Economic headwinds hold property market back

Moreover, its dwindling foreign reserves, a chronic current account deficit, high external debt and a weak currency put Vietnam in a precarious position, a Cushman & Wakefield survey said.

“As such, the office market in Hanoi and Ho Chi Minh City is likely to be bereft of dominant demand drivers through to next year,” it predicted.
However, it said the limited offerings in Hanoi should sustain modest rental gains.

With substantial office completions slated in Ho Chi Minh City, vacancies will remain in double-digits and continue to cause landlords to be increasingly flexible during lease negotiations in these uncertain times.

Meanwhile, credit growth restrictions that are unique to Vietnam have almost eliminated any available capital for development or even for critical expansion and infrastructure
works, adding further doubt to any recovery soon, it said.

For the office market, it suggests that occupiers could expect a brief respite from surging occupancies and rents that have characterised ultra-tight locations such as Beijing and Hong Kong. Even so, occupancies will generally remain high except in markets with teeming construction pipelines and the pace tends to pick up as signs of a global turnaround
emerge.

Expect rents to generally remain flat or rise modestly through next year, in most cases three-year leases up for renewal will still command rates that are significantly higher than those in 2009.
On the investment front, most markets will continue to present significant opportunities.

The combination of growing economic clout, still-sturdy property market fundamentals and the abundance of capital will continue to position the Asia Pacific favourably in this period of economic uncertainty and thus remain a magnet of investor interest.

All of the above comments were based on the rather strong foundation of the economy of the region’s countries. Cushman & Wakefield said that several factors affirm our relatively sanguine economic forecast.

“Though an economic slowdown will be inevitable in all countries in the region, none
is projected to return to recession, barring any financial implosion in Europe,” it said. However, Asia-Pacific’s GDP growth is forecast to average 6 per cent in 2011 after a rapid recovery of 8 per cent in 2010, then rise slightly to 6.2 per cent in 2012.

“Such growth will remain supportive of employment and income gains and fuel healthy
domestic demand and promote intra-regional trade and tourism,” it said. While concerns have been raised on its massive infrastructure investments funded by debt, China remains poised for a still-solid GDP growth of 8 per cent to 9 per cent through to next year.

Meanwhile, robust private and public consumption will be vital to the economic strength of India and Indonesia, which are set to grow by 6 per cent to 7 per cent next year. Reconstruction investment in Japan and Thailand will also be key drivers of stronger activity in the near term.

In November, Japan’s lower house of parliament passed a ¥12.1 trillion ($156 billion)
supplementary budget for post-quake reconstruction. In Thailand, the government pledged THB200 billion ($6.5 billion) as an initial investment to boost flood defences and provide soft loans to help key businesses get back on their feet. This rehabilitation package should stoke domestic demand next year and keep growth above 4 per cent.

In 2012 and 2013, the consultant predicted that the expansion of trade initiatives will also boost regional trade performance. The most tangible sign of progress was the agreed framework for the Trans-Pacific Partnership (TPP) free trade agreement launched in 2006 by Singapore, New Zealand, Chile and Brunei.

“Discussions have been under way since March 2010 to also include five other countries
- Australia, Malaysia, Peru, the US and Vietnam. Japan announced in November that it will formally join the TPP negotiations. The talks are significant as they could potentially lead to a future free-trade area with Asian and Pacific nations,” it said.