Some fear rising interest rates and inflated prices, among other things, may lead to crash

AS prospective home buyers in Australia look for the best time to jump into the market, many of the nation’s top housing analysts have forecast modest residential price growth of about 5 or 6 per cent in 2010, the Australian Associate Press reports.

Some of Australia’s leading economists believe demand for homes will stay strong as investors and upgraders pick up the slack from first home buyers.

But a small group of doomsayers is convinced a combination of rising interest rates, the winding up of the first home owners’ grant boost and over-inflated prices could lay the foundations for a crash.

However, Australia is emerging from the global financial crisis with strong population growth, the lowest interest rates in decades and a rosier jobs outlook.

Most economists, industry heads and real estate agents see the sun continuing to shine on residential property this year.

Annual established house prices in Australia grew 6.2 per cent to September 2009, the latest Australian Bureau of Statistics data show.

Housing Industry Association chief economist Harley Dale said Australia would experience significant 20 to 25 per cent growth in new housing stock through to mid-2011.

He also supports predictions of about 5 to 6 per cent growth in established homes next year.

Source: Business Times, 2 Jan 2010

BRITISH house prices rose for an eighth consecutive month in December to end the year nearly 6 per cent higher than they started it, mortgage lender Nationwide said on Thursday. However, the monthly rise of 0.4 per cent was the smallest since April and the lender cautioned that the outlook for this year remained uncertain.

Martin Gahbauer, Nationwide’s chief economist, said a moderation in the quarter-on-quarter rate – a smoother indicator of the near-term price trend – suggested the pace of price rises was slowing. ‘House price increases towards the end of the year moderated in comparison to those seen in the summer.’

But he admitted that this year’s recovery in the property market, fuelled by record-low interest rates and tight supply, had taken most forecasters by surprise.

At £162,103 (S$368,233), the value of the average British property remains 12.2 per cent below its cyclical peak in October 2007 but has rebounded by 8.9 per cent since February. December’s annual rise of 5.9 per cent was the highest since November 2007, according to the Nationwide index.

Source: Business Times, 2 Jan 2010

It’s feared the bubble may burst later in 2010, devastating homeowners, banks, developers, stock markets and local govts

LI NAN has real estate fever. A 27-year-old steel trader at China Minmetals, a state- owned commodities company, Mr Li lives with his parents in a cramped 700-sq-ft apartment in west Beijing.

Mr Li originally planned to buy his own place when he got married, but after watching Beijing real estate prices soar, he has been spending all his free time searching for an apartment. If he finds the right place – preferably a two-bedroom in the historic Dongcheng quarter, near the city centre – he hopes to buy immediately.

Act now, he figures, or live with Mom and Dad forever. In the last 12 months such apartments have doubled or tripled in price, to about US$400 per square foot (psf). ‘This year they’ll be even higher,’ says Mr Li in the Jan 11 issue of Bloomberg BusinessWeek.

Millions of Chinese are pursuing property with a zeal once typical of house-happy Americans. Some Chinese are plunking down wads of cash for homes. Others are taking out mortgages at record levels. Developers are snapping up land for luxury high-rises and villas, and the banks are eagerly funding them. Some local officials are even building towns from scratch in the desert, certain that demand won’t flag. And if families can swing it, they buy two apartments: One to live in, one to flip when prices jump further.

And jump they have. In Shanghai, prices for high-end real estate were up 54 per cent through September, to US$500 psf. In November alone, housing prices in 70 major cities rose 5.7 per cent, while housing starts nationwide rose a staggering 194 per cent. The real estate rush is fuelling fears of a bubble that could burst later in 2010, devastating homeowners, banks, developers, stock markets, and local governments.

Speculators’ role

‘Once the bubble pops, our economic growth will stop,’ warns Yi Xianrong, a researcher at the Chinese Academy of Social Sciences’ Finance Research Centre.

On Dec 27, Premier Wen Jiabao told news agency Xinhua that ‘property prices have risen too quickly’. He pledged a crackdown on speculators.

Although parallels with other bubble markets, the China bubble is not quite so easy to understand. In some places, demand for upper middle-class housing is so hot it can’t be satisfied. In others, speculators keep driving up prices for land, luxury apartments, and villas even though local rents are actually dropping because tenants are scarce. What’s clear is that the bubble is inflating at the rich end, while little low-cost housing gets built for middle and low-income Chinese.

In Beijing’s Chaoyang district, which represents a third of all residential property deals in the capital, homes now sell for an average of almost US$300 psf. That means a typical 1,000-square-foot apartment costs about 80 times the average annual income of the city’s residents.

Koyo Ozeki, an analyst at US investment manager Pimco, estimates that only 10 per cent of residential sales in China are for the mass market. Developers find the margins in high-end housing much fatter than returns from building ordinary homes.

How did this bubble get going? Low interest rates, official encouragement of bank lending, and then Beijing’s half-trillion-dollar stimulus plan all made funds readily available. City and provincial governments have been gladly cooperating with developers: Economists estimate that half of all local government revenue comes from selling state-owned land.

Chinese consumers, fearing inflation will return and outstrip the tiny interest they earn on their savings, have pursued property ever more aggressively. Companies in the chemical, steel, textile, and shoe industries have started up property divisions too: The chance of a quick return is much higher than in their primary business. Newly wealthy towns are playing the game with a vengeance. Ordos is a city of 1.3 million in China’s Inner Mongolia region. It has gotten rich from the discovery of a big coal seam nearby.

