▲China’s real estate market is in a downturn and is full of crises. File photo. (Photo/AP/Dazhi Image)
[NOWnews今日新聞] China’s real estate market is in a downturn and is riddled with crises. However, other Asian regions outside China, such as South Korea, Vietnam, and Hong Kong, are also facing increasing pressure due to rising interest rates and tighter regulations. Although commercial real estate crises are also occurring in European and American countries, Asia faces greater pressure and risks in the housing market.
According to Bloomberg, monetary tightening and the COVID-19 epidemic have had a significant impact on commercial real estate in the United States and Europe, but the pressure on the Asian housing market is more focused on the residential market. One of the hardest-hit countries is South Korea, where housing prices have fallen the most in 25 years. It was recently revealed that a construction engineering company requested to restructure its debt, raising concerns that credit market turmoil may return in 2022.
Kheng Siang Ng, head of Asia-Pacific fixed income at State Street Global Advisors, said, “Economies with heavy consumer debt or balance sheet burdens will need to pay attention.” “South Korea is one of them, and the real estate market continues to weaken.”
The report also listed areas where a housing market crisis is likely to occur in 2024. The first is South Korea, which is second only to China in housing market pressure. After years of growth, housing prices will see the largest decline in 25 years in 2023. This is mainly due to the monetary policy of the Bank of Korea. South Korea fired Asia’s first interest rate hike in 2021, raising interest rates to a 15-year high. By the end of 2022, the weak housing market turned into a crisis. After a theme park builder broke into debt problems, it triggered South Korea’s most serious credit crisis since the financial tsunami. The bad debt ratio of South Korean households and companies is rising, and the Bank of Korea also said that debt financing risks may increase next year.
In Indonesia, due to the central bank’s aggressive interest rate hikes, household consumption power has been affected, causing debt-heavy builders such as PT Lippo Karawaci and PT Agung Podomoro to feel even more pressure. Coupled with the depreciation of the Indonesian currency, the market has been further troubled. The cost of repaying USD debt that is about to mature has increased significantly for builders, forcing them to resort to asset sales to raise funds.
Vietnam is also facing a real estate crisis. As the government launched a large-scale anti-corruption investigation, the already oversupplied real estate industry was hit again. Corporate bond issuance was blocked, causing liquidity crunch and borrowers defaulting on repayments. About 40% of real estate-related companies went bankrupt in the first half of this year, and more than 95% of medium-sized real estate companies decided to lay off employees and reduce expenditures. The most well-known example is Novaland Investment Group, Vietnam’s largest real estate developer, which has previously disclosed Seek debt extension.
In addition, affected by the spread of China’s real estate crisis, Hong Kong’s housing market performed poorly, with house prices falling to the lowest level in the past seven years. After three years of strict epidemic prevention and control, coupled with the Federal Reserve’s historic monetary tightening, rental income from office buildings and retail shops in Hong Kong has declined. In the face of sluggish demand in the housing market, developers are forced to significantly reduce housing prices, but it is difficult to sell foreclosed homes even if banks significantly reduce prices.
The report finally named Australia, pointing out that the pressure on its real estate industry is slightly different. The International Monetary Fund (IMF) has previously stated that Australia is vulnerable to the effects of high borrowing costs, and many loans that have remained at low interest rates during the epidemic will soon face high renewal interest rates. The Reserve Bank of Australia warned in October that a small group of households were in the early stages of financial stress, but this group was growing. High interest rates threaten to intensify pressure on borrowing costs for households in the country.
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