Last year, the world’s population reached the expected milestone of 8 billion people. Coupled with rapid urbanisation and rising rents amidst an ongoing housing crisis, a shortage of housing has become an area of concern across a number of major markets globally. Though challenging, one particular sector of real estate has become a beacon of hope for the Asia Pacific region, offering a solution to the ongoing housing crisis – multifamily.

Multifamily properties are residential properties designed and constructed to accommodate multiple households or families within a single building or complex. In Asia Pacific, multifamily properties have been at the forefront of a structural shift for various social, economic, and cultural reasons. Even though real estate investments have collectively declined this year, multifamily property investments in the region have remained resilient, and are expected reach $20 billion by 2030.

Japan – the most well-established market in the region – leads the charge, closely followed by China and Australia, as multifamily transactions continue to rise in recent years.

Unaffordability and changing social norms

Space is scarce in Asia. Consider Hong Kong, for instance, the most expensive city to purchase residential properties, according to Statista. Despite the limited space, Asia is home to some of the world's most densely populated cities. Coupled with the migration back into citiesfollowing post-pandemic reopening measures, the demand for rental properties in urban centres will continue to soar.

Multifamily residential and high-rise apartments are therefore an efficient use of limited space, offering a more practical, cost-effective, and space-saving option in densely populated urban cores.

Ageing population and collectivistic views

Asia’s population is rapidly ageing. By 2050, one in four people in Asia Pacific will be over 60 years old. The population of older persons over 60 in the region will triple between 2010 and 2050, reaching close to 1.3 billion people.

Furthermore, many Asian societies place strong emphasis on collectivism, social interaction and family bonds. In Asia, where multigenerational living is common practice, multifamily properties facilitate the need for extended families or friends to live in close proximity.

This spells a growing demand for senior living, a subset of multifamily properties, that are typically perceived as safer and more secure, and provide shared amenities, common spaces, and community activities which help foster social connections among residents. These communal aspects align with the desire for social engagement and neighbourly relationships, offering the space and flexibility required to maintain close family ties while sharing resources and responsibilities.

Resiliency of Multifamily Properties

The growing interest in multifamily properties is also due to the remarkable resiliency it has demonstrated historically in the face of economic volatility and global uncertainties. According to the National Multifamily Housing Council (NMHC), multifamily real estate investments outperformed other real estate asset classes, such as office and retail, during the 2008 financial crisis. More recently, in the first six months of 2023, investments in the sector reached $4 billion – increasing by 2% year-on-year despite a 24% decline in total real estate investment volumes in the region over the same period.

Multifamily consistently offers enhanced risk-adjusted returns across the Asia Pacific region and exhibits lower correlations to other asset classes. The asset class has proven to be particularly attractive due to its stable rental performance, particularly driven by factors like population growth and housing affordability issues.

The low risk is attributed to its inelastic occupier demand and housing shortages in metropolitan areas as people need a place to live, even when the economy is struggling. The stability of occupancy and expected rental income makes multifamily properties a safe haven for investors.

Diversity of market developments  

Strong post-pandemic recovery and market development changes in several Asia Pacific geographies have further catalysed the growth of multifamily property investments in the region.

Australia

The federal government's efforts to address the "rental crisis" have increased incentives for Build-to-Rent (BTR) projects, contributing to the growth of the sector. Policy changes include reducing the withholding tax rate for residential build-to-rent (BTR) projects from 30% to 15%, while increasing depreciation rates for eligible BTR from 2.5% to 4%. These changes have significantly improved the return profile for BTR development, attracting more development and investment interest.

China

In China, growing institutionalisation will likely play an equally important – or perhaps even greater role in multiplying demand for the China multifamily market. As evidenced in the US multifamily market, this often leads to better acceptance of multifamily products among consumers whilst allowing operators to penetrate deeper across the existing living universe. China real estate investment trusts (C-REITs) are also seen as a potential catalyst in the multifamily market going forward, especially if and when these listed entities include residential properties.

Post-COVID-19, China no longer recognises degrees from overseas institutions earned online. As a result, more than 40,000 additional Chinese students have returned to Australia in 2023, significantly impacting rental demand and availability. These returning students are now among the key renters in the market, further boosting demand for multifamily properties. Furthermore, we see a similar theme of renting students from China increasing multifamily demand in Hong Kong and Japan.

Japan

In 2022, the amendment of laws related to energy consumption performance in buildings has promoted energy efficiency standards for housing, making it more attractive for developers to invest in multifamily properties that adhere to these standards. Additionally, the expiration of The Productive Green Land Act terminated tax incentives on designated agricultural land, leading to more land sites being sold for residential purposes, further expanding the potential for multifamily property development.

The future of multifamily living in Asia Pacific

As the region continues to experience a surge in demand for rental housing, driven by factors including a growing and ageing population and stretched housing affordability, multifamily properties have proven to be a robust and attractive investment option.

These factors are poised to drive the market's growth, making multifamily residential investment a compelling choice for investors looking to capitalise on the opportunities presented by the evolving real estate landscape in Asia Pacific.

By: Robert Anderson, Director – Head of Living, Asia Pacific Capital Markets, JLL