Thursday, October 29, 2009 - Cold Water for Asia Property Market

Also read it here

Published: October 28, 2009

HONG KONG — Almost four years after swelling property prices started to collapse in the United States, giving rise to the most severe global financial and economic crisis in decades, the housing market remains depressed in many parts of the world — except in much of Asia.
Here, property prices have defied the global gloom, soaring this year as buoyant economic growth and low interest rates prompted an inflow of money into apartments and houses — as well as stock markets — across the region.

Earlier this month, a Hong Kong luxury apartment sold by the developer Henderson Land grabbed headlines when it sold for $55.6 million, at a price per square foot that had never before been seen in a city renowned for some of the world’s most expensive housing.
And property developers have been taking advantage of the boom by lining up to tap the financial markets with a wave of stock market listings.
But is the party set to last?
Over the past few weeks, regulators across the region have begun to announce small steps to keep a lid on property prices. Some investors are also now indicating that they are ready to take a break from the frenzy.
This week, Excellence Real Estate, a property developer based in the southern China city of Shenzhen, announced it was putting on ice its planned stock market listing in Hong Kong, which had been expected to raise as much as $1 billion.
Excellence cited “the current market conditions” for its decision — a reference to fading investor appetite for the flood of new offerings that has swamped the increasingly sated stock markets in China and Hong Kong.
Similarly, Yuzhou Properties, based in Fujian, priced its planned Hong Kong I.P.O. at the bottom of its previously indicated range, Reuters reported Wednesday. A person who answered the phone at Yuzhou declined to comment.
To be sure, many analysts still expect property prices to rise next year in many major markets, and half a dozen other property companies are still lining up for initial public offerings. Among them are Evergrande Real Estate Group and Longfor Properties.
But analysts, who have started to worry about an asset bubble in the making, are welcoming the newfound sense of moderation as a healthy development in the market. “I think it’s a good thing that the listing was pulled,” said Paul Schulte, head of multistrategy research at Nomura in Hong Kong. “For several weeks now, there’s been a lot of concern that too much paper is coming onto the market too quickly.”

So far this year, residential prices in Singapore are up 15.9 percent, according to analysts at Macquarie. In Hong Kong, they are up 23 percent, and back at their March 2008 peak. Residential prices in most Chinese cities are at least 15 to 25 percent above the lows of a year ago, Macquarie estimates.
The odd man out in Asia is Japan, whose economy is struggling to emerge from the deep slump it has been in for much of the past two decades. Urban land prices in Tokyo, for example, fell 8 percent in the second quarter of this year from the previous quarter, according to data compiled by Global Property Guide.
One factor driving the property boom in the rest of Asia, though, is low interest rates and ample lending — reminiscent of the origin of the U.S. boom that went bust. “Policy makers in 2009 waved their collective magical wands and, hey presto, turned a financial meltdown into an Asian property bubble,” said analysts at Macquarie in a recent research report.
Another factor driving the boom: Western capital is flowing to Asia in search of better returns, according to Mr. Schulte. “Hong Kong and China are on fire because of a shift in leverage,” he said.

The rally has extended to emerging Asia’s stock markets, which have easily beaten Wall Street and Europe in their performance this year. As a result, Asia has also dominated global I.P.O. activity — though as Excellence’s decision and the lackluster performance of numerous recent debuts show, the oomph has now gone out of that market.
“Things start to get a bit overheated when the amount of new supply gets to about 2 percent of overall market capitalization within six months,” said Ajay Kapur, head of global strategy and economics at Mirae Asset Securities in Hong Kong. “We’re at about 1.5 percent now, so there’s a bit of indigestion creeping in now.”
Macquarie says that much of the property market growth one would have normally expected to see in 2010 has simply been brought forward into 2009 — leaving less room for prices to rally as much next year.
It is a view that is gaining traction.
“We believe the market will normalize next year, but also, that it is unlikely to fall sharply again, despite increased regulatory controls by the authorities,” said Kevan Tsang, an analyst at the ratings agency Moody’s, referring to mainland China’s property market.
Policy makers in China and elsewhere, unnerved by the rapid price rises, have begun to announce measures aimed at taming the market.
Most countries are reluctant to raise interest rates — and mortgage rates — quite yet, for fear of stifling nascent economic recovery. But they have plenty of other tools in their arsenal.
Last Friday, for instance, regulators in Hong Kong raised the down payment required for homes costing more than 20 million Hong Kong dollars, or $2.6 million. In South Korea, the financial regulator plans to tighten regulations on nonbanking finance companies’ lending to households.
“I think we will see more of that sort of thing across the region going forward,” Mr. Kapur said.


Anonymous said...

What do you think of Casa Mutiara?

kelvin said...


Thanks for all your great sharing. In a few of your post, you mentioned about high density project. May I know how you consider a project is high density?

e.g. A condo should not have more than x level? per level should not exceed y units?

sinleong said...

casa mutiara is over-priced. it is popular because there are really very few condos in KL city catering to expats who r only willing to pay RM2k and below rental per month.

sinleong said...

density is relative to the size of the land and the sorroundings... e.g. seri maya with > 1200 units on 8 acres of land is high density. kampung warisan with < 300 units in 12.5 acres is low density

kelvin said...

Thanks sinleong for the answer.