Is Co-living The Next Big Thing in the ASEAN Property Sector?
Co-living benefits from rapid urbanization. Additionally, a young population (median age of 30) and a millennial population are sustaining an evolving housing demand impacted by weakening affordability.
Concurrently, real estate has been gaining prominence in global investors' asset allocation decisions as they continue seeking risk premia in real estate. In APAC, we see that sector allocations have increasingly tilted towards residential; yet the overall immaturity of regional build-to-rent markets is a key constraint.
The broader 'living sector' attractiveness lies in its defensive characteristics. Its strength is supported by necessity-based demand and stability in rents. We believe ASEAN as a region offers an attractive demographic profile complemented by clear secular demand growth drivers. While the sector is still in its infancy, it should mature and transition toward a globally institutionalised sector, given its attractive fundamentals. We expect the following vital megatrends to shape the future of ASEAN residential:
- Rapid urbanisation rates
- Strong economic growth prospects
- Fast-growing youth and millennial population
- Weakening housing affordability
- Evolving social attitudes towards own-vs-rent
- The future of work preferences necessitating a rethink in housing
The emergence of co-living within the rental market offers developers a meaningful way to pivot away from a development-focused model to an adjacent market. This ascendance of co-living is particularly pertinent in Singapore and Malaysia, amid narrowing primary market opportunities, juxtaposed with healthy growth in the rental market. In Singapore, primary sales have halved compared to a decade ago. Moreover, property development is capital-intensive, requiring consistent capital inflow and strong cash flow management as they are typically long gestation projects. For leading developers with cross-sector integrated real estate capabilities, tapping rental opportunities in the 'living sector' would also allow the developers to expand their business into a recurring-income-based and scalable business model.