Bricks and mortar seem to retain their solidity in an uncertain economic climate and when facing a battering from volatile financial markets. When all else appears precarious, investing in homes offers some security.
Most countries in Asia experienced price growth in their residential property markets during the second quarter of this year. Shining brightest was Hong Kong, which had its strongest quarterly growth since the third quarter of 2009.
However, sentiment continues to be influenced by the uncertain global economic backdrop, according to Nicholas Holt, in the latest edition of Knight Frank’s Asia-Pacific Residential Review.
Several conflicting forces seem to be at work, but upward thrust is prevailing, suggests Knight Frank, a leading independent global property consultancy headquartered in London.
“Weaker economic growth has affected sentiment and in some cases the wealth of buyers, whereas property as a hard asset continues to be regarded as a safe investment choice, reinforced by inflation and often negative real interest rates,” argued Holt.
Government intervention to curb price increases further complicates the markets’ dynamics, as Hong Kong, Indonesia and Malaysia, for example, have recently introducing cooling measures. Meanwhile, anxieties that liquidity injections by central banks in the US (QE3), Europe and Japan might find its way into Asian property mean that restrictive measures are likely to continue.
However, a quantitative analysis by Barclays, published on Monday, concluded that the expected effect of QE3 on overall emerging Asian growth through an improvement in financial conditions is negligible.
Nevertheless, Hong Kong residential quarter-on-quarter prices surged from 1.8% to 8.4%, as “sentiment improved and pent-up demand drove up transaction volumes”. The Hong Kong administration responded by announcing further credit controls and 10 measures to increase housing supply.
China’s economic growth is likely to fall to its lowest rate for more than a decade, but residential property prices in general remain buoyant. Prices in the “affordable segment” of the market continued to rise, although the higher-end Shanghai and Beijing prices fell.
New home sales volumes in Singapore rose, as did their cost. Higher inflation, negative real interest rates and the status of Singapore as a “safe haven” gave the market a boost. Holt expects total sales volume to hit a new record by the end of this year, with about 20,000-22,000 private homes sold.
In its recent budget, Malaysia’s government said that it will lift the tax on property gains to 15% from 10% for properties sold within two years and to 10% from 5% for sales in the third to fifth year, effective from January 1, 2013. House prices had leaped 7.9% in the year to June 2012.
Indonesia has also acted to restrain any incipient bubble. In July, it introduced a loan-to-value cap of 70%, but positive buyer sentiment continued to fuel price growth in the Jakarta market. During the second quarter, house prices increased 1.2% across the country, with the CBD Jakarta condominium market increasing 16.7% year-on- year. But Holt pointed out that a lot of supply is scheduled to come to the market between now and 2014.
Thailand’s Bangkok condominium market has been burdened with less supply in 2012, as existing stock is absorbed and developers are diversifying towards the resort destinations of Phuket, Pattaya and Hua Hin.
And in India, average prices across the country rose by 3.3% during the second quarter, but there were stark differences, and Holt expects more polarisation across city performances.
Overall, Holt concluded, the region’s residential property market is likely to be resilient to both global headwinds and domestic micro-management.
“Underlying drivers will continue to support demand for residential property in developing Asia and the volatile performance of other asset classes will continue to attract investors who trust hard assets in the form of property,” he said.