Shanghai, China (up 35.4%) was the world’s strongest residential property market during the past full year, according to a compilation of official and private-sector statistics by the Global Property Guide. Bulgaria (up 34.6%) was in second place, followed by Slovakia (up 32.5%) and Singapore (31.1%).
The worst performers were the United States (down 8.9% by Case-Shiller calculations), Ireland (down 7.3%), and Estonia (down 3.9%).
Asia-Pacific’s strong performance was led by China, Singapore (31.2%), Hong Kong (25%), the Philippines (15.2%), and Japan (8.4%). In most cases, this was due to strong economic growth.
Price rises in Japan have now paused. Outside the US and Europe, Japan has been the hardest hit by the credit crunch. In March, Reicof, a listed property investor, failed with debts of Y42.6 billion (US$422 million). Deals are now being postponed, and the credit squeeze is hitting private real estate funds, which tend to be highly leveraged, and have borrowed mainly from foreign banks. These private funds are finding it hard to refinance and are being forced to unload property.
Hong Kong surged ahead this past year (up 25%), but transaction levels have now fallen sharply, despite declines in interest rates in line with the US.
Singapore’s residential market is still holding steady, but last year’s euphoria seems to be over.
In both Hong Kong and Singapore prices are high by most yardsticks and there are low rental returns, usually a harbinger of price weakness.
China’s housing market seems to be on the verge of significant weakness. It has a history of very strong cycles, and the authorities have discouraged the house price boom by prohibiting foreign acquisitions, by higher interest rates, and by credit controls.
South Africa’s market seems to be weakening, having experienced the first decline in 8 years.
The Baltics has been hard hit. Latvia, last year’s star performer (up 69%), was this year’s biggest disappointment with a price decline of 1.7%. Estonia followed Latvia down with a decline of 4%.
Eastern Europe shows sign of weakening, partly due to the end of inward money flows associated with buy-to-let boom, but more importantly due to past price rises. Yet there are many islands of strength. Slovakia has seen continued price rises. Land prices in Bratislava increased by an average of 50% in 2007. The price of residential apartments also rose strongly. Strong economic growth, continued foreign investment, a burgeoning mortgage market, and a shortage of new developments, are all contributing to Bratislava’s performance, which looks likely to continue at least next year.
In Bulgaria, Sofia prices are still rising strongly, while the coast and mountain resort booms are over.
Those looking for upcoming trends may want to consider Latin America. The increasing willingness of Americans to retire abroad and to look beyond the Caribbean has led to strong buying interest in both beachfront property and in colonial cities such as Guatemala’s Antigua, Nicaragua’s Leon, and Colombia’s Cartagena.
Latin America sadly lacks property price indices, the exception being Colombia whose economic prospects have been transformed by President Alvaro Uribe’s stern anti-rebel policies, causing property prices and the currency to surge.
A decade after the 1997 Asian Crisis erupted, most housing markets in Asia are well on their way to recovery.
Boosted by strong economic growth and strong local and international demand, residential real estate prices in the Philippines, Singapore and South Korea rose by more than 10% in nominal terms y-o-y to Q1 2007.
In Hong Kong, after registering price falls in early 2006, the over-all residential price index is back in positive territory. The index rose 5.2% y-o-y to March 2007. However this is significantly lower than the annual price increases to the first quarter of 2005 and 2004, at 21% and 28%, respectively.
No bubble this time
Although property prices in most Asian countries are still below their peak levels, rapid price appreciation has taken place over the past five years, leading to renewed fears that a speculative property bubble is forming in several Asian countries.
The fear is not unfounded; one has only to recall Asia’s spectacular and disastrous property bubbles of the 1990s.
However, the recent price increases are actually recoveries from the previous slump caused by the Asian crisis and other phenomena.
As of Q1 2007, property prices in most Asian countries are in fact still below their peak levels in real terms.
Strong housing demand
Current economic and monetary conditions suggest continued strong demand for housing. All economies affected by the Asian Crisis grew by 5% or more in 2006. GDP growth from 2002 to 2006 has been markedly stronger than during the crisis period – 1997 to 2001, although slower compared to the tail-end of the “Asian Economic Miracle”.
