Concrete Analysis | Loosened monetary policy will lead to opportunities in Asia-Pacific real estate
- Monetary policy is expected to stay very supportive through to the end of 2020
- Supportive financial conditions should, however, not be taken as a catalyst for more aggressive investing
Every year over the past few years, there has been increasing concern that the regional real-estate cycle has become overextended.
Yet, pricing has continued to tick higher, not without good reasons though – healthy economic and market fundamentals, positive labour market conditions and cyclically low jobless rates and sturdy employment growth have powered up consumer sentiment and spending. Except for the broader retail sector, occupier demand has continued to strengthen thanks to supportive market fundamentals.
More importantly, the search for yield has continued to drive interest in the real-estate sector. Robust capital market sentiment has been a key underpinning of asset prices. Herein lies the conundrum: this year, the global macro outlook has become more uncertain with heightened external and domestic risks from trade, as well as political and policy tensions. Central banks are, therefore, likely to lean towards ongoing loose monetary policy to support growth.
Monetary policy expectations have changed since the turn of the year. The signs of a more muted central bank policy stance took firmer shape, from a pause and wait-and-see attitude to a more active monetary loosening position today. This, in turn, reflects our view that the growth environment in the second half of 2019 will continue to be overshadowed by rising uncertainties and a more uneven growth landscape.
While the debate is still on about whether the US Federal Reserve will lower rates again before early 2020, Asia-Pacific central banks have now taken an even more proactive easing position to mitigate downside risks from a more uncertain and uneven global outlook.
The Reserve Bank of Australia has surprised many with two 25 base point rate cuts over the past month. This outcome reflects a very fluid domestic and global growth outlook. Yields have also fallen to near historical cyclical lows. The market now expects further cuts in the policy rate, to 0.5 per cent within the coming year.