Inflation, supply chain disruption, raw materials and energy price rise, politics, cyberthreats, emergence of new variants, climate change – these are 7 risks that worry many people in 2022. As long as the pandemic is not over yet, we will still see much volatility depending on how we manage to tame the ever-mutating virus.
Future predictions have so far been rather pessimistic for the near term with a more optimistic outlook in the longer term. Truth be told, nowadays, it’s even hard to predict beyond the next three months. Such is the uncertainty of our world that unpredictability is now the new norm.
Asian Property Review has compiled some predictions from various sources to give an indication of what 2022 has in store for us. Here’s a summary:
1.Divergent economic recovery due to disparity in vaccination progress, adoption of digitalization and political (domestic and international) tensions. As of December 2021, World Economic Forum (WEF) states half of the world’s population is still unvaccinated, 40% remained offline, and only 35% of the world’s students lived in countries where schools are fully open.
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2.Inflation and debt crises are on the rise: In advanced and developing economies alike, higher prices and more expensive debt would impact lower-income households especially hard, while small and medium- sized enterprises (SMEs) that are still trying to avoid bankruptcy would suffer from weakening consumption, says WEF.
Sovereign debt globally increased by 13 percentage points, to 97% of GDP, in 2020. Already- strained public finances in developing countries are at heightened risk from debt deleveraging and an appreciation of the US dollar—the US Dollar Index has risen 7% since the start of 2021.
“Debt overhangs will make it more difficult for countries to deal with the economic impacts of COVID-19 and finance a socially just, net zero transition. ”
3.Boom in tech carries risks of cyberterrorism: The tech industry remains optimistic for the long term. Suppliers are looking forward to expected booms in electric vehicles, 5G, artificial intelligence and high-performance computing, as well as to the emergence of the metaverse. This is despite the short-term problems of supply chain and logistics challenges and eroding margins. Again, there is a digital divide between developed and developing/poor countries due to limited technical and financial resources in the latter. On the other hand, there is heightened risk of cyber espionage attacks on advanced nations with their increasing reliance on online transactions. Particularly vulnerable are large and strategically significant systems—such as banking, hospital, Global Positioning System (GPS) or air traffic control systems.
WEF gave the example of the growth of deepfakes and “disinformation-for-hire” which could be used to sway elections or political outcomes. It cited an example of where in a recent case, cybercriminals cloned the voice of a company director to authorize the transfer of US$35 million to fraudulent accounts. “There is also a booming market for services designed to manipulate public opinion in favour of clients, public or private, or to damage rivals. Fraud, too, will become easier and therefore more frequent with banking, health and civic processes going remote.”
4.Climate action is hampered by depleting reserves of countries which have used up a lot of financial capital to fight the pandemic and stimulate their economy. “The 2021 United Nations Climate Change Conference (COP26) succeeded in getting 197 countries to align on the Glasgow Climate Pact and other landmark pledges (see Box 1.1), but even these new commitments are expected to miss the 1.5°C goal established in the 2016 Paris Climate Agreement and increase the risks from a disorderly climate transition.”
“Furthermore, some actions taken to mitigate climate change will instead incur costs for nature. In the rush to increase biomass use for BECCS, to use more agricultural land to create biofuels for industries such as aviation, and to extract minerals needed for the decarbonization of the world’s economy as well as solutions used for carbon offsetting, such as restoring or reforesting land—so-called offset forests—could end up destroying that land through severe weather such as wildfires or floods.
“The inability to adapt or mitigate the impacts of climate change also threaten to make certain densely populated parts of the world uninhabitable.
More frequent and extreme weather events— including fires, floods and droughts—could displace more than 200 million people by 2050, causing a rise in climate refugees.” Water scarcity could also trigger conflicts.
5.Political opportunism occurs more frequently where some political leaders have reacted to economic crises and social unrest with authoritarianism, discriminatory policies, or extremist discourses that put ethnic or religious minorities at risk of marginalization or violence, says WEF.
10 biggest trends in 2022
1.The expanding tech sector will continue to be a key driver of office leasing activity.
2.Co-working will continue to gain momentum from enterprise client demand as corporates adopt longer-term hybrid work strategies.
3.Quest to integrate resilience into supply chains will set demand for modern logistics facilities in the region on another trajectory, elevating its importance as an operationally critical asset.
4.Pressure on available options is expected to drive rental increases in the logistics sector by an average of 2-3% across APAC.
5.The unorthodox access to international talent is likely to skew homebuying preferences across Asia-Pacific’s gateway markets in the long-term.
6.Pent-up demand for residential properties in key safe-haven markets is expected to fuel price growth in the region by a further 3-5% in 2022.