As a result of financial and monetary reforms implemented after the crisis, banks and other financial institutions are in much better shape now. Asia’s mortgage market is set for a boom. This is despite the fact that mortgage lenders are more cautious of over-exposing themselves to particular sectors (some pundits worry that banks are actually being too cautious).
Despite recent interest hikes, in line with global interest rates, base interest rates for mortgage lending are generally lower now than before the crisis.
Socio-economic conditions also point to continued strong demand for residential properties. Strong urbanization and population growth has led to high population densities in several Asian cities.
In view of the relatively restrained dwelling price rises, strong economic growth and banking sector caution and healthy yields to be enjoyed on properties in Asia, talk of another bubble seems far-fetched.
Other problems
A more pressing concern for Asian economies is the continuation of reforms to improve real estate efficiency and transparency. Transaction costs remain high and the property registration is still cumbersome in several countries.
While Malaysia is encouraging foreign property buyers, Thailand’s military junta is pushing them away. Thailand announced that it is completing a crackdown on foreign companies established for the sole purpose of buying landed properties. While the motivation for this move is unclear, the signal is clear “foreigners are not welcome.” Political uncertainty and policy flip-flaps by the ruling junta are undoubtedly hurting the real estate market.
In the Philippines, proposed property market reforms are languishing in congress. These laws include the establishment of a centralized agency for registering property and a standard property valuation system.
Asian property markets, though still relatively unaffected by the credit crunch, will soon be affected by inflation and higher interest rates, warns the Global Property Guide, because of rising food, fuel and other commodity prices.
“Higher food, fuel and other commodity prices affect the housing market negatively in several ways,” says Prince Christian Cruz, senior economist at the Global Property Guide.
“At the micro level, households may postpone their decision to purchase a new house or spend on renovation if they anticipate higher prices. At the macro level, higher food and fuel prices push inflation up. Monetary authorities typically raise key interest rates to stem inflationary pressure,” Cruz explains.
Asian households are particularly vulnerable to recent rises in food prices. The price of rice, the staple in Asian diet, has risen by more than 90% during the last year to March 2008, according the UN Food and Agriculture Organisation (FAO).
The price of other food also has increased significantly. Wheat was up 160% in March 2008 on a year earlier; soy bean oil by 104%, corn by 37%, and sugar by 26%.
Food prices are a key component in the Consumer Price Index (CPI). Their proportional weight ranges from 28% in Singapore, to 33.2% in China, to almost 50% for urban workers in India. High food prices will persist until 2009, according to reports by the FAO, World Bank and the International Rice Research Institute.
The price of almost all commodities is increasing, not only food. The price of light sweet crude oil surged to US$115 a barrel in April 2008, up almost 80% from a year earlier. NYMEX crude oil has been above US$100 per barrel since March 2008.
Many Asian economies which have recently experienced residential real estate price surges such as China, Singapore, Philippines, Hong Kong and India (all of which registered double-digit house price increases in 2007) are under significant inflationary pressure (see table).
Higher inflation and interest rates
Monetary authorities typically raise interest rates to combat inflation. They can also increase the cash reserve ratio (CRR) of banks or sell bonds or other financial instruments to reduce money supply.
The Reserve Bank of India (RBI) raised the cash reserve ratio by 50 basis points in two stages to mop excess liquidity and contain inflationary pressures. The CRR will be 7.75% effective April 26 and 8% by May 10, 2008.
The RBI, similar to other central banks in Asia, left key interest rates unchanged during the first half of April.
However, most analysts indicate the key rates might be hiked in May if inflation continues to be above the official targets
Fears of interest rate hikes cropped up in several Asian countries, particularly in Indonesia and China.
High interest rates affect housing markets in two ways:
1. By discouraging investment and consumption and causing the economy to slow, higher interest rates reduce people’s willingness to spend on housing
2. Higher interest rates discourage borrowing for housing loans.
“The situation is unfortunate because most Asian housing markets have not yet fully recovered from the effects of the 1997 Asian Financial Crisis,” Cruz notes.
