The world is beset by uncertainty today, with war, political tension and rampant inflation making life hard for investors; meanwhile the covid pandemic persists in a number of markets, adding to headaches.

Real estate investors are affected by all these difficulties, meaning it is hard to find investment markets where assets will be safe or at least relatively safe from the impacts of macroeconomic and geopolitical upheaval.

“In an uncertain world, real estate investors look for safety and stability,” says Simon Smith, Head of Asia Pacific Research & Consultancy at Savills. Prospects suggests some Asia Pacific investment destinations which might provide safe spaces from the slings and arrows of the world economy.

Safe from inflation

Real estate investments can provide some inflation protection, but the double-digit variety afflicting much of Europe is hard for the sector. Asia Pacific nations in general are not seeing inflation at such levels.

Japan has been desperate for a little inflation for years, as the government’s target of 2% inflation was elusive until this year, when it rose to 2.5%. Next year however, Savills expects the Bank of Japan to raise interest rates marginally, still leaving borrowing extremely cheap by international standards but potentially bringing upward pressure to yields in those sectors which have been heavily bought in recent years.

The lowest inflation in Asia Pacific and indeed the world can be found in Hong Kong, where it is only 1.2%. However, Hongkongers might feel their grocery bills have inflated rather more this year and they would be correct. Hong Kong’s Consumer Price Index is unusual in that residential rents are 40% of the index and these have been falling due to the pandemic and the city’s entry restrictions.

Safe from conflict

While the Asia Pacific region is free from significant conflict, there are numerous political tensions, chiefly between Mainland China and Taiwan. There is also a number of disputes between Asia Pacific nations over borders and territory.

One nation stands out, however, for its lack of tension with other Asia Pacific nations: New Zealand. Being more than 2,500 miles from its nearest large neighbour (Australia) means it would be pretty difficult for New Zealand to get embroiled in a territorial dispute. This isolation means the nation has been a favoured choice for billionaires looking for the ultimate safe space to ride out a future global conflict.

Safe from covid

Mainland China has the lowest covid infection rate in Asia Pacific, however this has come with the imposition of city-wide lockdowns and quarantine restrictions. Meanwhile, nations such as Singapore, Thailand and Australia have dispensed with almost all restrictions.

Singapore in particular has managed to keep the death rate low whilst emerging from restrictions. Meanwhile, Hong Kong has one of the highest death rates, while still languishing under restrictions over gatherings, mask-wearing and quarantine.

Safe from crime

According to the Global Peace Index, New Zealand is the safest country in Asia Pacific, which might come as a surprise to Singapore and Japan, both of which have substantially lower levels of violent crime. However, the peace index also takes account of “militarisation”, so both nation’s defence forces make them, in the eyes of the index, less peaceful. Hong Kong has a similarly low violent crime rate, but is not included in the index.

Safe from recession

The US is already in recession, but not necessarily admitting to it, and China – usually the engine of Asia Pacific growth – is on track for only 3.3% GDP growth this year, according to the International Monetary Fund.

However, India, Vietnam and the Philippines are set for strong growth this year, with the IMF forecasting GDP growth of 7.4%, 7% and 6.7% respectively. This growth will fuel demand for real estate in all sectors.

Safe from losses?

For most real estate investors, the best way to insulate themselves from financial losses during tumultuous times is to invest in quality. Typically, in times of high inflation, or recessions, prime assets perform better, as they are preferred by investors, tenants and banks.

“We see an increased preference for prime assets in gateway cities around the region and expect the gap between prime and secondary assets to grow,” says Smith. “Well-located, assets with up-to-date space and the environmental features demanded by tenants are best-placed to be resilient in the current market.”

Further reading:
Savills China Research Spotlight