- In March, China announced that it would resume issuing foreign tourist visas
- PGIM Real Estate Head of APAC Investment Research Cuong Nguyen gives his take on the impact of China reopening
- The result is expected to be positive for APAC economies and real estate markets
It has been about a month since China announced that it would once again issue visas to foreign tourists after a pandemic-induced three-year visa-issuing freeze. As China reopens to the world, neighbouring economies are expected to reap the benefits.
Beijing’s departure from a highly regulated zero-Covid approach that was straining the economy comes after it declared triumph over the virus.
PGIM Real Estate Head of APAC Investment Research Cuong Nguyen says real estate markets will benefit.
“China’s reopening is expected to be positive for APAC economies and real estate markets, with those having higher exposure to the Chinese demand potentially seeing the most favourable upsides,” he says.
For Australia, China’s open borders will mean an influx of international students bringing a boost to the economy.
Before the pandemic in 2019, Chinese students accounted for the largest proportion of Australia’s international students.
“Australia’s purpose-built student accommodation (PBSA) and the residential market will be among the top beneficiaries of returning Chinese students,” Dr Nguyen says.
Concerns about the rental crisis
Australia is expecting the arrival of nearly 50,000 students from China in the next few months.
This is a double-edged sword with international students both boosting the economy and placing pressure on an already tight rental market.
“The Property Council of Australia estimates that PBSA facilities in major cities are at near-full capacity, with almost no vacancy expected throughout 2023,” Dr Nguyen says.
Students will look for alternative accommodation in traditional rental dwellings.
“As such, the return of Chinese students will add a further boost for rents to grow.”
Hong Kong to reap benefits of traveling Chinese
Hong Kong is also poised to reap the rewards of an influx of tourists from mainland China.
Hotels, high street retail, and other sectors linked to tourist spending will likely benefit the most, according to Dr Nguyen. Real estate brokers such as JLL have upgraded their forecasts for Hong Kong expecting a more robust recovery in the next 12 months.
China’s residential sector stabilising
“The market expecting the most fundamental shifts in investor sentiment and expectation is China itself,” Dr Nguyen says.
After a challenging time over the past two years, Dr Nguyen says China’s residential sector shows signs of stabilizing.
He says efforts to bolster the residential market, including initiatives such as improved mortgage terms for first-time buyers, decreased interest rates, and relaxed lending criteria for developers, are beginning to yield positive results.
While the housing market is recovering Dr Nguyen expects the pace of recovery to remain unbalanced across cities.
Logistics market
Last year, the logistics markets in Sydney and Melbourne, as well as Seoul, witnessed significant rental growth, with annual increases of over 20% and nearly 10%, respectively.
Moreover, the logistics sector in Asia reported a real rental growth of 5.2%. This robust rental growth was crucial in helping logistics assets withstand the negative effects of yield expansion.
“With major economies in the region fully reopened and economic activities normalized, the pandemic-driven surge in logistics demand has slowed across key cities.”
“Following aggressive expansion in the past 18 to 24 months, leasing activities are moderating.
“Although high-quality logistics assets in desirable locations continue to record solid leasing demand, vacancy rates started to become sticky in certain submarkets, and the moderation of demand indeed started to weigh on the rental growth outlook in some markets,” Dr Nguyen says.
