DIRECT commercial real estate investments in Asia-Pacific totalled US$18 billion in Q3 2010, a 12 per cent increase from Q2, according to new research from Jones Lang LaSalle (JLL).

JLL’s analysts attributed the improved investment levels across Asia-Pacific’s property markets to the optimistic business sentiment, resurgent investor confidence and strong economic fundamentals.

‘With a number of significant transactions expected this quarter and buoyed by positive business sentiment, market fundamentals continue to improve in the region,’ said Stuart Crow, head of Asia-Pacific capital markets for JLL. ‘It is expected that we will see continued enthusiasm for real estate by investors expecting a low interest rate environment and an increase in portfolio deals as the investment market continues to grow.’

Added Megan Walters, JLL’s head of research for Asia-Pacific capital markets: ‘Capital values continued to climb across most of the region in Q3. An increase in institutional acquisitions (en bloc transactions) has been observed and it is expected that more will follow suit although funds may be selective for assets.’

JLL’s figures show that in Q3 2010, Singapore saw a significant 350 per cent jump in total direct commercial real estate transactions in comparison to Q2 2010. Other markets which registered large quarter-on-quarter increases included Malaysia (60 per cent) and Australia (67 per cent).

The pick-up in the investment market also resulted in several large portfolio deals in Q3, JLL said. Among others, Japan Retail Fund sold 18 non-core office and residential assets for 33.2 billion yen (S$529 million) to a joint venture between Kenedix and US hedge fund Elliott Associates during the quarter.

Looking ahead, JLL anticipates that transaction volumes in Asia-Pacific will show an increase of 15 per cent to 25 per cent over 2009 figures, reaching around US$77 billion by the end of this year.

Source: Business Times, 16 Oct 2010

And despite government cooling measures, the inflow of money from the United States and Europe into Asia might continue to fuel property prices, said Mr Beat Lenherr yesterday.

Speaking at a forum held by the National University of Singapore’s (NUS) Institute of Real Estate Studies, he said property bubbles were developing in Asian markets such as Singapore and Hong Kong, where there are ‘elements of exaggeration… and it doesn’t make sense to buy in terms of rental yield or expected capital gains’.

Risk aversion shown by investors towards the US and Europe was leading to ‘money just flowing into Asia’, said Mr Lenherr, the global chief strategist at asset management firm LGT Capital Management. He has more than 20 years of experience in the real estate industry.

‘Domestic sentiment will be fuelled by this confidence, and we see this tendency towards excesses.’

Singapore’s private home prices surged 38.2 per cent in the year to June, exceeding the historical peak of 1996. Public resale flat prices jumped 3.8 per cent in the second quarter, the eighth straight quarter of record-breaking prices since 2008.

Three rounds of cooling measures have been introduced by the Government over the past year; the most recent round, on Aug 30, saw tightening of financing and certain home ownership curbs to dampen demand. But Mr Lenherr said it remains to be seen whether such moves will be effective, as ‘money has a way around the measures’.

Speaking on the topic of whether Asian property markets will derail economic recovery in 2011, he said a market fall could be triggered by a number of factors, such as external economic headwinds, a change in the interest rate environment and stronger government controls such as capital gains tax.

Such a trigger could lead to a market correction of 30 per cent to 50 per cent in property prices, he said.

Other panel members at the forum – held at the Shangri-La Hotel – agreed that bubbles could be forming, particularly in larger markets such as China and India, where high-end residential prices have spiked in tier-one cities.

But they disagreed on whether the bubbles were on the verge of bursting, and whether they could derail economic recovery in the same way that the US sub-prime mortgage crisis did in 2008.

Professor Joseph Gyourko, director of the Wharton Real Estate Centre, said this was highly unlikely because Asia’s households were not over-leveraged in the way US households were and the region’s banking sector was more robust.

The dean of the NUS Business School, Professor Bernard Yeung, noted that the Chinese government was taking steps to rein in the market, and was addressing supply problems.

GIC Real Estate regional head for Asia Goh Kok Huat said India was ‘messier around the edges’, compared to China, but that it still presented huge growth opportunities.

