City&Country: Phenomenal growth in key Asian cities

Investment gurus Robert Kiyosaki and Donald Trump once remarked on their love for investing in property. This can be said to be true of Asia Pacific investors as well, according to The Wealth Report 2010 published by Knight Frank and Citi Private Bank recently.

“People love hard assets,” the report quoted Citi Private Bank Asia Pacific head of real estate investments Quek Kwang Meng. For example, newlywed couples in China tend to put their money in property first, before embracing other less tangible investments such as equities, he says.

“When you combine this desire to own and invest in property in some of the world’s fastest-growing economies, it is easy to see why prime property markets have gained such momentum in the region,” says the report.

According to the Knight Frank Prime International Residential Index (PIRI) that  tracked luxury house prices for 2009, key Asian cities such as Shanghai (52%) and Hong Kong (40.5%) showed the most exceptional growth among the 56 prime locations in the world covered in the lndex. It was presented with The Wealth Report 2010.

Six Asian cities made it into the top 10 (see chart). The top three spots were occupied by Shanghai, Beijing and Hong Kong respectively. The other three were Singapore, Jakarta and Mumbai.

“The Wealth Report 2010 reveals that the global market for prime residential property polarised during 2009. While some Asian cities saw phenomenal growth as China recovered strongly from the global recession, most locations around the world recorded price falls,” said Knight Frank head of residential research Liam Bailey.

“The hardest hit were those such as Dubai (-45%) and Dublin that had really soared at the height of the property boom that preceded the credit crunch. China is increasingly a source of capital in the region,” says Citi Investment Research and Analysis Asia Pacific chief economist Johanna Chua.

She believes that with China’s strong economic fundamentals and capital injection in the region, Asia Pacific prime property will continue to be strong.

Prices in China to remain steady
According to the Wealth Report, 8.5 million new residential units were sold in China compared with 500,000 in the US in 2009. The key locations in China are Beijing, Shanghai, Guangzhou and Shenzhen.
alt“The average prices for new homes in urban Shanghai, Beijing and Shenzhen grew by 87%, 63% and 66% respectively, driven by loose lending policies and a massive four trillion yuan (RM1.94 trillion) fiscal stimulus package last year,” said the report.

“Shanghai is China’s biggest prime residential market with 8,483 new units worth five million yuan sold in 2009, followed by 8,058 in Beijing and 2,309 in Shenzhen. Guangzhou was the fourth highest with 1,618 luxury units sold,” says Xavier Wong, Knight Frank head of research for greater China and Hong Kong.

While measures may be implemented to curb excessive house price inflation, Wong says prices will remain stable due to predicted economic growth and limited stock. Hong Kong property prices will also continue to grow due to the limited supply of new stock.

Singapore prime properties to rise
There is potential for prime property prices in Singapore to climb 10% to 20% this year, says Knight Frank Singapore residential division head Peter Ow. Prices for prime properties in Singapore ended last year down 15% to 20% from the peak at end-2007.

“Much of the increased demand for prime properties will come from abroad with many buyers from China, Indonesia and India,” says Ow.

The city’s Districts 9,10 and 11, which include the Orchard Road area, will remain the focal point for prime property, says Ow, but the Marina Bay and Sentosa areas are starting to gain prominence. The opening of integrated resorts in Marina Bay and Sentosa this year will further boost the market.

Vietnam a small but growing market
Though the prime property market in Vietnam is small, real estate continues to be a popular investment as Vietnamese are not allowed to invest overseas, says Knight Frank Vietnam head John Gallander.

“Buying top-end condominiums and letting them to expats is a popular investment, although it is not a very deep market. In Hanoi, for example, there are maybe only a dozen high-quality serviced apartment developments of 150 units or larger,” he says.

Prices in Hanoi started to recover in the second half of 2009, but are still about 5% to 10% below their peak, says Gallander.

“Prices in Ho Chi Minh City can be more volatile because of extra supply. In Danang, asking prices for luxury villas can reach US$2 million,” he adds. “Vietnam is a small but growing market.”

