As global central banks raise interest rates to curb inflation, housing prices in many economies have already cooled compared to the early stages of the interest rate hike cycle.

According to research by the International Monetary Fund (IMF), in the first half of 2023, mortgage interest rates in developed economies increased by more than 2 percentage points compared to the previous year, resulting in a real housing price decline of over 10% in Sweden, New Zealand, Canada, Germany, and Australia in the first half of 2023. In contrast, Asian economies such as Japan, Thailand, and Malaysia have performed well.

How will the real estate markets of developed and emerging economies change in 2024?

The United States: Restoring normalcy from the extremes of ice and fire

According to data from Freddie Mac, a US federal mortgage company, after entering 2023, due to the impact of the Federal Reserve's interest rate hike, the US 30-year mortgage interest rate continued to rise, reaching a peak of 7.79% at the end of October.

In this context, the once hot "spring home buying season" has become silent, with housing inventories remaining at historic low levels throughout the year and sales sharply declining. Despite a combination of low supply and low demand, US housing prices remain strong. According to data from the Association of Real Estate Agents (NAR), the median US housing price reached a peak of $425000 in June last year.

But mortgage rates have been falling since November last year. As of the week ending January 11th, the interest rate on US 30-year mortgages was 6.66%. According to the latest US housing price index by S&P CoreLogic Case Shiller, US housing prices rose 5.2% year-on-year in November 2023. Will the reduction in mortgage burden revive the US real estate market?

Kashif Ansari, co-founder and CEO of Juwai IQI Group, a global real estate technology company headquartered in Kuala Lumpur, told First Financial reporters: "The reduction of mortgage rates has attracted more buyers' hearts, but it has not yet reached the point where homeowners are tempted to list their houses. With more buyers, but no increase in housing availability, housing prices have risen again. Most homeowners in the United States currently bear mortgage rates below 3%, and generally speaking, interest rates need to be lowered to 4% to 5% to be considered normal. However, the market now predicts that interest rates may not be lowered to this extent until 2025."

Yang Xiaowen, co-founder of Boston based real estate technology company GeoHomeUS, also believes that the impact of lower mortgage rates has begun to show. However, due to 90% of homeowners in the US housing market having loan interest rates below 6%, their motivation to sell their homes remains low. Even if the US economy slows down in 2024, there is not much room for a decline in the US housing market.

"Industry practitioners feel that the number of houses that need to be discounted for sale has decreased. Data shows that loan applications in early January 2024 increased by 10% compared to the last week of December last year, indicating that homebuyers are already preparing to enter the market." Yang Xiaowen cited her Boston area as an example, "This winter, there were hardly any residential properties with positive cash flow in the Boston market. Many senior investors in the real estate market who bought them year after year complained that they had just passed the winter and offered high prices, but were still rejected by the sellers. Cash was still in their accounts and suitable investment targets could not be found."

Ansari predicts that the US housing market will be hot in 2022, in stark contrast to the "cold" of 2023, while 2024 may be a relatively "normal" year for the housing market. In other words, transaction volume will increase, more homeowners will list, more buyers will sell, and property prices in some areas will decrease.

"Some institutions predict that the rise in housing prices in the United States will be lower than in 2023. For first-time buyers struggling with affordability, 2024 is a year with hope." Ansari said, "For Asian buyers, the three years of the pandemic in the US real estate market have caused them to shift their attention back from Southeast Asia to the United States. We have seen people who bought houses in the United States before the pandemic now find that their US property value has increased significantly."

Japan: Investment Opportunities under the Weakness of the Japanese Yen

Over the past year, due to the Bank of Japan's ultra loose monetary policy and the weak yen, the Japanese real estate industry has been favored by investors.

Koji Nato, Director of Japanese Capital Market Research at real estate service company JLL, said that in the first quarter of 2023, foreign investors doubled their investment in the Japanese real estate market compared to a year ago, reaching $2 billion. The company stated in a report, "Japan's real estate trading activity is the strongest in the world this year, and it is widely believed that interest rate policies have kept Japan's real estate resilient."