Source: Straits Times, 17 Sep 2010

 (HONG KONG) Major property markets in Asia are likely to face a slower second half because of policy risks and an expected increase in housing and office supply, after some developers had a positive first six months.

China Overseas & Investment Ltd, the country’s top listed developer by market value, Hong Kong tycoon Li Ka-shing’s Cheung Kong (Holdings) Ltd and Singapore’s CapitaLand Ltd, South-east Asia’s biggest developer, all benefited from strong housing prices in their key markets earlier this year.

However, Chinese government moves to cool its red-hot property market by raising mortgage rates and downpayments for second and third homes, restricting lending and building affordable housing will likely dampen sentiment in the sector.

The Hong Kong and Singapore governments are also wary of asset bubbles, although moves so far have been muted compared with China. Hong Kong raised the stamp duty on purchases of luxury apartments, while Singapore slapped a new stamp duty on homes sold within a year of purchase and set a cap on loans.

‘Every market is a little different in the coming six months,’ said Nicole Wong, regional head of property research at CLSA. ‘Some markets might have policy risks and that would be for Singapore and a little bit from Hong Kong. And there will be some markets where policy risks have peaked in our view, like China.’

In China, harsh policies announced in mid-April have caused transaction volume in some cities to plummet. The government also plans to roll out more affordable housing as, increasingly, more Chinese are complaining that they are priced out of the market.

‘The main uncertainties are policy risks that are starting to unfold in China, and especially as inventory starts to build up, you should see price cuts emerge in September, October,’ said UBS head of Asia real estate research Eric Wong.

A third of China’s developers, such as China Vanke Co Ltd and Evergrande Real Estate Group Ltd, have reduced prices, and more are likely to do so in the second half, which is expected to affect their bottom lines, analysts said.

First-half operating profit at China Overseas rose 48 per cent to HK$7.98 billion (S$1.39 billion) in the first half, with analysts polled by Thomson Reuters IBES expecting HK$14.75 billion, up 20 per cent annually and indicating an easing second half.

In other markets, Japan’s top developers Mitsui Fudosan Co Ltd and Mitsubishi Estate Co Ltd face an office space oversupply and lower rental revenue in the second half.

Japan was the world’s second-biggest property market but was set to be overtaken by China in 2011, real estate services company DTZ said earlier this year.

In Australia and India, rising interest rates might dampen buying sentiment for the rest of the year.

The bright spots are likely to be some emerging markets, such as Thailand, where the government has been helping to support the markets as internal political strife impacted its economy.

The property sub-indexes in Thailand and the Philippines have been outperforming their broader stock markets. Ayala Land Inc, the Philippines’ largest property company, said second-quarter net income was up by more than a third. Thai Land & Houses, Thailand’s top home builder, said it expects revenue to grow by 15 per cent this year, better than analysts’ forecasts, despite a weak second quarter.

CLSA had a preference for stocks of Thai developers and Singapore Reits (real estate investment trusts), Ms Wong said, but declined to identify any picks. — Reuters

Source: Business Times, 12 Aug 2010

A new era in property market governance

Residential property demand has surged in many Asian cities as speculators and homeowners alike clamour to get a piece of the action before prices exceed their threshold buying level.

We have seen volume and prices of new launches in Singapore rising unabated. In 3Q09, the Property Price Index, a national price index developed by the Urban Redevelopment Authority on residential stock island-wide, took a sudden upturn, jumping by an amazing 15.9 per cent – the largest “initial turn” ever recorded during a recovery since 1975, suggesting that the market could have over-corrected in the previous quarters.

Monthly new sales also recorded a similar surge, particularly in the month of January, which saw sales tripling from the previous month.

The average monthly sales of 1,437 recorded over the first three months of this year is already 1.7 and 5.7 times the monthly average of 850 and 250 transacted over the corresponding periods last year and in 2008, respectively.

This exuberance in the residential market set off cautionary bells, spurring the Government to introduce several contractionary measures as early as Sept 14 last year.

Contractionary measures seek to reduce demand, for example, an increase or introduction of stamp duty or capital gains tax. Conversely, expansionary policies are those that seek to improve demand, such as lower interest rates and a higher loan-to-value ratio.

