China's reopening will be positive for APAC economies and real estate markets, although the impacts will be uneven across countries and sectors depending on levels of exposure to China. There are several markets that will particularly benefit from the border reopening.
With nearly a third of enrolled students coming from overseas - of which Chinese students accounted for the largest proportion in 2019 - Australia's purpose built student accommodation (PBSA) and the residential market will be among the top beneficiaries of returning Chinese students, with nearly 50,000 students expected re-enter Australia in the coming months1.
The return of Chinese international students will support the already tight PBSA sector. The Property Council of Australia revealed that PBSA facilities in many cities are at capacity, with almost no vacancy expected throughout 2023. Besides PBSA, the rental housing market will also benefit from the knock-on effects of the tight student accommodation market as students look for alternative accommodations. Statistics show that residential vacancy rates in Sydney declined 50 basis points to 1.3% in January this year, just shy of a record low of 1.0%, while it fell the same amount to a historically low level of 1.2% in Melbourne (Exhibit 1, left chart). Rental growth prospects for both sectors are clearly boosted by strong inflows of students from China after the reopening.
Another market that is expected to benefit from China's border reopening is Hong Kong. Having a tourism sector with large exposure to China (Exhibit 1, right chart), Hong Kong is set to benefit from a surge of travelers from mainland China. Sectors linked to tourist arrivals and spending, like hotels or high street retails, are expected to experience the most significant shift in near-term outlook, with real estate brokers such as JLL upgrading their forecasts expecting a more momentous recovery in the next 12 months.
But the market expecting the most fundamental shifts in investor sentiment and expectation is China itself. China's residential sector - which has been through a challenging time over the past two years - shows signs of stabilizing thanks to the combined impacts of reopening and easing of financial conditions. Several measures targeting to support the residential market, such as more favorable mortgage conditions for first time buyers, lower interest rates and more flexible lending conditions for developers, have started to show their impacts. Monthly data in January report stabilized house prices in major cities and sales volumes beginning to pick up2.
Forecasts for China's residential market have improved, with a recovery expected in 2023 compared to a forecast of prolonged L-shape before the reopening (Exhibit 2, left chart). Public markets have also showed an improved sentiment with both bond and equity real estate indexes rising c.190% and 65% from their November troughs, respectively (Exhibit 2, right chart).
In summary, China's decision to reopen its border and shifting financial policy to a more accommodative stand will have net positive impacts on China and several regional real estate market, particularly those expected to benefit from the return of Chinese tourists and travelers.