Ansari also believes that Japan is one of the few bright spots in the global real estate market in 2023. He explained, "In the third quarter of last year, property prices in Japan increased by 11% year-on-year. Japan was the only developed economy to maintain low interest rates. Last year, the depreciation of the yen strengthened the purchasing power of foreign buyers, and foreigners had no restrictions on buying houses in Japan. These factors made Japan one of the main target countries for international real estate investment last year."

Last October, the Bank of Japan stated in a quarterly report on the financial system that loans related to real estate continued to grow, mainly to meet the needs of foreign investors. The Bank of Japan stated that in the heatmap of economic hotspots, the real estate market has shown signs of overheating.

According to a report by the Japan Institute of Real Estate Economics (REEI), due to increased demand, the average price of newly built apartments in central Tokyo rose to a record high of 129.6 million yen (approximately 863000 US dollars) in the first half of last year. Knight Frank, a London based real estate consulting firm, stated in its 2023 wealth report that buyers with $1 million can purchase 60 square meters of high-quality property in Tokyo, almost twice the size of New York or Singapore.

Glass Wu, founder and CEO of Japan Hana Real Estate, which focuses on serving foreign investment in Japanese properties, also told First Financial reporters that the average price of new apartments in Tokyo exceeded the historical peak last year. "In recent years, several top tier luxury homes have emerged in the center of Tokyo, some priced as high as 50-60 million yuan per unit, comparable to towers near Central Park in Manhattan. Buyers include Japanese, foreigners, and Chinese buyers," she said.

"Japan will host the World Expo in 2025, which has been frequently mentioned by foreign investors looking for housing recently." Hu Kaiqi revealed, "We have been serving several Chinese listed companies recently, and they are optimistic about investment opportunities in Japan's tourism industry. We are helping them find hotels with around 100 rooms, and there are not many such assets left on the market now."

Ansari also stated that Japan has consistently ranked in the top 10 in terms of external IQI inquiry rankings. "In 2024, commercial real estate such as logistics centers and hotels in Japan, as well as residential properties in Tokyo and Osaka city centers, will increasingly attract foreign institutional investors and individual buyers," he said.

Southeast Asia: Government measures to regulate

The Asian Development Bank (ADB) predicts in a recent report that the gross domestic product (GDP) of Southeast Asia will grow by 4.7% in 2024, up from 4.3% in 2023. The IMF also predicts an economic growth rate of 4.6% in the ASEAN region. Ansari believes that a strong economy and the influx of foreign direct investment will support the real estate market in the region.

But the government in the region is also introducing policies to regulate the real estate market.

According to data released by the Urban Renewal Authority (URA) of Singapore, the private residential property index in Singapore increased by 6.73% in the fourth quarter of 2023 compared to the same period in 2022. Prior to this, the year-on-year increases in the third, second, and first quarters of 2023 were 4.37%, 7.46%, and 11.44%, respectively. From 2016 to 2022, residential real estate prices in Singapore have cumulatively increased by 37.5% (adjusted for inflation rate to 22.2%).

The overheated real estate market has forced the Singapore government to introduce a series of property market regulation policies, which has led to a continuous decline in Singapore's real estate demand. According to URA's data, in the first three quarters of 2023, the total sales of houses, including new and resale properties, decreased significantly by 19.6% year-on-year, while for the entire year of 2022, it decreased significantly by 34.8%.

Morgan Stanley stated in a report from November last year that the historic seven year rise in private housing prices in Singapore is nearing its end, with Singapore housing prices likely to decline by 3% in 2024, and this downturn could last for up to two years.

In contrast, Ansari said, "Recently, the Thai government has taken various measures to attract foreign tourists and long-term residents, coupled with Singapore's increasingly high property prices, many ordinary buyers will return to Thailand."

Zhang Dandan, Director of Real Estate Channels (China) at Banyan Group in Singapore, also told First Financial reporters that the latest news of permanent visa exemption between China and Thailand may boost the Thai market. "In addition to the warm climate and tourism, Thailand's relative advantages in elderly care, healthcare, and education determine that its properties will continue to be attractive to foreign, especially Asian buyers," she said.

In addition, Ansari stated that Malaysia will once again optimize its second home long-term residency plan this year, which will be very attractive to foreign buyers. Malaysia is also the only Southeast Asian country where foreigners can own land.