Thailand to gain ground
In Bangkok, the prime market is focused solely on luxury condominiums around the CBD or Sukhumvit Road.

Knight Frank Thailand managing director Phanom Kanjanatheimthao says 2009 was not a good year for the prime markets as foreign investments were impeded by political instability and global recession.

“Developers, however, have so far been able to ride out the downturn... without cutting prices significantly,” says Kanjanatheimthao.

However, Phuket continues to attract people from around the world, with the most exclusive villas costing up to 150 million baht (RM 15.21 million).

Prices in Australia to grow
The three main urban centres for prime properties in Australia are Sydney, Melbourne and Perth, while Sydney’s Palm Beach suburb and resorts on Queensland’s Gold Coast are the principal locations for luxury holiday homes, says Knight Frank Australia residential division head James Hall.

“Prices only started to stabilise in mid-2009 after falling significantly. They have since bounced back by 5% from the bottom of the market with steady further growth predicted,” says Hall.

He added that for the early part of 2009, more than 30% of sales were to Asian investors taking advantage of low prices combined with the Australian dollar’s 40% slide.

In Perth, a mining magnate recently paid an Australian record of A$57.5 million (RM171.43 million) for a mansion on the Swan River, while in Melbourne, Avon Court in Hawthorn went for a local high of A$25 million (RM74.53 million).

“There are signs that the really rich have been cashing in on the downturn,” says Hall.

A good time to buy in Bali
The prime market in Indonesia, centred in Jakarta and Bali, has not experienced the huge price swings of other markets, says Knight Frank Indonesia head of research Fakky Hidayat.

“This is partly because property ownership is limited to Indonesians, although this could be relaxed in the future,” he says.

Although demand is currently down as Indonesians prefer to put their money in other investments, Hidayat says it is very difficult to find significant price reductions.

“The market is expected to stay soft in the first half of 2010. Now is probably a good time to buy in Bali. Prices could pick up by 2011,” he predicts.

Demand in Bail has been hit hard by the global economic crisis, as most buyers — using local nominees or right-to-use leases — are overseas expatriates living in Asia.

Despite this, Bulgari Residences launched a five-villa development last autumn with prices ranging from US$6 million to US$9 million (RM19.7 million to RM 29.54 million).

India’s growing ‘rich’ class
In India, the prime property market will be driven by its rising number of “rich” households to 11 million in 2013, from three million a decade earlier, according to an estimate by National Council of Applied Economic Research.

The number of middle class aspirants is predicted to leap even more dramatically, to 124 million from 46 million in the same period.

“The number of high net worth individuals in India is growing at 20% a year, second only to Singapore,” says Pranab Datta, head of Knight Frank India.

While foreign residents are not allowed to own property in India, this rule does not apply to the huge community of wealthy non-resident Indians living overseas, he says.

“South Mumbai and south New Delhi are still far ahead in terms of prices, with Bangalore, Chennai and Hyderabad the nearest challengers,” says Anand Narayayan, head of residential sales for Knight Frank India.

After falling by 20% to 25% in 2008, prices at the top end of the Delhi and Mumbai markets are expected to return to peak levels this year as people take advantage of easy access to credit, says Narayayan.

However, the biggest story in India, says Datta, is the huge demand for affordable housing from middle-income families.

“We estimate two million houses will be needed by 2011 — a potential market of US$66 billion (RM216.64 billion).”

Recovery slow for Malaysia
The prime market has not seen the kind of recovery experienced by Singapore or Hong Kong, says Knight Frank Malaysia head Eric Ooi.

“Developers deferred launching new projects in Kuala Lumpur last year because they were not confident of 50% sales at launches and also because of the oncoming stock of completed units.  At the same time, overseas investors who make up half of buyers in the KLCC area have limited stock to tempt them, although levels are slowly building,” he says.

Nonetheless, prices for luxury condominiums in Kuala Lumpur City Centre picked up by 10% last year after falling 15% to 20% in 2008, he adds.

The market could get busier in April. The re-imposed 5% capital gains tax, although a damper, is not expected to discourage most investors, he adds.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 800, Apr 5 - 11, 2010

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