Upward Mobility: Southeast Asia Spreads its Wings in 2018
Halfway into the first quarter of a growth-blessed year, there’s plenty to be optimistic about in Southeast Asia. Home to a common market of 600 million consumers, most of whom experience steadily rising purchasing powers, Southeast Asian nations are riding a global trade boom that is set to support the heterogeneous region as it tightens monetary policies and strengthens economic integration.
Growth forecasts are optimistic across the board. The Asian Development Bank pegs growth for Southeast Asia at 5.2 percent on the back of robust investments and exports, with projections for the Philippines, Thailand, Vietnam, and Singapore revised upwards. Bloomberg predicts the Philippines and Vietnam to remain the region’s star performers, each expected to exceed six percent growth for 2018; while Indonesia is forecasted to grow at 5.3 percent, and Singapore and Malaysia to moderate to 2.8 and 5.3 percent respectively.
According to a Jones Lang LaSalle report, economic growth across Southeast Asia will accelerate in 2018, with the Malaysian and Indonesian economies showing promising prospects. Currencies across the region are improving, with most economists expecting turnarounds for both the Malaysian Ringgit and Indonesian Rupiah over the next four years.
With emerging Asian economies on the race to build metros in key cities that are currently reaching choking congestion, Jones Lang LaSalle expects such accelerated infrastructure spending to support employment and growth. As these investments in mass rapid transit bear fruit now and through to 2020, these new lines and networks are all set to transform the way city dwellers from these emerging economies live, work, and play.
As the nation gears up for presidential elections in 2019, Indonesia’s economy is expected to grow faster in 2018, largely due to strong investment growth and higher government spending.
According to Bloomberg, Indonesia is forecast by the government to expand 5.4 percent, which would be its fastest pace in five years. Foreign investment is picking up, employment is increasing, and a landmark infrastructure program is taking shape. China is building Indonesia’s first national high-speed rail link, spanning 150 kilometers and costing $5.1 billion. The MRT is already under construction and is set to operate in 2019.
As the U.S. Federal Reserve leads central banks across the globe in tightening their monetary policies, Bank Indonesia, on the back of a strong economy, is holding off on raising interest rates; inflation is also subdued, reaching 3.3 percent in November. The export boom across Southeast Asia has also benefited Indonesia, as it posted its highest trade surplus in almost six years.
Strong recovery is expected in Jakarta’s office markets for 2018 to 2021, reveals a Jones Lang LaSalle report. Rents in the city has fallen significantly over the last three years, but this is expected to start increasing after 2018, at five to 10 percent in 2019-2021. Capital values in Jakarta is also expected to be on the upswing over the next four years. There’s also marked changes in terms of tenant profile, with online marketplaces, travel booking websites, fintech companies, and online gaming firms responsible for around 50% of the space leased in 3Q17.
In the residential sector, Colliers International Indonesia points to more expatriates renting houses in Jakarta, where most of the expansion plans of manufacturing and automotive companies are happening. Colliers also notes that most of the expats residing in Greater Jakarta are from China, which is in line with the infrastructure and property projects being constructed by Chinese companies.
Moderate yet healthy growth is expected for Malaysia in 2018, with the International Monetary Fund (IMF) expecting the Malaysian economy to grow at a slower pace of 5 to 5.5 percent, with inflation expected to decline to the 3-3.5% range due to lower impact from global oil prices. According to the IMF, real GDP growth for Malaysia is surprisingly on the upside, growing at 5.9% year-on-year in the first three quarters of 2017, driven by domestic demand and robust exports.
From a financial management perspective, Malaysia’s international reserves now stand at $102.2 billion, with the Malaysian ringgit strengthening. With major investments in public transportation infrastructure and the country’s strong bilateral ties to China, the U.S., Saudi Arabia, India, and Japan, inflow of foreign direct investments and trade activities are also set to improve.
When it comes to the Malaysia property sector, a Jones Lang LaSalle (JLL) report reveals capital values in Kuala Lumpur are expected to grow slower over the next four years. Office oversupply issues are currently being addressed, with the Cabinet directing, effective November last year, its Kuala Lumpur City Council to stop issuing planning approvals of retail malls, office buildings and luxury residential projects priced over RM1 million. The moratorium could last one to three years, with the freeze on luxury condominiums possibly indefinite until the Cabinet sees an actual rise in demand. Such development is deemed positive by JLL, as it argues that “a better regulated market with policy makers that empathize with landlords and takes active steps to moderate supply imbalances would be more attractive to investors.”
Currently one of the fastest growing economies in Asia, the Philippines continues to perform strongly, growing at an average of 6.3 percent over the past five years, with 2018 growth forecasted by both ADB and the World Bank to climb 6.8%, faster than their respective initial forecasts of 6.7% and 6.6% last year. The country’s growth prospects hinge on an acceleration in infrastructure spending, with large-scale projects set to roll out in 2018.
In the World Bank’s Doing Business report, the country climbed to the 99th spot from 103 in the year prior. Over the last six years, the country’s investment climate has shown remarkable progress, having taken several initiatives to protect minority investors, and ease procedures dealing with construction permits, tax payments, and contract enforcement. This is further compounded by the government’s shift in stance from PPP (Public Private Partnership) to BBB (Build, Build, Build), which focuses on public funds and political will to expedite the implementation of key projects. According to the Bangko Sentral ng Pilipinas (BSP), the amount of foreign direct investments coming into the country surged to $8.7 billion during the first 11 months of 2017, surpassing the full-year target of $8 billion.
Strong macroeconomic fundamentals are boosting the confidence of the country’s leading conglomerates, with companies like SM, Ayala Corporation, and the Villar Group expanding their retail, banking, and property businesses beyond the Philippine capital to new areas in Greater Luzon, Visayas, and Mindanao.
Vietnam’s notable growth momentum is spilling over into 2018. The government predicts economic growth for 2018 to reach as high as 6.7%, while the Asian Development Bank forecasts 6.5% growth, higher than 2017 and stronger than developing Asia overall.
In January 2018, industrial production soared, owing to an expansion across all sub-sectors, with foreign investors in the electronics and polyester yarn factories still favoring Vietnam for its low costs, abundance of labor, and efficient permitting process. FDIs—a key driver of the economy’s growth—accelerated in the double-digits, with the funds fueling the country’s labor-intensive, export-oriented manufacturing and processing industries. Most offshore investment come from South Korea, Singapore, Japan, and Taiwan. The country is also participating in the mass rapid transit race, with Ho Chi Minh City’s first MRT expected to operate from 2020, and Hanoi’s first of six metro lines scheduled for completion this year.
Vietnam’s economic growth has led to an increase in household wealth, leaving just 13.5% of the population in poverty—a boon to investors catering to the domestic market. This is further compounded by the surge in private sector credit, under the mandate of the State Bank of Vietnam, which has propped up private consumption and has consequently fueled its retail sector.
As such, Vietnam is flooded with new construction and with the government opening its property market to foreigners and overseas Vietnamese, real estate is on the upswing. According to Jones Lang LaSalle, a new wave of Grade A office supply is expected to enter the market in 2018, adding approximately 95,000 sqm of premium office space in Hanoi. This is fueled by demand for office space, which is expected to be positive in 2018 on the back of positive economic prospects.