“Even with strong house price gains in 2007, property prices in Asia are still below their pre-Asian Crisis peak levels. Despite 31% nominal rise in the over-all residential property price index, Singapore’s prices are still about 10% to 20% below their pre-Asian crisis peak level in real terms,” adds Cruz.
“In the Philippines, even with the 15% increase in condominium prices in 2007, it is still about 47% below its peak level in real terms,” he continues.
The housing markets most likely to be affected by monetary tightening seem to be China, India, Singapore, Philippines and Thailand, which have experienced the largest increases in inflation.
Will Asia tango together?
“With global financial markets interconnected, the world’s economies tend to move together. The synchronicity was observed with the global housing boom – never before in recorded history did so many countries experience so much house price growth all at the same time,” Cruz notes.
“The housing market slowdown may also be synchronized,” he adds. “Inflationary pressures are likely to cause Asia’s central banks to raise interest rates, and slow their housing markets,” he says.
However convergence will not be universal. Where currencies are pegged to the US, housing markets are likely to diverge somewhat from the global adjustment.
Countries such as Hong Kong and the Gulf must follow US interest rates. Unless those countries re-peg their currencies, their central banks cannot raise interest rates. This may lead to higher inflation including in the housing market.
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There is an increasing prevalence of hot spots for foreign investments in Asia. Lot of countries in the region have completely removed their unnecessary restrictions on foreign investors. This has attracted more investment in the property market as well. As a result there was a real boom in the property section of the market in 2007. There was a steady increase in the average occupancy rate of office and residential buildings. The governments in the region have also become alert and have awarded business park sites and industrial sites. In the present circumstances an understanding of the various investment opportunities across Asia will be extremely helpful to you.
Thailand has been a tricky destination for tourists around the world. It is exotic island home to some of the best investment opportunities available in Asia. The influx of travelers from UK has increased as a consequence of budget airlines and consistent backup of expats who live in places like Singapore and Hong Kong. Investors can expect excellent returns from Thai beach property over the next couple of years. Thailand promises to be a profitable investment market for a good part of the next decade.
Seychelles islands are home to some of the most luxurious resorts in the world. Development has been given top priority in recent years and new laws which attract the investors have been formulated. A man-made island Eden has been constructed and this can be considered another foot forward in creating reliable investment opportunities.
Cambodia is trying to forget its disturbing past and focus on building a happy and prosperous nation. Cambodia is blessed with tropical climates, thick vegetation and enticing beaches. If it makes the right moves there is a lot of space for investment with Cambodia having a turbulent past. Japan recently had some problems in their economy, but they are fighting back quite strongly. Clever investors will realize that Japan is a viable investment option now. Tokyo, Osaka and Nagoya are places where prices and demand are predicted to rise considerably over the next three years.
With an economy progressing at nearly double-digit numbers, Vietnam is also starting to face shortages in manpower, like China and India. The country’s is all set to enter the World Trade Organization (WTO) by the end of 2006, coupled with its pro-business policies, looks set to be blessed with more investments in the days ahead.
The Philippines has offered some really profitable Asian property investment opportunities. The Philippines is treasured place when it comes to buying property, specifically in the capital city of Manila. They have got good ability to handle English and the business system is quite contemporary. Procuring an apartment and lending it to the workers seems to be the right choice if you are planning to invest in the Philippines. Boracay Island, the Philippine beach property is expected to progress at around 18 per cent per annum across the next few years.
Even though the political atmosphere in Sri Lanka is slightly troublesome there are some compelling attractions in Sri Lanka which has made it a hotspot for tourists the world over. The shrewd investor will find that Sri Lanka is a decent option when it comes to property investment. The major problem for the investors has been the huge taxes they had to pay, even though the inconvenience can be avoided to a certain extent.
There is no shortage of hot spots for foreign investments in Asia. If you are ready to research the market seriously, there are mouth-watering investment opportunities await you.
Almost a decade after the Asian crisis, the mortgage markets of several Asian countries are in much better shape and are poised for expansion.
