Beyond China: Here Are the Next Real Estate Markets to Drop

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It’s not just China.

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The No. 2 economy’s real estate travails have gripped global attention. Housing in other emerging markets now looks wobbly as consumers, loaded with debt from a postpandemic price boom, face interest-rate hikes and fatter monthly payments.

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South Korea is a prime candidate. Apartment sales there dropped by half in the first six months of 2022, after prices climbed 20% in two years. The central bank has tightened from 0.5% to 2.25%, and warned of more to come.

That spells trouble in a country where three-quarters of personal wealth is sunk into real estate, and household debt to gross domestic product is the highest in major economies, according to the Institute for International Finance. That ratio tops 100% in Korea, compared with 76% in the US

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“Housing looms large in Korea like nothing else,” says Yong Kwon, a former fellow at the Korea Economic Institute of America. “The policy seems to be a cyclical muddling through.”

Muddling through looks good compared with the politics of property in Eastern Europe, where most markets look overstretched. Hungary and the Czech Republic have surged to be world-beaters in metrics like price-to-rent and price-to-income.

Poland has more subdued prices, but interest rates have soared from near zero a year ago to 6.5% as the central bank chases double-digit inflation. Pain among variable-rate mortgage holders pushed the populist-tilting government into action: Last month, parliament passed a law enabling borrowers to skip up to eight mortgage payments this year and next.

That could cost domestic banks north of $4 billion in loss provisions. Romania has similar legislation in the works.

Gathering real estate storms in other emerging markets have yet to make landfall, and may yet blow over, says Tracy Chen, a portfolio manager for global credit at Brandywine Global. Prices are actually falling only in a few pockets, such as Hungary and Chile.

Property in Latin America, an inflation hot spot, is surprisingly robust. Mortgage markets in the region were never well developed, making prices less sensitive to interest rates.

Cash buyers are likely to see real estate as a defense against souring prices. “The more-vulnerable emerging markets don’t have much housing finance in the first place,” says David Bitner, director of global research at brokerage firm Newmark.

Much of Asia is seeing a milder version of the price/rates spiral that is gripping developed markets, adds Henry Chin, head of Asian research at Newmark competitor CBRE,
India, for instance, has hiked rates just from 4% to 5%, with inflation stabilizing around 7%.

Investors noticed. “We’ve seen an uptick in interest in India the past two or three months,” he says. “Inflation pressures are not so bad in APAC generally.”

Singapore property continues to sizzle, with prices rising another 3% in the second quarter of this year. That’s coming at the expense of rival Hong Kong, where values ​​have slumped 4% over the past year.

At the broadest macro level, emerging markets may be flipping the script on the developed world, with fewer excesses and imbalances to burn off during the current correction, Brandywine’s Chen says. Traditionally solid venues like Australia and Canada may see the world’s worst real estate selloffs.

“This time around, the bubble is in developed markets,” she says. “Most of their $20 trillion in quantitative easing flew into housing markets.”

Emerging markets will have their trouble spots too, though.


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