7.Forward-looking demand and drive towards normalcy will fuel value growth across the region’s residential and commercial sectors.
8.Cross border transaction volumes in the Asia Pacific is expected to see an uplift in 2022 with the majority targeting office assets.
9.The weight of capital looking for a home will keep property yields tight.
10.2022 will unfortunately not be a year where international tourism will revive in a big way as plans to reopen borders to international travel will remain tentative and cautious. However, it will be a year of experimentation as more governments trial expanded travel arrangements via bilateral vaccinated travel lanes and targeted travel bubbles. This will set the tone for a stronger rebound in 2023.
The Omicron Factor: The Omicron variant is fuelling another spike of infections worldwide. At the moment, we are still seeing some knee-jerk reactions to the new variant. This has led countries to reinstate border measures or delaying reopening to allow healthcare systems to cope. While report of it being a milder strain has tempered concerns, the unfortunate reality is that as long as infection numbers do not recede, governments will prefer to err on the side of caution and delay reopening plans. However, as the world has begun to realise that a Covid-zero approach is unfeasible, we will unlikely see the scale of extended lockdowns seen in the initial stages of the pandemic. The world and the region are now better equipped to cope with challenges from new variants, as vaccinations and development of oral medication for COVID-19 continue to gather pace.
Over the next 12 months, we expect most governments to forge a transition to an endemic stage. This will set the tone for the region’s real estate markets to benefit from a reopening and recovery theme. While the pandemic’s trajectory could still evolve, a wide range of indicators are pointing to a stronger rebound in 2022, as Asia Pacific enters a new cycle of growth driven by low interest rates, high inward investment and pent-up demand in both the commercial and residential sectors.
Top 3 investment headwinds in 2022
Nigel Green
CEO of deVere Group, global financial advisory
2022 is likely to be “shaped by volatility.” Headwinds – the factors that weigh down growth and positive returns — are likely to outnumber the tailwinds in 2022 as the world continues to readjust to the post-pandemic era.
Currently, there are three main issues that investors should be
monitoring carefully. First, is inflation. It’s a risk that is a major concern for most investors around the world. Why? Because it kills returns by eroding buying power.
Higher inflation usually brings higher interest rates in response from central banks. When rates are hiked, typically consumer and business spending falls, borrowing becomes more expensive, economic activity slows, and financial markets fall.
In December 2021, the Bank of England raised UK interest rates for the first time in more than three years in an effort to combat surging inflation.
The move follows the U.S. Federal Reserve a day before setting the stage for earlier, faster interest rate hikes as inflation soars. The U.S. central bank is now forecasting three rate increases in 2022.
Second, is China. The country’s economic growth is uncertain. Much of the recent slowdown has been fuelled by the wider impact of the downgrading of huge property developers such as Evergrande.
There are now serious worries that this could initiate a worrying credit crunch that would be disastrous for the world’s second-largest economy, which would have global repercussions.
Plus, the regulatory attack on tutoring, and other sectors such as gaming and ride-sharing, appears to highlight the Chinese government’s new thinking and its increasing push for control of private enterprise.
Given the state-sponsored attack on private capital, investors will be required to take a leap of faith regarding China’s political strategies.
And third is, of course, Covid. Whilst the markets have largely shrugged off the impact of the Omicron variant, there is still no certainty about how it will play out in the longer term. Will it impact economies due to the introduction of new restrictions? Which sectors will be hit the hardest?
How will it impact the workforce? How will already shaky supply chains be managed? These are questions that can directly impact investor returns but to which we still have no answers.
In addition, all this uncertainty about growth, demand and investment is all kicking off as central banks and governments are withdrawing stimulus.
However, it’s essential that investors stay invested. As we know, history has shown us that markets tend to go up over the long term.
But as the world moves ahead to a post-pandemic era, it’s crucial that investors ensure their portfolios are suitably diversified across asset classes, sectors, currencies, and regions, so as to make the most of the considerable opportunities that will inevitably present themselves. A good fund manager will be an invaluable resource.”
Malaysia
The scenario in Malaysia is not much different from the global trajectory due to a more interconnected world, as indicated by Dato’ Sri Gavin Tee, Founder and President of Swhengtee International; and Muhazrol Muhamad, Juwai IQI’s Head of Bumiputera Segment.
2022 Forecast by Gavin Tee
Gavin Tee
Founder and President of Swhengtee International
1.Upside Potential:
2022- 2024 are the best years to take advantage as the market recovers from the lowest point. The potential is for the market to go all the way up as it has already touched bottom and there is little downside left. The biggest beneficiaries will be tourism property and those reaping the benefits from 5G. 2022 is the beginning of a new cycle and with it, comes an overhaul of investment methods. There will be a lot of restructurings in the way the property industry operates including the culture, location, education and construction.
