How Southeast Asia’s Property Sector Is Insulated from Trump’s Tariff War

The onslaught of protectionism has begun. Three weeks after the start of US President Donald Trump’s second term, it is clear that his administration’s trade aggression will prove far more damaging than many Wall Street analysts predicted.

 

 

While the imposition of tariffs of 25 per cent on most goods from Canada and Mexico was delayed by a month, an additional 10 per cent levy on Chinese imports was maintained, sparking retaliation from Beijing. On February 9, Trump said he would impose 25 per cent tariffs on all steel and aluminium imports, intensifying his trade offensive.

 

 

Two conclusions can be drawn. The first is that Trump’s willingness to eviscerate the North American free-trade agreement he himself negotiated with his country’s two largest trading partners will generate uncertainty for businesses and erode trust in the United States as a reliable partner. The second, which was obvious before Trump returned to the White House, is that Asia is the most vulnerable region to higher tariffs.

 

 

Not only are seven of the 10 economies with the largest trade surpluses with the US in Asia, exports have become a more important driver of growth in parts of the region since the eruption How Southeast Asia’s Property Sector Is Insulated from Trump’s Tariff Warof the Covid-19 pandemic. Excluding China and India, exports account for 58 per cent of economic output, up from 52 per cent in 2019, according to JPMorgan data.

 

The dependence on foreign trade is strongest in Southeast Asia. Trade volumes accounted for 89 per cent of the region’s gross domestic product between 2013 and 2023, compared with 34 per cent in China, 30 per cent in India and 17 per cent in the US, according to a report in August 2024 by Bain & Company, DBS and the Angsana Council.

 

 

During the 2018-19 trade war, Southeast Asia was largely a beneficiary of fraying ties between the US and China as big multinational companies adopted “China plus one” strategies to diversify and divert their supply chains. This time, US tariffs are more punitive and wide-ranging, putting the diversification of supply chains – in particular the increase in the value added by China to Southeast Asia’s exports to the US – under sharper scrutiny.

 

 

Chinese investment in Southeast Asia’s manufacturing sector surged to US$24 billion in 2023, accounting for a third of outbound Chinese foreign direct investment in manufacturing. This surge helps explain why the region’s exports to the US have increased significantly in recent years. It also attests to Southeast Asia’s unique economic and geopolitical position as Sino-US tensions intensify.

 

 

The defining features of the region – economic interdependence, political neutrality and a central role in supply-chain diversification – pervade the real estate industry. With Asia-Pacific markets accounting for 88 per cent of trade flows within the bloc, Southeast Asia epitomises one of the most important sources of resilience in Asia’s property sector: the strong role of domestic and regional demand in occupier and investment markets.

 

In both the residential and commercial markets, domestic demand and intra-Asian trade provide a hedge against US protectionism. In the residential market, Southeast Asia has become a global hotspot for luxury branded properties. These are partnerships between well-known brands and developers that result in properties in prime locations with signature amenities and high-quality design.

 

 

According to Knight Frank, Vietnam, Thailand and the Philippines are leading a surge in demand for branded residences, partly because of the rapid increase in the number of ultra-high-net-worth individuals. The main Southeast Asian economies, with the exception of Singapore, are driving the growth of this sector of individuals in the Asia-Pacific region. In fact, Manila witnessed the second-fastest growth rate in luxury residential prices last year among 44 cities tracked by Knight Frank.

 

 

Although several cities in the region, notably Kuala Lumpur and Jakarta, have some of the highest office vacancy rates in Asia, occupancy costs are among the lowest in the Asia-Pacific region, spurring development activity and generating a flight to quality in the sector. A prime example is the opening in October 2024 of One Bangkok, a landmark mixed-use scheme developed by Singapore-based Frasers Property and Thai conglomerate TCC Group, which has changed the face of Bangkok’s real estate market.

 

 

Thailand’s tourism industry, moreover, has benefited from strong demand from Asian travellers who have helped compensate for the slow recovery in Chinese tourists. Although China topped the list of overseas visitors last year, Malaysia, India and South Korea were the second-, third- and fourth-biggest source markets, respectively.

 

 

Yet it is Southeast Asia’s influential role in new disruptive industries such as electric vehicles that underscores the strategic importance of the region in global supply chains. “The first trade war was an eye-opener,” said Michael Glancy, managing director for Thailand, Indonesia, Philippines and Vietnam at JLL.

 

Fast forward to today and the region is the battleground in a race between the US and China for digital supremacy, creating huge opportunities for investors, developers and operators. While big US tech companies dominate cloud computing availability zones – separated data centres in specific regions where public cloud services operate – in most major markets, their Chinese rivals have a much stronger presence across Southeast Asia.

 

 

The large footprint of Chinese companies in a region that is driving the diversification of supply chains and becoming a global manufacturing hub raises the geopolitical stakes. However, it also underscores the strategic importance of Southeast Asia, accentuating its resilience and appeal among investors. At a time when the outlook for Asia’s real estate sector is fraught with uncertainty, Southeast Asia is more insulated than commonly assumed.