It has only been a week since China reopened its borders , marking the final step in Beijing’s abrupt dismantling of its “zero-Covid” policy which kept the country closed to the outside world for nearly three years. Yet, an outbreak of bullishness on China and emerging markets has already broken out among Wall Street firms. Despite concerns about the government’s failure to prepare for an exit wave of infections by vaccinating more of its elderly population and easing the burden on its poorly funded healthcare system, Morgan Stanley believes investors are “underappreciating the far-reaching ramifications of reopening” and expects China to top global equity market performance this year. JPMorgan, which tracks China’s reopening through a range of high-frequency indicators, noted a strong pickup in subway use, domestic air travel, and logistics and delivery services in the first half of January, increasing the scope for “an earlier reopening bounce”. In Asia’s real estate industry, there is increasing optimism that China’s reopening will provide a fillip to demand in markets and sectors that are reliant on tourism and investment flows from the mainland. Thailand’s government said it expects 300,000 Chinese visitors in the first quarter of this year, helping underpin a recovery in the nation’s pandemic-stricken hotel industry which depends heavily on overseas tourists. Australia’s top universities, meanwhile, are set to benefit from a pickup in Chinese student enrolments, boding well for the country’s nascent purpose-built student accommodation sector. However, the most discernible impact is likely to be in Hong Kong. Midland Realty estimates that secondary home transactions will reach a seven-month high in January, with the number of sales at 35 major residential schemes having already surged since late December. Indeed, Morgan Stanley expects Hong Kong property prices – which have plunged 17 per cent since their peak in August 2021 – to bottom out in the second quarter and rise 5 per cent this year. In a report published on January 11, Colliers said the city’s hard-hit retail sector would be the biggest beneficiary of the reopening of the border with the mainland, with high street shop rents forecast to rise 8 per cent this year, the first annual increase since 2013. While these bullish predictions hinge on a strong consumption-driven recovery taking hold in China once infections peak and economic disruptions abate, the speed and scale of the reversal of the zero-Covid policy is buoying sentiment. That Beijing has also relaxed its “three red lines” policy that triggered a liquidity crunch in the residential property market – and eased its regulatory crackdown on technology firms – has helped change the narrative around China. The shift in the policy regime in Asia’s largest economy has given the region’s property market a boost at a critical time for the global economy. “A lot of the headwinds in China are turning into tailwinds,” said Matthew Bouw, chief executive, Asia-Pacific, at Cushman & Wakefield. Yet, the most important determinant of the performance and outlook for Asia’s real estate industry is not what happens in China, but where inflation and interest rates are heading. A report published by JLL on December 16 predicted that commercial property transaction volumes across the region would fall 5-10 per cent this year, following an anticipated 25 per cent drop in 2022. Investment activity will be constrained “until there are more visible signs that risk levels are stabilising”. Although China’s reopening is likely to prove a boon for parts of Asian real estate, it is also a wild card. Just as signs emerge that global inflation has peaked, raising expectations that central banks will slow the pace of rate hikes, fears that a rapid reopening may rekindle inflationary pressures are growing. Industrial metals prices have already surged 22 per cent since the end of October, while Goldman Sachs believes oil prices could soar 30 per cent by the third quarter if China reopens successfully. Whether it is struggling first-time homebuyers in Sydney, Singapore office landlords worried about sagging demand from retrenching tech companies or institutional investors across the region finding it more difficult to secure debt financing, the overriding concern is uncertainty over the future of inflation and borrowing costs, exacerbated by fears about a steep downturn. China’s economic recovery plan? Expect a big push for domestic demand Kevin Coppel, managing director, Asia-Pacific, at Knight Frank, said that while China’s reopening gives cause for optimism, “many of the questions over the outlook for Asian real estate persist”. Not only is it unclear whether Chinese consumers’ pre-pandemic spending patterns will reassert themselves – especially when it comes to overseas travel spending – the willingness of Western investors to deploy capital in China is unclear, especially given the heightened risks and volatility over the past few years. Tellingly, Tokyo retained its position as the preferred destination for cross-border real estate investment in Asia for the fourth straight year, the findings of an investor intentions survey published by CBRE on January 12 revealed. Japan’s status as a stable, predictable and liquid market with persistently low rates holds great appeal in the current environment. Interestingly, however, Hong Kong returned to the top-five spot for the first time since 2018. The dismantling of the zero-Covid policy may have lifted sentiment, but more acute concerns about the end of cheap money will persist for some time. Nicholas Spiro is a partner at Lauressa Advisory