More intervention, but less bite?

For the past 30 years, the Government has been involved in the property market in a number of ways, from the sale of State land to steer urban development to the imposition of taxes to ensure the smooth operation of the residential market.

In the final two decades of the last century, the State did not intervene in the market as much as it has over the first decade of this new millennium. The State intervened over nine times from 1980 to 1999, especially towards the later part of the period.

But just in the past 10 years from 2000 this year, the Government has already introduced several property-related policies on eight occasions.

For the first time, contractionary measures were introduced immediately after a shock to the real economy. For the past 30 years, the State has adopted mostly expansionary policies.

Following the recession in 1984 to 1985, there were two policies that helped increase the demand for private housing market by allowing CPF funds to be used for the purchase of private properties. And after the Asian financial crisis, stamp duties were suspended to spur demand.

Interestingly, since the collapse of Lehman Brothers, the State has introduced contractionary measures – the removal of interest absorption and interest only loans schemes, reduction of the loan-to-value ratio and the introduction of a seller stamp duty. These measures were aimed at cooling the overheated property market that had been brought forth by the lower interest rate necessary to encourage growth in the larger economy.

Emergence of the soft policy era

The impact of these policies is not necessarily hard-hitting, especially as some of them have been restrained.

For example, the current seller stamp duty is only imposed on those who sell within a year of purchase compared to the three years when a similar policy was introduced in May 1996.

The impact of the policy is soft even though the market seems more heated today than it was in 1996. The average quarterly increase in the property price index over the past three quarters before the introduction of the recent policy is 9.4 per cent compared to 4.8 per cent per quarter over the same period when the policy was introduced in 1996.

The sales volume following the introduction of these policies showed they did not seem to have an immediate effect on the market.

The average monthly new sales over the first three months of this year hit a high of 1,437, exceeding one-and-a-half times the recorded figure for the same period a year ago.

Recent policies could have been more aggressive but it would not help the larger economy over the short to medium term.

The condition facing policy makers today is different. The recent financial crisis has required the injection of state funds to spur domestic consumption. This, coupled with the low interest rate environment, has added inflationary pressures to the physical assets.

While a growing property market would lend some initial lift to the local economy, an asset-led inflation could potentially damage the recovery. The policy makers have the unenviable task of balancing these two countervailing factors.

As China’s late paramount leader Deng Xiaoping once said: “Cross the river by feeling for the stones”.

In other words, a soft and consultative approach to market regulation is a better option today than a heavy-handed one.

The long and arduous path to the property market recovery after 1996′s anti-speculative policy would also serve to remind us of the damage that overly-aggressive policies could do to the market.

Expect more adjustments

We expect the State to retain the soft approach towards the regulation of the property market. There is sufficient free play in the current policies for the State to tweak according to varying conditions.

For example, the stamp duty policy could be extended from the current one year to those transactions within three years of the purchase.

The main concern is the sustainability of the property market. The recent jump in prices has exceeded the real growth in the economy. There have been only a few occasions when that happened and these usually occur immediately following a correction.

The mid-term economic forecast for Singapore is expected to remain at 4 to 5 per cent. As long as the property price growth is moderate and does not exceed the real economy for an extended period of time, the market should remain healthy.

Otherwise, a market correction can be expected, either as a result of market forces or government intervention.

The writer, is Head of Research, South-east Asia, at property consultancy Jones Lang Lasalle.

Source: Today, 6 Aug 2010

According to Woori Investment & Securities, the Korean National Pension fund has put nearly US$3 billion into real estate in the past six to nine months alone.

And it appears investors are favouring commercial properties over residential ones to get better returns.

Private home prices have enjoyed a good run-up in recent months in Asia.

For example, cost of private residential properties hit a record high in Singapore in the second quarter, rising by an estimated 5.2 per cent.

But investors and asset managers are expecting home prices to moderate across the region.

So, they are turing their attention to commercial properties instead.

Woori Investment & Securities, part of South Korea’s Woori Financial Group, has seen a growing outflow of Korean money seeking such opportunities.