2.Uneven Recovery: Between 2022- 2024, markets throughout the whole world will still experience many changes with recoveries being uneven across countries and industries. In Malaysia, we will be moving towards recovery and eventual stability. We expect a post-pandemic era when life goes on no matter how long the pandemic lasts. Covid will become endemic; and everything resulting from it will become ‘normal’. Many SMI’s and SME’s would need the government’s help to assist in recovery due to the business devastation caused by the pandemic.
3.Political disruption: Political instability will continue to plague Malaysia as 2022 could be an election year. The lack of confidence in the government will translate into less foreign investments and fewer foreign tourists. But once a new government is sworn in after the general election, there will be more stability ahead (at least for the following 2 years). At the same time, as the economy is picking up from the lowest point, there will be many positive recovery stories such as shoplots and co-sharing facilities recovering quite immediately in matured areas. Domestic tourism including Airbnb in areas such as Genting Permai, Melaka, Cameron Highlands and Penang will recover almost immediately followed by international destinations like La ngkawi and Kota Kinabalu. The latter two will see a strong pickup in 2023.
4.Technology disruption: The tech disruption in the property industry between 2016 — 2017 moved slowly but post-pandemic, the tech revolution will accelerate as businesses such as construction and business financing, adopt more tech in their operations. This will contribute to the growth of the entire property industry from 2022. Investing in property is also moving towards fractional ownership, or ownership by funds which are either institutional or contributed by individuals through crowdfunding. Cryptocurrency might even be used. Some examples of property whose ownership is fractional include durian plantations and hotel resorts. 3D printing might become more popular as a 3D-printed bungalow can be built within days. Marketing will also undergo a price restructuring as the online effect depends on volume. 5G is clearly a big gamechanger as it can effect changes within months, or even faster thus having the capability to move markets.
5.Delayed Reaction: Even if international borders reopen, the return of foreign investors in the high-end property market especially from China will be slow. This is due to a change in mentality and preferences as investors hesitate over the effects of the pandemic. As markets start recovering and normalising however, the high-end market will start picking up from 2023. Being a buyers’ market, this presents a great opportunity for those who are looking to enter the high end property market.
6.Hotspot change: The type, design and location of property has changed to adapt to new post-Covid demands. The preference now is for outskirts location resulting in small towns, countryside and resorts experiencing a boom in tourism instead of cities and shopping centres. The small towns include Ipoh, Taiping and Seremban which are seeing more international tourists. It’s even conceivable international standard property will be built in small towns or kampongs.
7.Health focus: There is a shift to locations which have ample medical and health facilities; as well as healthy lifestyle amenities. This means areas with parks, near jungles, seas where the air is good and the surrounding is spacious, are sought after.
IQI Optimistic
Muhazrol Muhamad
Head of Bumiputera Segment, Juwai IQI
Muhazrol Muhamad, Juwai IQI’s Head of Bumiputera Segment says: “Beginning in 1H 2022, we forecast recovery in the property market as purchases of both new and secondhand residences climb. The rising number of transactions will eventually lead to upward price pressure, especially in the most popular market segments.
The recovering economy is the first factor that will help drive the property market. Growth in the manufacturing and services sectors will increase employment and have a positive effect on household income and savings. Economic growth in 2022 will result from continued policy support, the expected relaxation of Covid containment measures, and an increase in demand in both the external and domestic sectors.
A rebound in the manufacturing sector, and in construction and infrastructure projects, will boost employment. Export growth will be supported by high external demand and an increase in commodity prices. Employment is already recovering and will be even stronger in 2022. 15.4 million people were employed in September, compared to 15.2 million in January, 2021. Unemployment has dropped from a higher 5.3% last May to 4.5% in September.
Bank Negara projects 5% to 6% economic growth in 2022, compared to an estimate of about 4.5% for this year.
While we don’t yet have rigorous data on the new Omicron variant, how easily it spreads, the severity of illness it causes, or how easy it is to treat, we have learned a lot about managing the pandemic over the past two years.
As proof, just look at Covid-related hospitalizations, which in Malaysia are at just one-quarter of the level of their peak in early 2021.
Through its testing, vaccination, and communications campaigns, the government has effectively reduced the pandemic’s impact. There is every reason to believe the lessons learned in that battle will also help us contain risks from the new variant.
Our base case is that Malaysia will continue to progressively reduce Covid’s impact and that Omicron will have only an insignificant impact on the real estate market.” APR
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