resume tightening.

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What is clear is that for struggling first-time buyers, the resumption of price gains in what is still a grossly overvalued property market rubs salt in already sore wounds. It also points to a broader trend in Asia’s real estate markets: the glaring lack of a meaningful adjustment in prices.

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