Real estate investors eye Vietnam, India as China growth slows
Driven by unique demographic shifts, evolving trade relationships, and distinct economic cycles, savvy institutional investors are eyeing a diverse range of real estate sectors in Asia that are poised for significant growth.
Within China, the world’s second largest economy, growth may have slowed down — but there are still opportunities for investors who are able to adopt a more nuanced perspective, according to Louise Kavanagh, chief investment officer and head of Asia Pacific for real estate at Nuveen.
“The slowdown in China is partly self-induced, oriented away from over-reliance on trade and investments into domestic consumption,” Kavanagh told AsianInvestor.
“There are Chinese cities that are still growing at a healthy clip and hence, it is important to consider the nature and drivers of growth more holistically, in particular Chinese cities that are driven by strong demographics,” she said.
RISING STARS
Beyond the wider opportunity set available across Chinese cities, there are other emerging economies such as India and Vietnam that also show strong economic promise, in terms of strong trend growth backed by population and productivity that can in turn translate into rising real estate demand.
Nuveen
Vietnam’s youthful population and well-regarded early education system, for instance — the literacy rate is over 97% — will boost rising productivity in the rapidly rising services economy and underscore long-term economic growth, according to Kavanagh.
“Manufacturing offshoring into Vietnam due to regional geopolitics and cheaper total factor costs will also boost growth and demand for real estate across the different sectors over the next five to 10 years,” she said.
In 1985, industry made up only 26.2% of Vietnam's GDP. Today, it has risen to more than 45%.
“Urbanisation also helps to improve basic services, which increase people's standards of living. Access to electricity grew from 14% of total households with electricity in 1993, to above 96% today,” she said.
All said, improvements in Vietnam’s economic and social services have propped up the longer term prospects for the country and the need and demand for real estate.
In a similar vein, India, as the second most populous country in the world after China and the seventh largest economy globally, carries strong promise.
“It is estimated that by 2030, India will become the third biggest consumer market in the world, as an estimated 25% of new entrants to the labour force are estimated to be Indians. And 10 of the fastest growing cities in the world are in India,” said Kavanagh.
STAYING IN ASIA
The markets of Asia are becoming more interconnected with each other, and less reliant on trade with Western developed economies like the US and Europe.
Hines
This trend of increased intra-Asian trade and economic integration is one that Tim Jowett, managing director and head of research for Asia at Hines, expects to continue over the next decade.
“However, those economic linkages will become more complex and varied on a country-by-country basis,” Jowett told AsianInvestor.
Trade relationships are clearly broadening beyond China, with a more complex web of trade relationships forming, he said.
“There is evident reshoring and nearshoring activity, perhaps most notably in Japan, where real manufacturing costs remain low in a global context,” said Jowett.
“Japanese and South Korean capital has been investing in ASEAN’s growth markets for many years, but the scale is growing rapidly, and this investment is becoming more and more evident within India.”
China remains an important market, but its exports are increasingly staying within Asia rather than going to Western countries. International companies serving the China market may set up regional hubs in other Asian locations, according to Jowett.
These trends have multiple implications for real estate demand, particularly in the office, warehouse, and logistics sectors.
“As examples, in the warehouse and logistics sector we see Japan and Vietnam as beneficiaries, while Singapore is a beneficiary in the office sector.”