Key Considerations When Investing in Real Estate in Asia

According to Savills Prospects, real estate investment in Asia Pacific fell by -6% in 2022, while they fell by -15% in North America and by -28% in Europe. Investment in Asia also accounted for a larger share of the global total of capital raised. Simon Smith, Head of Research & Consultancy at Savills Asia Pacific, shared: “The amount of capital raised by real estate funds targeting Asia Pacific has fallen, however, the region has proven more resilient than Europe or North America in the face of inflation and political uncertainty.” 

Inflation, regulations, geopolitical instability, faltering growth and changing consumer habits all influence real estate investment, and investors must understand the risks clearly to make sound judgments. Simon noted that the risks APAC real estate investors face can be categorised into three silos, including structural, cyclical and market risk. 

Structural Risk

While these can be diverse, structural risk is increasingly influenced by technology and digitisation. Digitisation has caused significant changes to market structures across most regions. Cloud computing, online shopping, livestreaming, and social media are changing how we use real estate, shop, and live.  

E-commerce is expanding rapidly, and Viet Nam is one of the fastest growing markets in APAC. According to Statista, e-commerce revenue is forecast to reach US$11.95 billion in 2023, and between 2023 and 2027, revenue is expected to show an annual growth rate of 12.3%, equal to revenue of US$19.02 billion by 2027. South Korea is one of the world's leading online retail markets, and in 2022, 37% of transactions were conducted online. This is expected to rise to 45% in the next five years. The growth of online retail will drive demand for data centres and logistics facilities and services, and it will influence the purpose of physical retail spaces.  

Governments and organisations are also increasingly concerned with meeting ESG, net zero, and sustainability targets, which will influence the legal framework and the structure of investment activities. 

Cyclical Risk

The second consideration is cyclical risk. Inflation poses a major threat to property investors globally because it poses a risk to growth. According to the International Monetary Fund (IMF), global GDP growth will decline to 2.7% in 2023, from 3.2% in 2022 and 6% in 2021. However, in Viet Nam, the State Bank of Viet Nam (SBV) lowered regulatory interest rates four times between March and June, with decreases of 0.5% and 2.0% across all regulatory interest rates. This will ease capital costs for borrowers and credit institutions, which will stimulate cash flow and economic growth. 

Market Risk

The third is market risk. Oversupply results in slow performance, and it is a problem across several markets and sectors, including the Chinese retail market. 

James MacDonald, Senior Director of Research, Savills China said: "Retail oversupply at some locations in China recorded significantly high levels, and vacancy rates in major markets in the first months of 2023 have reached double digits. Many markets still have a large existing supply and a great future supply; however, this segment is facing pressure from the e-commerce boom." 

In Viet Nam, the Government is taking proactive steps to resolve real estate difficulties and has issued important decrees and resolutions. In March, the State Bank of Viet Nam (SBV) reduced the regulatory rate to stabilise the monetary market and support economic growth. However, legal structuring and paperwork remain a significant challenge to development and more must be done to create a clear legal framework, which will boost foreign investment in Viet Nam.

To minimise risk when making investment decisions, you should use a trusted advisor with a deep understanding of the local market. Savills Investment Department specialises in researching, sourcing, and securing sound investment opportunities for its clients. Contact us for more information. 

See more: 

• With the Entry of Significant Industrial Players, is Viet Nam Ready? 

• Exclusive Commercial and Industrial Event in Ha Noi 

• Da Nang Hospitality Real Estate: Finding Opportunities in Challenges