Property price correction expected in Asia-Pacific

KUALA LUMPUR: Prices of residential properties in the Asia-Pacific region are bound for a correction following the introduction of a slew of cooling measures in these markets, according to global real estate consultancy Knight Frank LLP.

“It is our view that a number of markets in Asia-Pacific are likely to correct over 2013,” Nicholas Holt, Knight Frank research director in Asia-Pacific, said in a recent statement. He said given the severity of the latest wave of cooling measures in these markets, it is quite likely that there may not be any need for further interventions.

The real estate consultancy expects house prices to soften in Singapore by an average of 5% and Hong Kong by 10% over the next 12 months. In China, price appreciation is likely to continue in Tier-1 cities, while there could be drops in some of the smaller cities.

Meanwhile, Malaysia is likely to see a rebound in activity in the property sector following the recently concluded general election, said Holt.

Policymakers have been introducing greater cooling measures as many housing markets across Asia continue to see significant price hikes despite initial efforts to contain the rise.

Among the latest cooling measures adopted are imposing more lending restrictions, and additional taxes and regulations aimed at controlling price inflation. Steps have also been taken to curtail price speculation and  support for first time buyers.

The tools being employed comprise a mix of fiscal policy, supply side intervention, home buyers’ regulations and financing restrictions, said Knight Frank in its latest Asia-Pacific Residential Review released last month.

According to the report, post-crisis Asia has seen its property markets rebound so strongly that it has motivated governments to intervene. Issues of affordability for first time buyers have been brought into sharp focus, while the price increases have caused concern to many who have not forgotten what happened when an external trigger sets in motion a serious correction.

It said there is no doubt the cooling measures had been effective in reducing speculation, simply by pricing speculators out with extra taxes and limited financing options.

The protectionist measures introduced in Singapore and Hong Kong have led to a drop in property purchases by foreign buyers. Singapore saw a drop of 23.5% in purchases in 2012; in Hong Kong, the proportion of mainland Chinese buyers dropped from around 30% in October 2012 to only 9.4% in January 2013.

The pick-up in equity markets over the last quarter has also induced some of these “arbitrage investors” to move out of the residential sector.

Property investors are now increasingly looking to markets that are not impacted by restrictions and are open to foreign buyers. As a result, the United Kingdom, Thailand, the Philippines, Australia, New Zealand, the US and Canada have all seen an uptick of interest from Asian buyers.

More buyers are moving into the office, retail, industrial and hotel markets as well. However, the initial signs of government intervention in the commercial market are already evident with the Singaporean government introducing a sales stamp duty for the purchase of industrial property to reduce speculation.

This article first appeared in The Edge Financial Daily, on May 10,2013.

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