Increases in capital, the consolidation of banks, and increases in foreign ownership and participation are spurring growth, according to a report released by the Global Property Guide.
The decline of state ownership of banks and the shift of government housing agencies to mortgage market “enabler” instead of direct providers of mortgage loans have paved the way for the expansion of the private sector. Most countries have also started to offer mortgage default insurance for lenders
Asia’s property markets are now growing and banks are more willing to extend mortgage loans around the region. The positive benefits could include stronger house-price growth – and more investment in housing.
While property prices in much of the developed world are currently at historic peaks, property prices in most Asian countries are well below peak levels. Asia’s housing markets have lagged for three main reasons:
1. The Asian Crisis caused a long period of high interest rates. Potential property purchasers did not want borrow at the interest rates being offered.
2. Post-crisis bank portfolios were full of defaulted property loans. Banks were, till recently, often reluctant to lend.
3. Poor credit information, weak legal systems, lack of transparency, high revenue extraction by governments (transfer taxes, registration fees) have raised the costs of housing investment in many Asian countries.
Mortgage markets in Asian countries are also relatively small, particularly Indonesia (2% of GDP), China (10%), Philippines (12%) and Thailand (16%). Only Singapore and Hong Kong have mortgage markets generally at par with most developed countries, with mortgage debt at 61% and 48% of GDP, respectively. Even OECD member countries Japan and South Korea have relatively small mortgage markets, given their level of economic development.
“The small size of Asia’s mortgage markets means there is huge potential for growth,” says Prince Cruz, senior economist of the Global Property Guide.
“For instance, if China’s mortgage market were to increase to 20% of GDP in 2010, the market will be worth more than US$700 billion. Given the strong growth of China’s mortgage market and economy, this scenario is not unlikely,” says Cruz.
Despite the recent interest rate hikes since, mortgage rates are still affordable in most of Asia, below 8%. This should turn the adjustable rate mortgage (ARM) structure typical of Asian loans into an advantage, making borrowing comparatively inexpensive.
In some Asian countries, the long period during which loans were effectively unavailable means that supply is low, and rents are relatively high, leading to good rental investment returns for investors – as in Indonesia, Thailand, and the Philippines.
The result could be a virtuous circle.
Low interest rates will foster an active mortgage market, aided by pent-up housing demand, which in turn will boost economic activity. A vibrant economy is good for the housing market.
Healthy mortgage markets are a critical factor in the growth of housing markets. With Asia’s mortgage markets now in better condition, the stage is set for further reforms which will provide the financial underpinning for better housing financing, more attractive pricing, more varied product offerings, and generally, the provision of more housing at lower cost to Asia’s citizens.
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Ecommerce Gateway Pakistan organizing international Build & Property exhibition focus on potential of Building & Construction Industry, machinery & technology property investment show in Pakistan. The Event also incorporates Furniture Asia, Property Asia, Stone fair Asia exhibitions at Karachi Expo Centre Pakistan.
Watching the news recently, you could be forgiven for thinking that the entire country of China is a pile of shoddily constructed rubble, filled with wailing citizens, and that Burma is a whole country literally flattened, with people unable to work and an economy unable to grow at all. However, the facts are quite different – although they might not make for good news stories! In reality, investors in Asia are unlikely to be put off by these natural disasters, being much more balanced in their view of the region than journalists are, and realizing that long-term prospects for the region are better than ever.
Places like Tokyo and Seoul are tipped as being the places to invest in, where the markets still have at least as far to climb again as they already have, according to Mark Callendar, head of international property research at Schroders. Callendar also tipped Hong Kong and Singapore as being close to their peak – great for short term investments in the near future, but less promising over 2009.
ING Real Estate is another company that agrees with this sentiment, saying that it does not expect investment or demand to be severely affected by the natural disasters in Asia recently. Mid tier residential housing in Chengdu and Chongqing provinces is tipped to be on track again as soon as Sichuan province returns to normality, with a natural slowdown immediately following the quake to be expected.
