As a tumultuous year for Asian real estate comes to an end, it seems that regulators are likely to try to cool the market next year — as hard as that might be to believe.
The change over the course of the year could not have been more pronounced. At the beginning of 2009, Asian real estate prices were dropping sharply in the wake of the Lehman Brothers bankruptcy and the global downturn that followed. Banks weren’t lending. Transactions slowed to multiyear lows as buyers and sellers found themselves in an “Asian standoff,” the two sides facing off in a battle of wills, neither ready to budge on price.
But as the calendar turns to 2010, all eyes are on this part of the world to drive the recovery. “Asia’s economy is in the lead, benefiting most from a more-rapid-than-expected rebound and renewed attention from both foreign and domestic investors seeking attractive relative pricing,” the brokerage Jones Lang LaSalle stated in an October report.
In fact, property markets in some parts of Asia are doing so well that three governments — in China, Hong Kong and Singapore — already have warned that they may be forced to implement measures to cool real estate prices and deter speculation.
Donald Tsang, the chief executive of Hong Kong, tried to “talk down” the market in his annual policy address. “The relatively small number of residential units completed and the record prices attained in certain transactions this year have caused concern about the supply of flats, difficulty in buying a home and the possibility of a property bubble,” he warned in October.
There already has been action elsewhere. Australia became the first country to raise interest rates after the crisis. And Beijing’s bank regulator has started requiring commercial banks to look at the bank valuation and the transaction price, then to base the mortgage on whichever price is lower.
The Hong Kong Monetary Authority, the equivalent of the city’s central bank, has instructed banks that loans on homes selling for 20 million Hong Kong dollars, or $2.6 million, or more must be capped at 60 percent. The cap had previously been 70 percent. And the Hong Kong Mortgage Corp., which issues second mortgages, said it would no longer make loans to investors and cut its maximum loan size.
In early November, Singapore also suggested it would introduce cooling measures. The Monetary Authority of Singapore said there should be “close monitoring” of home prices and transactions. The central bank already had scrapped a system of “interest-only” loans, which the bank believed was making it easy to “flip” apartments.
Hong Kong and China were the first places in Asia to see real-estate values recover this year. The mainland government introduced a mammoth stimulus package of 4 trillion yuan, or $586 million and the program freed up Chinese bank lending, and prompted the country’s annual rate of economic growth to return to pre-crisis levels.
According to Bank of America Merrill Lynch, China’s economy was forecast to grow at a rate of 8.7 percent this year and expand to 10.1 percent in 2010. The slowest recent growth was in the first quarter of 2009, when annualized growth fell to 6.1 percent.
In September property prices in the “Big Four” Chinese cities — Beijing, Shanghai, Guangzhou and Shenzhen — already were 6 percent to 9 percent higher than their peaks in the previous upturn. Now there is mounting speculation that the Chinese government will introduce measures to curb the rapid rise.
Xavier Wong, research head for greater China at Knight Frank real estate, believes the central government will act next year, raising mortgage rates and introducing administrative measures to combat price increases.
“The tendency of Chinese citizens to accumulate substantial savings and their fixation with investing in bricks and mortar may mean that China’s property market upcycle will last longer than those in the West, though the risk of an investment bubble should not be taken lightly,” Mr. Wong stated in a November report.
The recovery has spread across North Asia to Japan, South Korea and Taiwan, as well as to Singapore and parts of Southeast Asia. Residential real estate has led the way, but the slide in commercial rents also has slowed. Project funding for institutional deals, which had dried up, has started to return, although analysts say it is still a concern.
In Singapore, sales volumes turned around in February, after the Lunar New Year. Nassim Park Residences and The Ritz-Carlton Residences Singapore Cairnhill grabbed headlines for high-profile sales. And activity in the secondary market, the resale of existing homes, has tracked the bullish interest in new high-end apartments. Colliers real estate says one of the turning points was a strong launch for The Caspian, a 712-unit development at Boon Lay Way and Lakeside Drive. Over all, a total of 2,108 new apartments came on the market in the second quarter, triple the pace of the first three months of the year.
The most eye-catching deal was in Hong Kong, where an apartment in Henderson Land’s 39 Conduit Road development set a world record in October when it sold for 439 million dollars, or 88,000 dollars per square foot by net area. On that basis, it replaced One Hyde Park, a London luxury development nearing completion, as the most expensive residential real estate in the world.
The previous record at the height of Hong Kong’s 1997 property bubble was only 23,000 dollars per square foot.
Is another bubble building in Asia?
“Arguably, yes — it has created some localized asset price bubbles or early bubbles,” said Simon Smith, head of research and consultancy in Hong Kong for Savills real estate. “The China stimulus is having an impact well beyond China’s borders. Many of the economies in Asia are much more China-dependent than they used to be.”
Central bankers and policy makers now have to walk a tightrope. “The problem is that the last thing the government wants to do is hurt the recovery,” Mr. Smith said. “They would rather struggle with the problem of higher asset values than negative equity.”
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