Derek Wong, director, Real Estate Investment & Finance, Woori Investment & Securities, says: “We’re looking favourably at the commercial sector, mainly the office building and retail sector. As a whole maybe we are looking at a range of six to eight per cent minimum for a very safe country but if it’s a high risk country then we need to add in that spread.”

Despite concerns of a supply glut in the office segment in Singapore, Henderson Global Investors says the new buildings under construction in the city have already received 80-90 per cent commitment from tenants.

Hong Kong’s supply picture is also tightening as businesses add to their headcount.

Frankie Lee, head of Property Equities, Asia, Henderson Global Investors, says: “We only conservatively assume a 25 per cent increase in rents in both Singapore and HK this year and given the type of rent increase in the first half this will prove to be quite conservative. I think now we can safely say that 25 per cent this year in these two places for 2010 and perhaps another 15 per cent for 2011 is quite achievable.”

In view of this, Henderson recommends stocks such as Hong Kong Land and Keppel Land to take advantage of the uptick in rents.

It also looks on Industrial Real Estate Investment Trusts favourably, given Singapore’s strong economic growth.

Source: Channel News Asia, 2 Jul 2010

POST-RECESSION, international property investors are turning their attention to Asia in pursuit of new investment opportunities.

Benefiting from the lessons learnt during the 1997 crisis, Asia was relatively less impacted by the global credit crisis of 2008 and 2009. Today, the region is an exciting investment destination. Relatively stronger fundamentals and a lack of dependence on foreign demand have helped mitigate the impact of the severe recession that has hit much of the rest of the world.

Today, we are seeing a growing trend of institutional and private investor capital flowing into the region’s real estate markets. Investors are lured by the underlying economic growth, stable yields, expansion of diverse market segments, as well as the need to broaden their investment portfolios.

Asia’s huge demographic shifts, with strong urbanisation and a rising middle class, also present opportunities for developers in diverse sectors ranging from housing, retail, commercial, industrial as well as leisure and tourism. The trend in commercial real estate perhaps best illustrates the point. While global commercial real estate transaction volumes have bottomed, property demand in Asia has visibly risen.

Rising property demand

The average Asian has a higher propensity to save compared to their Western counterparts and given the current low yields on fixed income products and the high volatility of equity markets, this presents a strong motivation for Asians to be attracted to the relative value-benefits of real estate investing.

In addition, succession planning is often a key factor in investment decision-making in Asia where family-controlled businesses are prevalent. The current climate has encouraged many to invest in property markets, which can allow for a more orderly transfer of assets and wealth from one generation to the next.

Asia has relatively well-capitalised financial systems: its banks have not required massive bailouts, and consumer and bank debt levels are lower than in the US, UK and Europe. Under these conditions, investors and businesses have been more willing to borrow, lend and spend.

In recent months, Singapore, Hong Kong and China have witnessed high transaction volumes and pricing, largely fuelled by low interest rates. In some countries, cooling measures have been undertaken to ensure price growth is in line with the rate of economic expansion.

In Singapore, the private property market continues to show resilience with close to 4,000 private homes sold in the first quarter of 2010, according to statistics from CB Richard Ellis (CBRE) . Similarly, Urban Redevelopment Authority data showed that demand for private homes in prime areas continued to be strong in the first quarter of the year

In Hong Kong, real estate prices reached a 12-year high in the first quarter of this year after increasing 7.5 per cent from the end of last year. According to a housing index compiled by Centaline Property Agency, this was largely due to a combination of low interest rates, limited supply and increasing confidence in Hong Kong’s economic recovery. Office rents in Hong Kong climbed 5.1 per cent in Q1, exhibiting the largest percentage increase out of 25 Asia-Pacific cities, according to Colliers International, which expects rents in Hong Kong to surge 20 per cent in the next 12 months due to the limited supply of new stock in core locations.

The Seoul office market is one of the best positioned office markets in Asia to ride out the downturn. South Korea benefits from the strong economic ties with the world’s fastest growing countries/regions such as China, Asean, Hong Kong and Latin America, which account for nearly half of the South Korean exports.

