Asia's luxury home markets will likely soften further in months ahead

KUALA LUMPUR (Mar 6): Transaction volume and prices in Asia's luxury residential market will likely see further softening in the coming months due to tighter financing, lower buyer interest, and some developers offering discounts or cheaper units, said international property consultancy CBRE Group Inc.

Prices of homes continued to weaken in 4Q, with the CBRE Asia Luxury Residential Price Index declining by 1.5% on a quarterly basis, compared with a decline of 0.2% in 3Q from 2Q, it said in its Asia Luxury Residential MarketView 4Q2011 report.

"Greater caution among buyers and investors amid the economic slowdown along with the implementation of persistent measures directed at cooling the housing market were the main reasons behind the decline," it said.

Hong Kong luxury home prices fell's the most at 5.4%, while prices in Singapore declined 1.8% and prices in Ho Chi Minh City fell 1.1%.

"Residential prices in Kuala Lumpur remained static as the market was overshadowed by the weak external environment," it said.

Prices in Beijing dipped by just 0.1% mainly due to new launches with slightly lower prices, whileluxury home prices in Shanghai and Guangzhou saw weaker growth.

The CBRE Asia Luxury Residential Rental Index also declined 2% in 4Q, the first time the index has fallen since it rebounded in mid-2010.

Hong Kong fell by 7% as expatriate demand fell amid a weakening global economy, while Beijing, Shanghai and Guangzhou saw growth ranging from 0.4% to 4.3%.

"Rents in Bangkok rose by 1.4% q-o-q as floods caused tenants in affected areas to rent condominiums in the city centre with high rents, while in China potential buyers were forced into the leasing market by the ongoing purchase restrictions," it said.

In Kuala Lumpur, rents fell by 1.6% as expatriate tenants increasingly opted for smaller and cheaper units.

Incoming supply, especially within the city fringes, and tightening credit is expected to result in slower take-up and put downward pressure on prices.

CBRE said developers, especially in China, offered discounts and cheaper units, resulting in lower prices.

"Prices in Hong Kong and Singapore are also expected to moderate as a result of subdued investors interest and the tighter credit environment," CBRE said the near-term prospects of the luxury homes market will be affected by the continued tightening of bank credit, weak cash flow of property developers and buyers' expectations of prices to fall further.

"Buyers and investors are likely to adopt a wait-and-see strategy while sellers could become more flexible towards pricing.

"Sales are expected to remain stagnant as price expectations between buyers and sellers diverge, which will cause both parties to take longer to reach agreement," it said.

Meanwhile, financing will continue to pose a challenge to both buyers and developers, especially developers in China and Vietnam.

"Bank financing for local developers in China and Vietnam remained tight, prompting them to search for alternative sources of funding, even at a higher cost of borrowing.

"Lack of finance and shrinking sales volume will put further financial pressure on developers, some of which may slash prices in order to stimulate sales," it said.

CBRE also highlighted Bank Negara Malaysia instructing local banks to evaluate the net income of potential borrowers, saying it was stricter and reduced "the amount of moneys households will be able to borrow for mortgages".

Meanwhile, Singapore also introduced the Additional Buyer's Stamp Duty to "curb excessive inflows into the real estate sector".

CBRE expects the authorities to maintain current tightening measures on the housing market and adjust policies when necessary.

"Rents across Asia are likely to weaken further as multinationals cut back on hiring, which could affect the flow of expatriates to the region… leasing demand from this portion of the market is expected to moderate further," it added.