House prices in parts of Asia-Pacific continue to defy cooling measures

In spite of the introduction of further cooling measures aimed to halt the surge in residential property markets across Asia-Pacific, mainstream house prices in the region increased by an average of 8% in the third quarter of 2013.

But the impact has varied, according to the latest Asia-Pacific Residential Review from international real estate consultants Knight Frank. In some markets the cooling measures have not only slowed price growth but also provide policy makers with the opportunity to try and re-inflate demand if market corrections prove too much.

A reversal of many of these temporary policies could be a very real possibility, according to Nicolas Holt, head of research for Asia-Pacific. He predicts that Singapore and Hong Kong are likely to see sales volumes further compromised as new purchasers see mortgage rates rise, and the attraction of property recedes slightly.

He pointed out that pricing is more difficult to predict as house prices are not influenced by interest rates only, but more by fundamentals. ‘Other factors like economic performance have a bigger impact on house prices than changes in interest rates. If the fragile global economic recovery continues, hard, income yielding assets such as property will continue to do well, on the other hand if the global recovery gains pace, property will again benefit from growth,’ he explained.

‘In emerging Asia, except China, although less impacted directly by rising interest rates in the US, further capital outflows could put pressure on domestic residential property prices. Again domestic economic performance will be the key set of indicators to monitor. China meanwhile is a separate market altogether, with the lack of market set interest rates mitigating the impact of rising US interest rates, along with the amount of pure equity buyers,’ he added.

The review shows that in Australia, the sale of the first release of Barangaroo, a flagship harbour-side project in Sydney’s CBD sold out within hours, with a number of units being sold to Asian investors. The relative safe haven status for foreign capital and lower Australian dollar has encouraged an increase in interest from offshore buyers with Melbourne and Sydney continuing to attract the largest number of foreign purchasers, particularly from China, Malaysia and Singapore.

New Zealand and Malaysia have seen significant price increases. In Malaysia house prices have increased by 44.2% since the fourth quarter of 2008. A number of cooling measures have been introduced. These include the Bank Negara reducing the maximum tenure of house loans to 35 years.

In October the federal government doubled capital gains tax to 30% for real estate sold within three years and doubled the minimum purchase price for foreign property buyers to one million ringgit.

Long mooted measures were eventually introduced by the Reserve Bank of New Zealand at the end of September, with banks subject to restrictions on high loan to value ratio (LVR) housing mortgage loans from 01 October. The country remained one of the most robust performers in the region, with growth of 1.5% over the second quarter of 2013, with Auckland and Christchurch seeing the most significant price increases.

In Singapore the total debt servicing ratio (TDSR) of 60%, introduced at the end of June saw sales activity slow in August and September. Volumes and pricing in the Core Central Region (CCR) and Rest of Central Region (RCR) have been more impacted due to the higher price quantums. Despite this slowdown, a number of new launches saw fairly healthy sales rates in the past month, the review points out.

In China, the implementation of the five new measures which aimed to cool the residential market continues to vary significantly across the country. Prices have continued to increase across most regions, although volumes came off in a number of cities. Knight Frank’s composite price index of Beijing and Shanghai remained stable over the second quarter of 2013.

Market sentiment continued to weaken in Hong Kong, as the numerous rounds of cooling measures and the first hand sales ordinance, effective from the 29th April, saw price growth suppressed. Developers have reacted by redefining their strategies and postponing project launches.

India saw its average house prices turn negative for the first time in five quarters, dropping 1.7% in the second quarter of 2013, as the deteriorating economic situation started to have an impact on the city’s residential markets. Only four of 26 cities tracked by NHB saw positive price growth.

Effective from 30th September, the loan-to value ratio for the purchase of a second property was reduced to 60% in Indonesia and to 50% for purchases beyond the second property. The move by the central bank follows a similar intervention last year as policy makers try to control a booming market in Jakarta. Prime condominium prices increased by 10.8% over the first half of 2013.

The Japanese market continues to see polarised performance in its residential market, with centrally located condominiums and apartments outperforming landed property and single family dwellings. The weakening of the currency has stimulated further interest from foreign buyers, with Taiwanese and Singaporean buyers heading the list.

Thailand, Southeast Asia’s second largest economy, slipped into a technical recession as GDP contracted for two consecutive quarters for the first time since the global financial crisis. The condominium market, especially in Bangkok however has not been adversely affected, as strong domestic and foreign demand continue to push prices higher.