Banking Crisis Impact on Real Estate Capital Markets in Asia-Pacific

The recent banking crisis has intensified concerns in the real estate capital markets. We explore the implications of this crisis on various markets in the Asia-Pacific region, particularly Singapore, and highlight key trends and predictions.

Capitalization Rates Expansion in Asia-Pacific

According to Henry Chin, CBRE’s global head of investor thought leadership and head of research for Asia-Pacific, capitalization rates (cap rates) are expected to expand across the region. He forecasts an increase of 75 to 150 basis points (bps) from peak to trough, with exceptions for mainland China and Japan, where cap rates are expected to remain stable. In contrast, Australia and South Korea may experience further increases.

Real Estate Capital Markets Amid the Banking Crisis

Chin does not predict a full-blown financial meltdown akin to the 2008 Global Financial Crisis, as banks are better capitalized and governments have taken swift action to prevent contagion. Real estate companies are also less leveraged than before. Nevertheless, the current credit-related issues and declining mortgage approvals will weaken the real estate capital market in 2023.

Singapore’s Resilience in Real Estate

CBRE managing director Moray Armstrong believes Singapore can weather the current market turbulence relatively well. With diverse economic sectors, strong growth in wealth management and family offices, and a balanced supply and demand in the office market, Singapore is well-positioned to absorb shocks and emerge as a safe haven.

High-Net-Worth Individuals and Private Investors

Despite the challenges, high-net-worth individuals, family offices, and private investors continue to seek rare and unique properties for wealth preservation. CBRE’s head of research for Southeast Asia, Tricia Song, identifies luxury residential, commercial buildings, shophouses, strata offices, and boutique hotels as key areas of interest for this group.

Singapore’s Luxury Residential Market

Singapore’s luxury residential sales have strengthened in early 2023, after China’s reopening on January 8th. CBRE Research expects the return of Chinese buyers and Singapore’s haven status to support the luxury property market in 2023. Average luxury apartment prices rose by 6.1% in 2022, with a more moderate 3% to 5% increase predicted for 2023.

Office Rents in Singapore and Hong Kong

Both Singapore and Hong Kong are experiencing different office rental trends. While Singapore’s office rents have plateaued, Hong Kong’s rents have bottomed. Chin expects Hong Kong’s rents to recover slowly, driven by the reopening of borders between China and Hong Kong.

Song notes a narrowing gap in top office rents between Hong Kong and Singapore. However, the rental delta between out-of-town office space and prime CBD areas is larger in Hong Kong than in Singapore, making decentralization less compelling in the latter.

Long-term Outlook

Despite short-term challenges, the Asia-Pacific region, and Singapore in particular, is poised for long-term growth in the real estate capital markets. Investors should keep a close eye on evolving market conditions and leverage the unique opportunities presented by each market in the region.