The economic growth translates into demand for Seoul’s office space, particularly the expansion needs from those corporations that have strong business ties with China and other fast growing emerging countries. The structurally stable rental growth (which normally benchmarks to inflation) and the relatively attractive yield of 6.0-6.5 per cent set Seoul office market apart from the high growth but volatile emerging markets (for example, China, Hong Kong) and the stable but low growth markets (for example, Japan, Australia).

Japan, and in particular the Tokyo office market, continues to play a significant role in real estate investment in the region. Tokyo, behind only London, led all cities worldwide in the volume of commercial real estate transactions closed last year. After posting a steep decline in economic activity last year, with a contraction of 5.2 per cent, Deutsche Bank economists expect a rebound of the Tokyo economy with a 2.8 per cent growth rate this year. With the significant amount of short term debt and CMBS rollovers, coupled with high commercial yield spreads, the Tokyo office market will continue to present attractive buying opportunities over the coming 12-24 months.

That being said, countries such as Indonesia and Vietnam are upcoming markets to look out for.

Indonesia is the largest property market in South-east Asia. Although traditionally a closed market, the government has plans to further deregulate the industry. This move will allow foreigners to purchase homes and commercial real estate with direct ownership

Vietnam’s growth story in recent years is second only to China in Asia. The property market, particularly in the mass to mid-tier residential market, is largely driven by strong demographic factors. These include the growing rural to urban migration, almost two-thirds of its population being under 35 and higher income levels.

Ho Chi Minh City and Hanoi are also expected to see a doubling of population over the next decade. Similarly, a relaxation in property ownership rules to extend the tenure of foreign buyers from 50 to 70 years will further provide incentives for residential projects of higher quality by overseas developers

In the case of Malaysia, office rentals in Kuala Lumpur continue to fall as more supply will come on-stream over the next three years. But foreign investors have gradually begun to flow in, thanks to the Malaysian government’s market liberalisation initiatives made last year.

While China did not come out of the 2008 global recession unscathed, early government intervention and lower levels of debt compared to its western counterparts have helped it weather the storm better than most.

Today, it remains an attractive investment destination for investors due to the sheer size of the country, its strong real estate fundamentals, substantial urbanisation rates, growing middle class and its rise as an economic powerhouse.

Rapid recovery

Since October 2008, the Chinese government has implemented aggressive macro-economic expansion policies, along with fiscal stimulus packages and monetary expansion. These policies have led to the rapid recovery of the domestic market and also signs of a recovery in investment.

The rapid growth in the China economy has led to a 8.7 per cent annual economic growth rate last year. Among the world’s major economies, China is surging at an unmatched pace with a nearly 12 per cent growth rate in the first quarter of this year.

Furthermore the number of high net-worth individuals is increasing in China. The number of people with a personal wealth of more than one billion yuan (S$204 million) has risen rapidly since 2004. At that time, there were 100, but as of last year, the number has expanded to 1,000.

Coupled with rising income levels of the middle class, this spells significant opportunities for the real estate sector to grow. Corporate investment and the increase of private sector investment in real estate will also support this growth and sustain the next phase of recovery. The recent approval of domestic insurance companies to invest in real estate as well as the expectation of the development of a China Reit market will continue to foster the institutionalisation of real estate in China.

Undoubtedly, the rise of China will be one of the greatest macro trends of the 21st century. Today, we are already witnessing China’s economic growth and its transformative implications across Asia and around the world. I am sure future decades will see an even greater increase in Chinese influence.

The rate of development in Asia today, combined with increasing economic growth and the expanding depth, maturity and diversity of its real estate markets will naturally translate to greater opportunities to come.

The writer is the chairman of the Cityscape Asia Conference 2010, the world’s largest B2B real estate investment and development exhibition and conference. Cityscape Asia is taking place from May 18-20, 2010 at Suntec City, Singapore

Source: Business Times, 19 May 2010

Global invested commercial stock fell 6 per cent in 2009.

The report, released in Singapore yesterday, is also bullish on China.

It forecasts that China will overtake Japan and the UK to become the second-largest property market after the US by end-2011. China was fourth in 2009.

Indeed, DTZ is bullish about the entire Asia-Pacific region. The property firm is forecasting a 12 per cent increase in Asia-Pacific commercial invested stock this year.