An emerging generation of tycoons, developers and local officials will go to any length to invent a modern Ordos. So 25km from the old town, a new civic centre is emerging from the desert that could easily pass for the capital of a midsize country. An enormous complex houses City Hall and the local Communist Party headquarters, each 11 storeys tall with sweeping circular driveways.

Thousands of villas and apartment towers stretch into the distance, all built by local developers in the hope that Ordos’ recently prosperous will buy the places to be near the new centre of power.

Workers get bused daily to the new city hall, but the housing is still largely unoccupied. ‘Why would anyone go there?’ asks Zhao Hailin, a street artist in the old town. ‘It’s a city of empty buildings.’

The central government now faces two dangers. One is the anger of ordinary Chinese. In a recent survey by the People’s Bank of China, two-thirds of respondents said real estate prices were too high.

Charged debate

A serial drama with the ironic name The Romance of Housing, featuring the travails of families unable to afford apartments, was one of the most popular shows on Beijing Television until broadcasting authorities pulled it off the airwaves in November. The official reason was that the show was too racy – one woman got an apartment by becoming the mistress of a corrupt local official – but online chatrooms speculated that the show was cut because it was upsetting to people unable to afford apartments.

The debate has become even more charged following injuries and deaths related to real estate. A woman from Chengdu committed suicide when her former husband’s three-storey factory and attached living space were demolished to make way for a new road. A man in Beijing suffered severe burns in a similar protest over his home.

In early December five professors at Peking University wrote to the National People’s Congress calling for changes to a land seizure and demolition law and accusing developers of usurping the government’s role when taking land for construction. The law is leading to ‘mass incidents’ and ‘extreme events’, the professors warned.

The second danger is that Beijing will try, and fail, to let the air out of the bubble. Pulling off a soft landing means slowly calming the markets, stabilising prices, and building more affordable housing.

To discourage speculation, the State Council, China’s Cabinet, is extending, from two years to five the period during which a tax is levied on the resale of apartments. Tighter rules on mortgages may follow. Beijing also plans to build apartments for 15 million poor families.

The government is reluctant to crack down too hard because construction, steel, cement, furniture, and other sectors are directly tied to growth in real estate. In November, for example, retail sales of furniture and construction materials jumped more than 40 per cent. At the December Central Economic Work Conference, an annual policy-setting confab, officials said real estate would continue to be a key driver of growth.

The worst scenario is that the central authorities let the party go on too long, then suddenly ramp up interest rates to stop the inflationary spiral. Without cheap credit, developers won’t be able to refinance their loans, consumers will no longer take out mortgages, local banks’ property portfolios will sour, and industrial companies that relied on real estate for a chunk of profits will suffer.

Analysts are divided over the probabilities of such a crash, but even real estate executives are getting nervous. Meanwhile, the big banks may be cutting back on their real estate risk by selling loans to smaller local banks and credit co-ops. For now, the party continues.

Source: Business Times, 2 Jan 2010

THE number of commercial units sold in Singapore has remained largely steady last year.

But that statistic tells only part of the story. The total value of these sales nearly halved from 2008, according to a recent Knight Frank study.

Last year, 695 commercial units were sold, down 6.4 per cent from 2008 and nearly 65 per cent from the all-time high of 1,849 units in 2007, the study found.

The weak economy and property market took their toll. Knight Frank said the value of commercial units sold plummeted 47 per cent to $1.39 billion last year.

The consolation is that this is still 169 per cent higher than the all-time low value figure that was recorded in 1998 – and the outlook is now brighter.

These commercial units are shophouses as well as strata units for offices and shops – which are accessible to individual investors.

According to Knight Frank, the ‘modest value’ of commercial units transacted last year came about as investors were careful with their money and chose to buy lower-priced commercial units.

They were a lot less keen on strata office units owing to a fall in office rents, which hurt investor confidence. This was essentially the sole reason for the nosedive in the sales value of commercial units sold last year.

There was a 10 per cent fall in transactions of strata office units to 188 units, said Knight Frank’s executive director and head of commercial resale, Ms Mary Sai. However, the units sold were worth only $582.7 million, down a hefty 69 per cent from 2008 and way below the long-term annual average of $1.143 billion. Price-sensitive buyers bought some strata offices at Chinatown Point, Fortune Centre and Peninsula Plaza.

Apart from these strata office units in the lowest price range of $500,000 to less than $1 million, sales activity in this segment stagnated or fell last year.

In contrast, the number of deals involving shops and shophouses shot up by 24 per cent to 271 units and 5 per cent to 236 units respectively. The value of these deals rose by about 10 per cent from 2008, with about $233.5 million worth of shop units sold and $571.2 million worth of shophouses changing hands.

Still, sales activity was largely restricted to strata shops costing less than $500,000, said Ms Sai.

Colliers International said in an earlier report that shop units in this price category were a clear favourite with small investors. Last year, the shop units it auctioned off included three at Grandlink Square in Guillemard Road costing $300,000 to $438,000, and a unit at Golden Landmark in Bugis for $365,000.

In the shophouse category, the rise in activity was seen in shophouses belonging to the mid-price band of $1 million to less than $2 million, Knight Frank said.

These shophouses were in Geylang Road, Joo Chiat area, North Bridge Road and Haji Lane. While there are no restrictions on foreigners buying commercial properties, Singaporeans continued to make up the bulk of buyers of commercial units last year, Knight Frank said.

They accounted for 74 per cent of strata shop transactions, 50 per cent of shophouse deals and 48 per cent of strata office unit deals, it said.

Source: Straits Times, 2 Jan 2010