How RCEP could affect the property market


THE signing of the Regional Com-prehensive Economic Partnership (RCEP) on Nov 15 signifies the world’s largest trade agreement. RCEP will contribute towards sustaining Malaysia as a preferred trading hub and investment destination. It will promote international trade among the 15 participating countries in the Asia-Pacific region.

The expected increase in free trade among the participating countries will have a significant impact on the Malaysian property market. Higher trade and economic activities will affect the occupation, investment and development sectors of the property market.

Real estate space is a local input in the production and supply of goods and services. Increased exports lead to the expansion of domestic production. Increased domestic production increases the demand for industrial space. Imports also have an impact on demand for real estate space as goods imported need to be stored and distributed through warehouses and logistic properties. These goods are then displayed and marketed at various outlet points, thereby also increasing the demand for retail space.

Regional trading blocs and trade liberalisation will encourage foreign direct investment. This in turn will create demand for industrial land and buildings. And new capital investments will spur demand for more financing activities from the banks. Once plants and machines are operating, they will create employment and demand for other factors of production. Higher economic growth will then drive the capital market, which will attract more foreign investment fund flows investing in local equities.

With increased economic activities, occupation demand for real estate space will cause rental increase. With an inelastic new supply, potential future rental growth and prospective capital appreciation, people will begin to invest more in real estate, leading to an active investment market with more participation from institutional investors.

Developers will react to prevailing rents and capital values when they appear to signal a profitable opportunity. If prices rise, more developers will respond to these signals, and the aggregate flow of supply into the market increases.

Real estate service providers such as property consultants can play an important role in the whole process by aligning their service standards with the requirements of regional and global clients.

We envision that RCEP will open up markets and help the post-

Covid-19 economic recovery. Increased economic activities will trigger more demand for various real estate spaces, thereby leading to an improved property market performance in the future.

PROF DR TING KIEN HWA

Professor, Centre of Real Estate Studies, Faculty of Architecture, Planning & Surveying, Universiti Teknologi Mara

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