Asian property markets are going to produce some of the best property price gains ever seen in the region. The strength of Chinese property markets is just a precursor to what is going to happen in other Asian property markets. The big increases in property prices that were experienced in the East Asia were largely confined to reformist, pro-market, pro-investment China and Thailand. There is every reason to believe that the Philippines and Indonesia will do particularly well over the next decade based on reformist agendas currently underway.
This conclusion is supported by the fact that the world is currently passing through one of those unique periods of time when productivity and industrial capacity are growing at very strong rates because of liberalisation of markets, credit expansion, as well as the ready flow of capital and information. In these formative stages the flow of information is not so good, but the efficiency of these flows will improve over time.
There is considerable concern about the state of credit markets. These issues will surely raise the cost of capital in the short term, but in fact they will spark reforms globally that will only improve the competitive forces pushing the cost of capital even lower. This is a long cycle, and whilst we are already seeing higher cost of capital, I think these pressures will subside. I don't see any unwinding of the global credit expansion, rather a shift to Asia and other developing countries. The Philippines is one of the most exciting property stories in Asia.
You might ask what does the current inflationary pressures mean? Well there has been inflation for some time now, that is over the last 5 years. This has not been significant by government measures because it does not include asset prices. People truly don't understand inflation. When asset prices come down 'cost of living' prices (inflation) must go up, or a lot of that credit has to be liquidated. No government has any interest in causing deflation, they merely want to stabilise prices, and the best way to do that is to bail out failing banks as they raise rates.
We can expect higher interest rates in Western countries, but this will only see hedge funds and other investors shift their focus to Asian nations. You might ask - How can this occur? The Asian markets are too undeveloped or immature to support such products. If these products are not supported in Asia, as I would expect, then the asset classes will be supported by offshore markets. Its also possible that more developed Asian markets like Singapore and Sydney might provide a basis for the development of property investment vehicles, not just for foreigners, but Asians as well. The focus of such products are likely to be tourism, commercial and residential developments. Just as the world was excited by the industrial expansion of China, watch over the next decade as Chinese people start to travel. Not just Chinese people, but increasingly Koreans, Thais, as well as Russians, Arabs and other peoples.
----------------------------------------------This conclusion is supported by the fact that the world is currently passing through one of those unique periods of time when productivity and industrial capacity are growing at very strong rates because of liberalisation of markets, credit expansion, as well as the ready flow of capital and information. In these formative stages the flow of information is not so good, but the efficiency of these flows will improve over time.
There is considerable concern about the state of credit markets. These issues will surely raise the cost of capital in the short term, but in fact they will spark reforms globally that will only improve the competitive forces pushing the cost of capital even lower. This is a long cycle, and whilst we are already seeing higher cost of capital, I think these pressures will subside. I don't see any unwinding of the global credit expansion, rather a shift to Asia and other developing countries. The Philippines is one of the most exciting property stories in Asia.
You might ask what does the current inflationary pressures mean? Well there has been inflation for some time now, that is over the last 5 years. This has not been significant by government measures because it does not include asset prices. People truly don't understand inflation. When asset prices come down 'cost of living' prices (inflation) must go up, or a lot of that credit has to be liquidated. No government has any interest in causing deflation, they merely want to stabilise prices, and the best way to do that is to bail out failing banks as they raise rates.
We can expect higher interest rates in Western countries, but this will only see hedge funds and other investors shift their focus to Asian nations. You might ask - How can this occur? The Asian markets are too undeveloped or immature to support such products. If these products are not supported in Asia, as I would expect, then the asset classes will be supported by offshore markets. Its also possible that more developed Asian markets like Singapore and Sydney might provide a basis for the development of property investment vehicles, not just for foreigners, but Asians as well. The focus of such products are likely to be tourism, commercial and residential developments. Just as the world was excited by the industrial expansion of China, watch over the next decade as Chinese people start to travel. Not just Chinese people, but increasingly Koreans, Thais, as well as Russians, Arabs and other peoples.
Andrew Sheldon www.sheldonthinks.com
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