Asia-Pacific policymakers turn protectors amid Covid-19 spread

THE novel coronavirus outbreak is creating an exceptionally challenging operating environment for people, communities, economies, and corporations, as evidenced in recent days.

Operating within this backdrop, developing any form of modelling or forecasting that estimates both the human and economic cost is equally fluid, with projections mainly outdated within 48 hours of publication.

Ensuring public health and safety remains the priority.

But a more comprehensive conversation is now taking place, as illustrated in the recent Budget statement delivered by Singapore Finance Minister Heng Swee Keat and through the actions of central banks ranging from the People's Bank of China to the US Federal Reserve.

Evidently, this conversation is expanding to include the deeper economic impact on individuals and communities. As a result, the gravity of the Covid-19 impact is leading policymakers to implement measures to reduce the strain, and we can clearly expect more.

Amid the uncertainty, policy support has emerged as an area of consistency during this exceptional period. It is from here that we can draw conclusions on how governments will continue to battle the virus.

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Governments will prioritise the health and well-being of their people over anything. However, the health and security of any country does rely on a functional economy - and the Covid-19 outbreak is straining functionality.

Take mainland China, for example. The country is now a substantial contributor to the global economy and problems will ultimately lead to some spillover to other major and emerging economies.

An obvious area will be found in supply chain disruptions. Mainland China remains the largest manufacturing nation globally and the keystone to the world's supply chain.

While Covid-19 might accelerate offshoring to other markets like Vietnam, which was already occurring, China's health will ensure the growth of emerging market supply chains.

More visibly, travel curtailments will unavoidably take some steam out of other economies too. We have already observed a significant reduction in air travel globally, tourism sectors taking hits and conferences being cancelled. Expect more of this.

The Singapore government has taken significant steps to cushion impact on the hotel and hospitality sectors. The Budget announced a property tax rebate of 30 per cent for the year 2020, focusing on the accommodation and function room components of licensed hotels and serviced apartments.

Furthermore, a temporary bridging loan programme will be introduced for a year to help businesses in the tourism sector with their operating costs and cash flow.

Governments around the Asia-Pacific and outside of the region have demonstrated a willingness to dig deep and support industries impacted by the novel coronavirus outbreak, and we should see more action. Debt levels in this region are relatively manageable, and many governments have additional flexibility to give stimulus to slowing economies if warranted.

Accommodative fiscal policies

Accommodative fiscal policies will persist in the Asia-Pacific for the short-term. Mainland China's central bank has already cut rates with more easing anticipated.

Reductions in key benchmark interest rates have also been recently utilised by Australia, Japan, Malaysia, Thailand, and the Philippines to help cushion against the potential economic impact of the outbreak.

Outside of the region, the fallout from the novel coronavirus has resulted in the US Federal Reserve taking emergency action by cutting rates by 50 basis points, its first unscheduled reduction since 2008, in a bid to combat the looming challenges created by this virus.

In Europe, the subdued growth outlook and the central bank's new forward guidance mean that monetary conditions should remain loose for an extended period.

The implications to real estate markets will be most evident over a more extended period rather than being immediately apparent.

While businesses or individuals may be affected by the outbreak, their demand for real estate is likely to be delayed rather than disappear.

Fiscal measures aimed at providing relief to businesses may help cushion a decline in demand and mitigate some downside risks.

Tax cuts and similar steps will go some way in assisting landlords in lowering expenses or covering revenue lost through the extension of rent rebates to tenants.

By the same token, cash pay-outs which put money directly into the pockets of consumers could have a trickledown effect as these funds are distributed and indirectly provide a shot in the arm for segments of the real estate market.

A continued low-interest-rate environment and supportive central bank policies may offset some of the macro headwinds and provide further confidence to investors' real estate strategies.

In a low-yield environment, real estate has proven to be an asset class that provides investors with an excellent risk-adjusted return.

It is important to remember that there is still a lot of unknowns related to the novel coronavirus outbreak.

The effectiveness of any economic policy steps will likely be limited until there are clear cues that this situation is contained and health risks are declining. Clues to future policy support can perhaps be best found in the prudent response in the Asia-Pacific recently.