‘The Asia-Pacific continued its growth in invested stock due to the developing nature of the property market in the region, led by China and India, combined with the rapid reaction of governments to the global financial crisis,’ said David Green-Morgan, head of DTZ Research for the Asia-Pacific.

Despite the slowdown in bank lending in China, he expects Asia-Pacific transaction volumes to increase this year as investors look to take advantage of improving economic conditions and strong intra-regional trade.

Based on its forecasts, DTZ recommends that investors become proactive buyers, as a large number of Asia-Pacific markets – including China and India – offer attractive investment opportunities for the next two years.

According to DTZ, 151 out of 172 markets (88 per cent) worldwide now offer buying opportunities as prices are at or below fair value. Last year, the firm recommended only one market – the London City office market.

‘What a difference a year makes,’ said Tony McGough, global head of forecasting and strategy research at DTZ.

‘This time last year we recommended investors to wait on the sidelines as almost all commercial property markets worldwide were traded at prices above their fair value. This year, following a marked re-pricing of the market, our research shows there has seldom been a better time to invest in prime commercial real estate,’ he said.

In the Asia-Pacific, 84 per cent of the markets covered by DTZ are currently trading at or below fair value – with the office and retail markets looking particularly attractive.

For Singapore, DTZ said the retail and industrial markets are good bets but it is still ‘cold’ on the office sector on concerns of future oversupply.

But the firm’s Singapore office recently raised its forecast for office rentals after the economy put up a strong showing in the first quarter of 2010.

Just a few months ago DTZ had expected prime Raffles Place office rents to fall 10-15 per cent in 2010 – but it now expects a marginal increase of one per cent for the year.

Source: Business Times, 14 May 2010

OFFICE and investment property markets across Asia remained buoyant in the first quarter of 2010 as investor sentiment stayed positive, CB Richard Ellis (CBRE) said yesterday.

In the investment market, the steady flow of small and medium-size transactions seen in the second half of 2009 continued to feed through into this year.

Total direct real estate investment in Asia jumped 215 per cent year on year to US$16.5 billion in Q1 – from a low base in Q1 2009 when activity was muted.

Despite the strong year-on-year growth, transaction volume slipped in China, Hong Kong and Taiwan quarter on quarter.

This dip in Greater China was because investors turned cautious after government policy changes to cool rapidly rising prices.

Elsewhere in Asia, Japan, Korea and Singapore saw a strong rebound in investment activity quarter on quarter, with the volume of transactions in these markets rising 45, 32 and 24 per cent respectively.

Throughout Asian investment markets, transactional activity was largely driven by domestic investors, who accounted for 72 per cent of total volume. But the US$12 billion of transactions completed by domestic investors was US$2.1 billion lower than in Q4 2009 – signalling a rise in cross-border investments.

The rising proportion of cross-border activity in Q1 2010 was partly due to the return of international real estate funds, CBRE said.

‘The quarter saw both opportunistic and core international institutional investors return to Asian real estate markets, attracted by signs of a sustained recovery,’ said Andrew Ness, executive director of CBRE Research Asia.

‘At the same time, well-capitalised Asian Reits and sovereign wealth funds resumed the portfolio expansion they halted during the most severe period of the global economic downturn, and their return was marked by a rising level of acquisitions in Japan and Singapore.’

In the office sector, a recovery in demand was reflected by growth in net absorption for the region overall – it was 31 per cent higher in Q1 2010 than Q4 2009.

Most cities surveyed recorded positive absorption of space, and the overall vacancy for Asian cities declined 80 basis points quarter on quarter to 11.8 per cent.

Rents continued to fall – but more slowly. CBRE’s data shows overall office rents in Asia fell 0.1 per cent in Q1 – much less than the previous quarter’s 1.9 per cent decline.

Mr Ness said office leasing activity is expected to turn robust in the current first half and lead rents out of the downward cycle as more companies boost real estate budgets to support overall regional expansion plans.

Source: Business Times, 6 May 2010

Mr Aamir Rahim, chief executive of Citi Private Bank Asia Pacific, told a briefing: ‘The impact of such liquidity withdrawal on interest rates and the speed of private sector capital deployment to pick up the slack produced by such withdrawal measures obviously are the overriding risks to the property outlook.’

