DEVELOPMENTS in the global economy and currency markets will determine the performance of property markets across developed and emerging markets alike for 2016.
FXTM chief market analyst Jameel Ahmad shared that year 2015 saw emerging currencies challenged by a resurgent US dollar rising alongside the US economic recovery. There were additional concerns over how a slowing China economy would impact general sentiment towards emerging markets. These developments added to challenges faced by emerging economies linked to commodities amid a global slowdown in oil and gold prices.
Ahmad said, “The results were a clear downward trend for emerging currencies and we continued to highlight emerging market currency weakness as a global phenomenon throughout 2015. The emerging market currencies that were the most heavily crushed during the year were those that belonged to economies dependent on commodity exports.”
Ahmad added that concerns surrounding the China economy entering a deep slowdown was another contributor behind losses in emerging market currencies. “A slowing down China economy was not a problem for China itself, but for all those economies reliant on trade with China.”
Knight Frank global head of research Liam Bailey and Knight Frank international residential research Kate Everett-Allen shared that the scale of the slowdown in China and the speed of further US interest rate rises will determine the performance of property markets across developed and emerging markets alike over the next 12-18 months.
They expect the strongest and weakest performing prime markets to be separated by around 20 percentage points by the end of 2015. They expect this figure to slip to 15 points in 2016 as price growth converges.
The pace of price growth in Sydney is expected to slow from 15% year-on-year in 2015 to 10% in 2016. Australia’s economic slowdown, weaker stock market performance in recent months and the introduction of foreign investment fees explain the lower rate of growth in 2016.
Hong Kong is forecast to overtake Singapore as the weakest performing luxury residential market in 2016. A number of new developments are due to enter the market in 2016. This new supply, together with a strengthening HK dollar, will see prime property prices soften.
The price decline seen in Singapore’s prime residential market is expected to persist at least until the end of 2016, following the government’s assertion that it has no plans to relax its property market cooling measures.
Ahmad commented that the major turning point for all the emerging currencies will in some ways be in response to higher interest rates from the United States. While falls in emerging market currencies were due to external factors, such factors could transform into internal and domestic pressures, such as reduced spending power and reduced budgets that might lead to jobs being lost.
The continued depression in commodity markets is also going to limit potential for a recovery in fortunes.
Ahmad said, “Slowing growth will continue to occur in China and will likely be a threat to India, although it is possible that the proactive easing of monetary policy from the Reserve Bank of India might encourage borrowing domestically and help drive growth. It is worth remembering that the central banks in China and India have been actively intervening to shore up their own economies through monetary easing. There will be some hope that this could help drive industry growth. As commodity importers, the lower import costs should help create budget for investment elsewhere.”
Colliers International head of UK research and forecasting Mark Charlton, Colliers International senior research analyst EMEA (Europe, Middle East and Africa) and forecasting EMEA Bruno Berretta, and Colliers International director of UK research and forecasting Walter Boettcher cited in Colliers International’s Global Investment Outlook (GIO) that investors, globally, still wish to invest in real estate.
Transaction volumes across regions are expected to increase, with fewer investors expecting to be net buyers. Allocations to direct property by multi-asset funds will continue to increase globally.
The most liquid markets, found in gateway cities such as London, New York and Tokyo, will continue to appeal to cross-border investors. Increasingly, investors are looking to partner with local expertise to provide greater confidence in overseas diversification.
Macroeconomic and political threats, such as further interest rate hikes in the US, or Chinese economic uncertainty, as well as geopolitical risks, will see investors curb their risk appetite in some markets. More investment decisions will be made on a long-term basis. Hence prices for matching assets will rise further, especially in safe haven markets.
They concluded, “While the next 12 months will pose macro challenges for investors, the overall positive mood shown by most respondents offers a compelling case for supporting direct real estate investment’s continued growth.”