Southeast Asia: Macro Economic Trends and Impact on the Residential Market

The worsening economic outlook has limited impact on housing markets in Indonesia, Malaysia, Singapore, Thailand, and Vietnam

The world was emerging slowly from the pandemic at the beginning of 2022, although supply chain disruptions continued to hinder the recovery from being faster. However, the growth prospects in 2022 worsened when Russia announced its “special military operation” in February.  

What followed were sanctions, disruptions to the food supply chain and rising oil prices causing higher-than-expected inflation globally. To tackle the rising inflation, the Governments tightened their monetary policy by raising their policy rates. At the same time, China recorded a worse-than-expected slowdown due to its strict lockdown policy to contain the spread of the pandemic.  

These external shocks further led to a slowdown in economic growth in the second quarter of 2022 in the United States of America and China, the two largest trading partners of ASEAN.  

These negative shocks, theoretically, would lead to a contraction of consumer demand, slowing the expansion of firms and, correspondingly, housing demand and prices in ASEAN cities. However, the residential markets in Indonesia, Malaysia, Singapore, Thailand and Vietnam were surprisingly resilient, with most markets on the upcycle.

Why?

First,  Indonesia, Malaysia, Singapore, Thailand and Vietnam were transiting to endemicity as their Governments reopened their borders and relaxed their social distancing measures. The recovery was partly boosted by the service sector, which experienced a rapid expansion.

Second, the labour markets were tight, and workers could pass the higher costs of living to their employers. Additionally, they were better financially able to maintain their mortgage payments and seek higher asking prices.    

Third, Southeast Asia was a magnet to foreign investments, supporting job growth and enabling economies to rebound faster. Additionally, the rising geopolitical tensions between China and the United States benefitted the South East Asian countries as the multinational companies diverted their operations and supply chains to these economies. The influx of investments also led to more professionals and investors in the country.

Outlook: Where are these residential markets heading amid a darkening outlook?

The outlook of the global economy darkened considerably as Central Banks pursued an aggressive strategy to arrest inflation. The synchronised tightening of monetary policy will likely push the global economy into a recession and possible slowdown in property market activity.

While IMF has maintained a relatively favourable economic projection for the five markets, the higher borrowing costs and slowing production would likely make housing less affordable, and we expect most markets to see slowing sales.  

However, prices are likely to increase at a moderated pace because the sellers will likely maintain their holding power in the immediate term. The price gap between buyers and sellers would widen, and the number of transactions should ease accordingly.