City&Country: Where to put your money in 2012

This year looks set to be a tricky one, with Europe still in the doldrums and only the faintest signs of recovery in the US. Real estate is still much in favour among investors, however, as it is seen as a safe-haven asset class, and in the current climate, knowing exactly where to invest is key.
Governments around Asia have been slapping new rules on residential real estate, looking to keep prices in check — measures that are likely to produce price declines in home values this year in markets such as Hong Kong, China and Singapore.

In its playful feng shui prediction for the year ahead made just before the Lunar New Year, CLSA Asia-Pacific Markets even went so far as to say something must be a tad haywire with its patented analysis tools, since they have rated the property industry in Hong Kong and mainland China “fair to fab” for 2012.

“In our defence, we’re most optimistic about Water/Earth sectors, so perhaps brick- and concrete-makers are the way to play it (think of all that social housing), rather than landlords or developers,” property analyst Nicole Wong wrote in the forecast.

Singapore property is likely to come under pressure this year as the government’s cooling measures bite. The Singaporean economy is also slowing, after a massive 14.7% GDP growth in 2010. Growth in 2011 fell to 4.8%, and is expected to slow further to 1% to 3% in 2012.

In a report issued in mid-January, a team of HSBC analysts led by Pratik Burman Ray said: “The combination of policy measures and reduced GDP growth is a double whammy for the sector.” The bank is forecasting price declines of 10% to 15% for residential property, and 20% to 25% for office space.

HSBC said it was neutral on the property sector in Singapore but recommends Keppel Land as a stock investment for investors who are looking to add risk to their exposure.

There are pockets of positivity, though. The Malaysian government predicts its economy will grow 5% to 6% this year, with the housing sector likely to be one of the mainstays. The government’s affordable-housing scheme should encourage local buyers to put money to work in bricks and mortar, while foreign investors are still looking at luxury condominiums in the country.

Investors can find a gross rental yield of just over 5% on high-end condos in Kuala Lumpur, an attractive rate in a gloomy global environment. The occupancy rate is good, running at 86% in developments such as Mont’Kiara.

London has also been outperforming. Savills anticipates growth of 22.7% in land values in 2012. Knight Frank says more than half the sales of homes worth over £2 million (RM9.60 million) go to overseas buyers. There is strong interest in the city from European buyers looking for safe havens for their money, with buyers from Greece, Italy and Russia, as well as interest from the Middle East and India. Mainland Chinese buyers have been under-represented, however, preferring deals in Hong Kong, the US or Canada.

New York prices are also climbing, albeit slowly, with prices up 2.8% in the most recent quarter. Sales volume is exploding off a low base, with the number of deals up 33.4% compared with the previous year, making 4Q2011 the most active three months since the height of the financial crisis. The average home price in New York is US$1.4 million, with properties taking an average of 111 days to sell, a figure that is falling as interest rebounds.

San Francisco is also benefiting from signs that the worst is over in the US market. Its vacancy rate has fallen to just above 4% and prices for studio apartments in large complexes climbed 13% in 2011. With tech companies such as Google, Apple and Twitter in the area, there are plenty of young singles looking for places to rent.

Australia is also worth a consideration, with higher interest rates having produced a fall in values. The mining boom continues to fuel growth in the economy, which is also seen as a well-regulated, safer proxy for China, since the country exports much of its minerals there. With credit likely to remain tight this year, international buyers may be able to find some bargains Down Under.

Tim Murphy is founder and CEO of IP Global, a property investment company that specialises in emerging, recovering and developed markets. This article appeared in the Jan 30 issue of The Edge Singapore.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 896, Feb 6-12, 2012