Growth in land prices slows in China as Bangkok, Jakarta and Phnom Penh power on

Growth of prime land prices in China have slowed but other parts of Asia such as Bangkok, Jakarta and Phnom Penh are powering ahead, according to the latest index.

The first half of 2014 saw the Knight Frank’s Prime Asia Development Land Index advance 4.9% and 2.9% for residential and office sites respectively. However, this represents a loss in momentum compared to the 9.8% and 7.7% respective growth rates in the first half of last year.

Bangkok experienced the largest increase in the residential land index in the first six months of 2014 and condominium development remained the most profitable use of prime sites in the city at a time when business confidence and appetite for commercial sites were dampened by political turmoil.

The index report says that one reason for the deceleration is the slowdown in China but overall activities also fell across the rest of Asia. Investment volumes totalled only 37.6% of the amount achieved in the whole of last year, resulting in a 5% year on year fall.

‘Interestingly, amidst all this, investment inflow originating from outside Asia during the first half of 2014 surged by 423.9% year on year, surpassing its total volume in 2013 by 76.1%,’ said Nicolas Holt, head of research for Asia Pacific.

The index also shows that prices appeared to have peaked in the key Chinese markets in the first quarter of 2014, except Shanghai’s office sites which managed to hold up and Beijing’s residential sector.

However, Guangzhou provides a stark contrast. After values reached record highs with the entry of new comers such as Zhuhai Huafa and Financial Street in the first quarter of 2014, the land market cooled off substantially in the second quarter of 2014 with nine failed auctions in June alone.

‘Faced with a slowdown in the property market, a resultant large inventory and credit constraints, developers have become more cautious. In Beijing, moving forward, with merely 124 square kilometres of land left for development, the National Land Bureau intends to decelerate the pace of land supply,’ explained Holt.

‘Notwithstanding, land in the capital is expected to be fully utilised by 2020. Shanghai is scarcely better positioned, with 153 square kilometres remaining against its 2020 target. Against this backdrop, we expect land prices in Beijing and Shanghai to be well supported in the medium to long term,’ he added.

The report also shows that in Hong Kong softened property prices as a result of cooling measures, elevated construction costs and an uncertain external economy has led the prices of prime residential and office sites to slide 4.9% and 4.4% respectively in the first half of 2014.

However, Holt pointed out that the limited supply of land in urban areas was still highly sought after, while suburban areas faced some challenges due to the government’s commitment to boost land supply in such areas and Knight Frank expects such divergence to continue.

Singapore’s land price indices stayed flat. The residential market, in particular, faced strong headwinds. In the second quarter of 2014, as compared to the same period last year right before the impact of the Total Debt Servicing Ratio ruling was felt, prices of non-landed houses in the Core Central Region fell 4.8% as transactions plunged 52.5%, softening demand for land.

Prices of residential sites in Kuala Lumpur also did not register any movement, mirroring the trend in the underlying luxury home market, which has lost steam due to cooling measures. On the other hand, commercial land was bogged down by a challenging leasing environment.

In India, the anticipated change in political regime which culminated in Bharatiya Janata Party’s landslide victory with a historic mandate has infused confidence in the markets, according to the report.

Already, there are talks of incentives for Real Estate Investment Trusts to attract fresh funds. Except for Mumbai, improved business sentiment has helped commercial sites to outperform residential land in terms of price growth.