Regulation and tax set to impact property markets in Asia Pacific region

Monetary policy, tax, regulations and underlying fundamental drivers such as demographics and urbanisation will have a significant impact on property markets in the Asia Pacific region, according to the latest real estate analysis.

The region’s economies are moving at multiple speeds with differing drivers and local dynamics, producing quite a wide range of housing market performance indicator, says the Asia Pacific residential review from international real estate firm Knight Frank.

‘Economic growth can certainly be a reasonable lead indicator as to which way housing markets will go,’ said Nicholas Holt, head of research for the Asia Pacific region. He also pointed out that despite facing many headwinds, the International Monetary Fund is forecasting stronger growth in 2015 for six out of the 11 major countries in the region.

‘While this should be a positive sign for home owners or investors, the reality is that in many cases there has been a divergence between short term economic growth and market performance,’ he added.

The report reveals that since last November, the People’s Bank of China has cut interest rates three times, contributing to the first month on month increase in house prices in May this year, after falling for 12 consecutive months. Other countries such Australia, India and South Korea are also pursuing expansionary monetary policy.

It points out that with further interest rate rises inevitable in the slow moving market of Singapore, cooling measures introduced previously could start to be reviewed by the government. China and New Zealand have already seen similar moves.

And the likely extension of luxury tax and introduction of a super luxury tax have already started to impact market behaviours in Indonesia, as has the announcement of a new capital gains tax scheme in Taiwan.

The report also points out that it is not just China that has seen the increasing influence of policy interventions in residential markets, whether fiscal, monetary or regulatory. In New Zealand, for example, authorities have stepped in over recent years.

‘Perhaps now more than ever, property market observers are looking to policy makers, whether Janet Yellen at the Federal Reserve, the Singapore government, the Reserve Bank of Australia, the People’s Bank of China or the Japanese government for clues about how markets will perform. We can expect more of this going forward,’ explained Holt.

In Hong Kong the supply of land for development has affected the property market and the report says that until supply catches up with demand the upward pressure on prices will continue in what is already one of the costliest property markets in the world.

Indeed, house prices in Hong Kong have continues to defy the ongoing cooling measures by rising 8.4% in the 12 months to the first quarter of 2015, the highest annual price growth in the overall market since the second quarter of 2013.

The report suggests that the Reserve Bank of Australia’s recent decision to hold interest rates followed two 25 basis point cuts in the official cash rate in February and May. Market performance continues to vary significantly across the state capitals, with Sydney continuing to see the strongest price growth, followed by Melbourne, while Darwin has seen its prices soften.

The Reserve Bank of New Zealand has announced that it will now differentiate between the Auckland real estate market and the rest of the country. The report suggests that the decision to relax the loan to value ratio restrictions on first home buyers outside of the Auckland region will prove a boost to those regional markets that have been subjected to the restrictions since their introduction on 01 October 2013.

Residential markets in India are set to recover with the country seeing a 6.3% annual price growth as of the third quarter of 2014. This should be helped by the fact that the Reserve Bank of India recently moved to cut its repo rate from 7.50% to 7.25%, the third time it has acted in 2015.

A revised super luxury tax of 5% on the purchase price for houses above Rp5 billion or a building area exceeding 400 square meters has been introduced in Indonesia. This move, mainly aimed at raising revenue for the government, could also be joined by an increase in the scope of the luxury tax, which is currently levied at 20% on houses above 350 square meters in size and condominiums above 150 square meters. To counter these taxes, policy makers recently reviewed the minimum down payment on properties over 70 square meters, potentially relaxing them from 30% to 20%.

Japan continues to be a story of Tokyo and the rest of the country. The country’s capital, which continues to see strong population growth and the prospect of the 2020 Olympics, has boosted infrastructure spending, which will help support market performance through 2015.

The residential market in Singapore remained muted in the first quarter of 2015, with only 1,311 new private residential units being sold, the lowest volume in a quarter since the fourth quarter of 2008. Overall private home prices fell for the sixth consecutive quarter, declining by 1%. Prices are expected to further decline by 3% to 4% for the whole of 2015.

The recent announcement of the new capital gains tax scheme in Taiwan could further weaken the confidence of property investors, it is also suggested. The plans include a 45% tax on the profit if the vendor sells the property having owned it for less than one year. The previous regime taxed on the assessed value, often significantly lower than the sale price. Many investors are now expected to be more eager to dispose their residential properties before the launch of the new tax regime in 2016.

In Thailand, Bangkok’s market performance is increasingly becoming polarised between centrally located condominiums, which continue to perform well, and outer suburbs. More secondary locations are seeing a significant amount of new supply with developers having to compete more aggressively for buyers.