Outlook for residential property in key Asian cities more subdued for 2017

Many residential property markets in Asia have seen a year of strong increases but prospects for 2017 look more subdued, according to a new report.

Potential risk for Asian property markets include rising interest rates in the United States and the strength of the US dollar. There is also the threat of US trade tariffs, says the analysis from international real estate services firm Colliers International.

But David hand, chief executive officer for Asia Pacific, believes that overall the region’s prospects are optimistic although the outlook is mixed.

The report suggests that as a reaction to what has been an overheated residential market in many key cities in China there is likely to be a mild adjustment in 2017 but Hong Kong is expected to resist downward pressures over 2017. But it adds that if faster than expected US economic growth forces an earlier return to positive real interest rates then confidence in the residential market could be hit hard.

According to China’s National Statistics Bureau, average prices of new homes in 70 Chinese cities increased by 11.2% year on year in September 2016 after a 9.2% increase in August. In response to the overheating in Tier 1 and Tier 2 cities, about 21 Chinese city Governments announced measures to cool the residential market in late September or early October.

These measures ranged from relatively modest steps such as bans on new home purchases over the Golden Week holiday to firmer and more permanent steps such as tightening of down-payment requirements. Recent data releases from National Statistics Bureau show that prices in leading cities declined in the low to mid-single-digit per cent range in October, and slightly further in November.

The report says that although the declines are only modest, the direction of movement is reassuring. In the long run, these measures should help to stabilise the residential market in China and lead to a further decrease in sales.

‘However, in combination with rising interest rates in Hong Kong we expect that the new stamp duty will dampen the Hong Kong residential market over 2017. We think the stamp duty policy will have a larger impact on the secondary market than on the primary market because developers can encourage primary market sales by offering direct and indirect sales incentives,’ the report says.

‘In addition, the stamp duty is likely to have a greater impact on the medium to high end market than on the mass market given strong inelastic demand for housing in the mass market. We forecast that the overall residential market will witness a mild 5% drop in prices by the end of 2017. A sharper decline over the coming year seems unlikely considering continuing strong demand and low supply in Hong Kong,’ it adds.

The report explains that in contrast to most other Asian centres, residential prices in Singapore have been falling since late 2013. While prices may still fall further in the first half of 2017, beyond then prices ought to stabilise and in the long run the firm believes that any easing of the government’s residential cooling measures should spur investment in the luxury residential sector.

‘Looking forward, we see significant potential for a recovery because Singapore’s long run investment attractions remain compelling. Singapore has been famously resilient over the years, reflecting the country’s status as a world class metropolis with a sophisticated market economy and high legal and regulatory transparency,’ the report points out.

‘We believe that any easing of the government’s residential cooling measures should provide an impetus for investment in the luxury residential sector in particular. Foreigners should find it attractive to re-enter the market when the additional buyer’s stamp duty of 15% imposed on foreigners is eventually relaxed or removed,’ it adds.

In India, in the near term market confidence has been damaged by demonetisation. However, mid-segment projects with realistic pricing are enjoying fair success in both the primary and the secondary markets. Looking ahead, the report suggests that new regulations and probable further cuts in interest rates should allow sentiment to pick up steadily over 2017.

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