Mr Rahim also flagged inflationary pressures as ‘liquidity continues to chase assets’ and the tightening of monetary policies as key risks to track.

The Chinese government, for example, has introduced yet more measures to cool the property market, ordering developers not to take deposits for sales of uncompleted flats without proper approval.

It has also imposed curbs on loans for purchases of third homes and increased the downpayment requirements and mortgage rates.

However, Citi’s global head of real estate, Mr Thomas Flexner, said the steps are unlikely to overshoot and restrict growth in the other parts of the economy.

Mr Flexner, who was speaking at the briefing in conjunction with Citi’s two-day Asia Pacific Property Conference at the Four Seasons Hotel this week, said that while the bubble in the Chinese residential market was ‘very real’, it is most pronounced at the higher-end and more speculative sectors of the first-tier cities.

In these centres, about 70 per cent of buyers are speculators.

‘We call them speculators, they call themselves investors… There is real vulnerability there but I don’t think it is systemic,’ he added.

‘There is certainly the prospect of potential losses by investors in that sector and on the part of developers who own land banks and who are leveraged.’

However, he said that, unlike a debt implosion or a credit bubble, which had contagion effects, China’s bubble would not affect first-time home owners and would not have a ‘significant larger impact on the Chinese economy and its ability to grow over time’.

Real estate is an increasingly popular asset class, with Asian clients of Citi Private Bank having close to 50 per cent of their portfolios in property.

This compares with 33 per cent globally.

Source: Straits Times, 28 Apr 2010

The International Monetary Fund warns that residential real estate markets in East Asia are overheating and that by some measures, valuations are stretched.

In its just-released Global Financial Stability report (April 2010), the IMF notes that since the second half of 2009, housing prices – especially at the high-end of the market – have rebounded quickly in China, Hong Kong, South Korea, and Singapore as well as Australia and New Zealand. In many markets, prices now exceed their 2008 peaks.

The rebound has been mainly driven by ‘unprecedented policy measures to mitigate the impact of the global financial crisis and the ensuing return of risk appetite’.

# Mortgage rates are at historical lows as central banks around the globe have cut policy rates.

# Real estate loan growth has been revived. So has the proportion of real estate loans to total bank lending, which in Singapore was close to 80 per cent in Q4 2009. This is the highest among the markets highlighted in the report. In percentage terms, year-on- year, the real estate loan growth has picked up most sharply in China.

# Governments in China and Korea introduced housing-related tax breaks in late 2008 to help boost their property markets.

# Capital inflows have further fuelled property price increases, particularly in Hong Kong and Singapore.

In Singapore, foreigners and companies accounted for 12.5 per cent of the third-quarter home purchases in 2009, compared with 8 per cent in the previous quarter.

The Fund cautions that by some measures, housing valuations are stretched. Although the average price-to-income ratio has risen modestly, in some markets – notably, China, Hong Kong, Singapore and Korea – price-to-rent ratios are ‘elevated’. It adds that many purchasers have been buying ‘in the expectation of price appreciation, rather than simply for dwelling purposes’.

The region’s booming real estate markets may pose risks to financial stability in the future, according to the IMF. Banks are ‘increasingly vulnerable’ to a price correction. Moreover, as most mortgage loans in Asian economies carry floating rates, ‘the widely anticipated rate hikes in the region will increase the burden on household balance sheets’.

The Fund acknowledges that governments in the region have taken measures to cool real estate markets, including tighter requirements on mortgage lending, increased land supply, and the reimposition of higher transaction taxes, such as stamp duties.

In Hong Kong, the average loan-to-value ratio of new mortgage loans has dropped significantly from its peak in June 2009, and banks in mainland China have started to tighten their mortgage criteria. In response to such measures, the growth rates of transaction values have declined, including in Singapore.

However, the full effects of the cooling measures ‘are still to be seen in the coming quarters’, says the Fund. It also suggests that governments may need to fine-tune their policies ‘to maintain a delicate balance between leaning against housing bubbles and ensuring a solid economic recovery’.

Source: Business Times, 22 Apr 2010