Thailand is another Asian country that is looking rosy for investors, with a great economic start to 2008. The first quarter growth for Thailand was six percent up on the same period last year, and up close to six percent even on the quarter it followed. The new government in the region seems to be settling down, and this is making Asian property management that much more attractive in Thailand. Koh Samui and Koh Phangan will be hotspots for Asian property investors in 2008, according to Liam Bailey, head of international research at DSR. However, investing in Thailand can be tricky for foreign entities – strict ownership criteria put in place by the government mean that local firms must be engaged for buying real estate.
Some analysts have accounted for the effect of the sub-prime crisis in America on Asian property investment and management. Experts such as Jones Lang LaSalle, an international property consultant, have noted that markets that appear to have peaked (such as Tokyo and some Australian markets) will experience slower growth in 2008 than they did in 2007. The slowdown in these peaked markets will create a lowering of the overall transaction volume, but this natural rise and fall of markets has had much more impact on growth than the relatively minor (in economic terms) natural disasters in Asia.
Some experts have also gone to great pains to point out that even the acknowledged sub-prime crisis in America has been overstated in terms of its effects on Asian property management. Darren Styles, CE of the Brooklands Group, says that ‘Much of the negativity about the effect of the credit crunch n the overseas market has been exaggerated. It’s a tribute to the … resilience of the overseas property market’. He is still being approached by many people in the UK interested in buying Asian property.
Don’t let the exaggerated media coverage of natural disasters stop you from making a profit on Asian property investing and economies which are set to boom in 2008.
Asia’s real estate markets seem, on the surface, to have recovered from the Asian crisis and to be back on their feet. In fact the entire world has enjoyed a residential property boom over the past decade – Europe, the US, Australia and New Zealand have seen property prices soar.
But in Asia the reality is quite different. Asia’s residential markets have performed poorly, according to a report by the Global Property Guide. Once the price rise figures are adjusted for inflation, Asia’s record looks poor.
HOW ASIA’S RESIDENTIAL PROPERTY MARKETS HAVE PERFORMED SINCE THE PEAK (inflation-adjusted):
Hong Kong: still 61% below peak
Indonesia: still 50% below peak
Malaysia: still 10% below peak
Philippines: still 55% below peak
Singapore: still 37% below peak
South Korea: still 38% below peak
Thailand: still 10% below 1992 peak
“There have been few less profitable investments than Asian residential property over the past decade,” says Matthew Montagu-Pollock, publisher of the Global Property Guide.
“And if the present construction boom continues across Asia, the next decade isn’t going to be much fun for property investors either.”
Rental yields are quite high in Indonesia, Thailand and the Philippines, while Asian countries benefit from strong economies. But their real estate markets’ rise has been limited, primarily by government mis-steps.
“Asian real estate markets would have been stronger had it not been for government mistakes,” says Prince Cruz, chief economist for the Global Property Guide. “If it is not a coup, a protest rally or runaway inflation, then it is government meddling in the housing markets that has killed performance”. Cruz’s study points to the housing markets of Singapore, Hong Kong and South Korea as victims of government subsidies and intervention, while the housing markets of the Philippines, Indonesia and Thailand have suffered from political instability.
Asian prices still far below peak levels
Despite gleaming reports of recovery, Asian house prices are still below their pre-Asian Crisis levels. In a report released, Global Property Guide suggests that a combination of inflation, widespread subsidies of housing markets, political troubles, and overbuilding, have made the outcome in Asia quite different from other ‘boom’ markets. Asia’s present apparent property boom is a ‘construction boom – not a property boom’, it says, warning investors against following the tempting siren song of the real estate professionals.
When adjusted for inflation, the happy picture changes remarkably from the good news about property price rises.
Indonesia, for instance, is having a difficult time battling inflation. Corrected for inflation, Indonesia’s house prices actually fell 8.4% in 2005 and 7% y-o-y during 2Q 2006.
This year’s mild nominal price fall in Hong Kong (3.7%) is amplified by considering inflation. Hong Kong dwelling prices have actually fallen by 6% in real terms.
The (modest) apparent price rises in South Korea, Singapore and the Philippines actually become price falls, or are greatly moderated, once inflation is factored in.
