Expert: Dual-Pronged Strategy to Navigate Post-Pandemic Challenges in the ASEAN+3 Property Market

• 15 December 2024
• International News
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The ASEAN+3 property markets, encompassing ASEAN nations along with China, Hong Kong, Japan, and Korea, are grappling with declining prices and transaction volumes, compounded by financial constraints, surplus inventory, and at-risk developers. These challenges, exacerbated in the Plus-3 economies by stricter financial conditions and diminished buyer confidence, underscore the pressing need for stabilization measures in both property and financial sectors. This situation was highlighted in recent regional analyses published by Thailand-business-news on 14 November 2024.

The Struggles of Post-Pandemic Recovery

In the aftermath of the pandemic, property markets in the Plus-3 economies have faced severe hurdles. China’s sluggish economic growth, along with the financial distress of major developers such as Evergrande and Country Garden, has rippled across the region, threatening financial institutions. Transaction volumes have plummeted, and over 20% of bonds issued by ASEAN+3 property developers, many rated as high-risk “junk bonds,” are set to mature by 2025, heightening default risks. Despite these difficulties, ASEAN economies have remained relatively insulated, avoiding the severe impacts seen in their Plus-3 counterparts.

Globally, the commercial real estate sectors in advanced economies, including the United States and parts of Europe, have shown resilience, although some vulnerabilities persist. However, the scale of the challenges in the ASEAN+3 region, particularly in property financing, remains significant.

Financial Risks and High-Leverage Fallout

The profitability and debt-servicing capabilities of property developers have weakened dramatically since 2021, with high leverage during boom periods now posing significant risks amid rising interest rates and worsening market conditions. Refinancing pressures have compounded the issue, as developers struggle to sustain operations under tightened financial scrutiny.

Strategies to Stabilise Property and Financial Sectors

To address these mounting challenges, a dual-pronged strategy has been proposed. The first involves implementing targeted measures to counter negative market sentiment and prevent the default of fundamentally sound firms. Governments are urged to selectively support viable projects facing temporary liquidity stress while cautiously applying demand-stimulation policies tailored to national needs.

Simultaneously, strengthening the financial sector requires diversifying smaller banks’ business models, enhancing non-bank institutions’ resilience, and tightening regulatory frameworks to promote responsible lending. These measures aim to stabilise the property market while ensuring the financial system remains robust and adaptable.

A Path Forward for Resilience

As ASEAN+3 economies navigate these challenges, collaborative efforts and adaptive strategies will play a pivotal role in mitigating risks and fortifying markets against future uncertainties. The concerted focus on stabilising both property and financial sectors underscores the region’s commitment to achieving long-term economic resilience and growth.

• Analysis
• Economy and Finance