A Trump Victory - implications for Sri Lanka and greater SE Asia Real-Estate sector

November 25, 2016

 

The biggest impact expected from a Donald's Trump victory as the President of the United States of America on the Real Estate sector in SE Asia is in our opinion only going to be felt in the short term - this being increased interest rates, and therefore a more constrained financing environment for new construction. With an increased cost of capital, whilst overall growth increases demand for quality real estate in some of the fastest growing cities in the world, will see a need for greater innovation in program and business model to accommodate higher monthly costs, as Frontier and Emerging Markets fall further down the risk-profile chart.

 

A longer-term shift in course is expected to come from Trump's more isolationist approach to America's position in the World i.e. a gradual reversal of capital flows shifting towards an Asia-Europe/ US model, where stable assets in Europe and America, predominantly in Tier 2 cities, are taking the full brunt of transaction activity as investors look for safe havens against a higher interest rate environment. The reduced presence of American and European investors in Asia is also seeing a shift in Market share across the Asia Pacific towards Chinese and Singaporean investors as their domestic markets face highly constrained deal environments. We believe also that with a shift in geo-political control in the region, there will be a shift in business culture, as newer developers having succeeded from rapidly urbanising and increasing land and property prices come into the foray, there will be a frenzy of development activity leaving greater risk for oversupply through shorter cycles than previously.

 

Altogether however, the fundamentals in SE Asia prove stronger in the medium-long term as employment opportunities increase alongside industrialisation and urbanisation in largely frontier and emerging markets such as Myanmar, Vietnam, Sri Lanka and Indonesia, whilst the more traditional and now mature development markets of Malaysia and Singapore will evolve towards a more transaction lower-risk yield driven market whilst interest rates are expected to remain low. 

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