Luxury home price growth in Asian slowing as cooling measures take effect

Luxury home prices in Asia posted further gains in the first quartet of 2012 but the rate of growth has eased as government property cooling measures have taken effect, according to a new report from global research and real estate consulting firm CBRE.

The CBRE Asia Luxury Residential index increased by 1.1% quarter on quarter but among the 13 major city markets tracked by the index nine saw only modest price rises of between 0.7% and 3%.

Price growth was led by New Delhi and Mumbai which saw gains of between 2% and 4% quarter on quarter due to a lack of supply. Other strong performers included Manila and Kuala Lumpur where buying demand remained firm. There was mild price growth recorded in Beijing, Shanghai, Guangzhou and Shenzhen.

Prices fell by 0.5% in Bangkok but this followed steady increases in previous quarters and the report points out that fall was due to a number of specific transactions and the most sought after projects are still seeing prices rise due to being in short supply.

But sales volumes are declining. Transactions fell in Beijing, Shanghai, Guangzhou and Shenzhen and CBRE says this was mainly due to new tightening measures introduced by the Chinese government. Sales volumes also slowed in Hong Kong and Singapore after stamp duty was increased on all property purchases.

The report says that concerns remain about the high cost of residential property in many markets. While the demand from end users and long term investors is expected to remain firm the cooling measures introduced in many markets are already gradually dampening buyer demand.

‘Overall house prices are set to hold steady or ease slightly over the next few quarters. The risk of rising inflation means authorities are likely to keep cooling policies in place or to introduce additional controls should prices continue to surge,’ the report says.

‘Buyers will take longer to negotiate and conclude deals and are likely to become more selective in terms of the assets they acquire,’ it adds.

The more cautious outlook from buyers has benefited the rental market in some places. The CBRE Luxury Residential Rental index increased marginally by 0.2% quarter on quarter in the first three months of 2013 compared to a 0.7% decline in the fourth quarter of 2012.

Rents increased by between 0.5% and 1.8% in Beijing, Shenzhen, Bangkok and Kuala Lumpur but were flat in Singapore and New Delhi.

‘The minor rental increase reflected a slight uptick in leasing demand from potential buyers who have turned more cautious about the outlook for the residential sales markets,’ says the report.

It adds that the luxury residential rental market is likely to remain subdued. ‘Multi nationals remain cost sensitive and weaker demand from expats will put downward pressure on rents over the remainder of the year despite the fact that there may be an uptick in demand from potential buyers priced out of the sales market,’ it explains.

The report also says that the lending environment is constrained in some markets, most notably China, India and Vietnam.