Transcript of "Asia pacific residential_review_-_dec_2012"
RESIDENTIALRESEARCHASIA-PACIFICRESIDENTIAL REVIEWDecember 2012 MAINSTREAM MARKET PERFORMANCE Page 3 MAINSTREAM VS. PRIME Page 4 KNIGHT FRANK’S PRIME FORECAST Page 5
ASIA-PACIFIC RESIDENTIAL Review INTRODUCTION Mainstream markets outperform prime in Asia Pacific Push and pull factors combine to opportunities abroad, some prime“While Asia is undergoing huge encourage a number of prime Asian buyers have been “pulled” towardseconomic changes, and we see prices in buyers to look abroad for luxury prime residential markets outside of theirthe mainstream markets reflect this, the residential property. Knight Frank’s domestic markets.more internationalised prime markets prime forecasts show that this is likely One thing is certain, and that is thehave not always benefited as much as we to continue in 2013. Nicholas Holt looks demand and supply drivers at the topmay have expected.” into the numbers and provides the end of the market are different to the narrative. mainstream. While Asia is undergoing huge economic changes, and we see When analysing 2012 Asia Pacific prices in the mainstream markets reflect Nicholas Holt residential market data, one startling this, the more internationalised prime Research Director, trend that jumps out is the fact that prime markets have not always benefited as Asia Pacific markets have seemingly underperformed much as we may have expected. when compared with mainstream markets across much of the region There are of course many other narratives (see Figure 1). In this edition of the and explanations in each market and Asia-Pacific Residential Review, we will sub-market, and with our research teams explore some of the explanations for this, in each country, we have identified some and provide an in-depth analysis of the of the key factors that have influenced historic price performance of the region’s prime residential market performance prime and mainstream markets. Some to date and the risks going forward into of our conclusions will in turn provide a 2013. platform for our 2013 prime forecasts, a The biggest concern for the region’s comprehensive regional complement to markets remain macroeconomic, with a Knight Frank’s Prime Global Forecast. domestic slowdown viewed as the largestFigure 1 This paper will provide a roundup of threat for prime market performanceMainstream vs. prime market performance the latest trends affecting mainstream in 2013. The possibility of furtherin Asia (Q3 2007 = 100) markets (see pg. 3), followed by an in- government intervention to reduce house 150 depth analysis of how the mainstream price inflation in these times of low and prime markets (i.e. the top 5% of the interest rates is likely to remain, posing 140 market) have fared against each other a risk to several residential markets over (see pg. 4), concluding with our prime the next 12 months. 130 forecasts for 2013 (see pg. 5). If we take a slightly longer time horizon, 120 One of the key narratives that emerges, given the huge increases in economic is that while prices rebounded strongly in activity and wealth in the Asia-Pacific 110 Mainstream 2009 after the global financial crisis, the region, the medium term forecast for Prime increasing intervention of policymakers 100 prime residential property remains in some countries has “pushed” some unanimously positive. 90 buyers out of the prime residential 2007 2008 2009 2010 2011 2012 markets. At the same time, given the Q3 Q3 Q3 Q3 Q3 Q3 favourable investment and lifestyleSource: Knight Frank Research02
Asia-Pacific mainstream markets in Q3 2012 dominated bystrong price performance in Hong Kong and ChinaPerhaps the biggest headline in the more like a blip in the strong upward Finally, in the Pacific region, Australia’sAsia-Pacific residential markets over the trajectory. Mainstream prices in Beijing housing markets have stabilisedlast quarter has been the introduction in and Shanghai have risen 12.82% over following price falls in 2011 and the firstOctober of a 15% stamp duty for foreign the last six months, second only to Hong half of 2012. New Zealand‘s residentialbuyers of residential property in Hong Kong in the region. markets have continued to enjoy solid growth, notably in the key cities ofKong. In Malaysia, nationwide prices slipped Auckland, Wellington and Christchurch 1.81% in the third quarter, due to a moreDespite the large number of cooling which have been buoyed by low interest challenging overall market sentiment.measures introduced over the last three rates. The effects of cooling measures, andyears, prices have continued to soar in perhaps most importantly the impendingHong Kong, nearly doubling since the General Election, has encouraged abeginning of 2009. The government wait-and-see attitude amongst market Figure 2has followed the example of Singapore, participants. Global House Price Index Q3 2012who introduced a similar stamp duty inDecember 2011. Further down the archipelago, 16% Annual % change Indonesia’s house prices continued to 14% Quarter % changeSingapore itself has seen record volumes grow strongly. The loan-to-value ratiotransacted in 2012, as low interest 12% cap of 70% which was introduced in Julyrates have continued to fuel demand for properties below 70 sq m seems to 10%despite the continuing stream of cooling have had little impact to date. Instead, 8%measures. With the residential market the economy’s robust growth is beinga serious concern for the government, 6% translated into strong housing demand.many commentators have noted that 4%further intervention in 2013 cannot be In India, across the 15 cities surveyed, 2%ruled out. ten saw price increases over the third quarter, while five saw price drops. 0%Reflecting the improving sentiment in the New Zealand South Korea Despite the relatively weaker economic Hong Kong -2% SingaporeChinese economy, the country’s housing Indonesia Malaysia Australia performance of the Indian economy, the China* Taiwanmarkets have continued to see strong -4% Japan India strong underlying fundamentals havedemand. The price falls in Beijing and -6% ensured that the market as a wholeShanghai in the last half of 2011 now look *Based on Beijing and Shanghai remains on an upward trajectory. Source: Knight Frank ResearchFigure 3Global House Price Index (Q4 2007 = 100)200 Hong Kong India 180 China* Malaysia 160 Indonesia 140 Singapore South Korea 120 Australia New Zealand 100 Japan 80 60 ‘07 ‘08 ‘08 ‘08 ‘08 ‘09 ‘09 ‘09 ‘09 ‘10 ‘10 ‘10 ‘10 ‘11 ‘11 ‘11 ‘11 ‘12 ‘12 ‘12 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3Source: Knight Frank Research 03
ASIA-PACIFIC RESIDENTIAL REVIEWMainstream VS. PrimeThe huge increases in incomes and towards smaller family units - that has end residential market (loan-to-valuewealth that we have seen across brought about significant new levels of ratios in Hong Kong are limited to 50%Asia have lifted residential prices demand. The reality is that even though for properties over HK$10 million), butsignificantly over the last decade. we are seeing a large number of prime more often they have been introducedHowever, when analysing price buyers emerging, this number pales to penalise multiple home owners at in comparison to the number of new the expense of first time buyers, whichperformance, notably over the last entrants into the mainstream market. disproportionally impacts the primecouple of years, mainstream markets residential markets.across Asia (excluding Japan) have Across many of these markets, supplyoutperformed the prime end of the has found it hard to keep up with Finally, while the market has becomemarket. This is in contrast to many other demand with planning, infrastructure more difficult for some buyers, theregions of the world. and land use issues often holding up attraction of ‘global’ prime property development activity. This is sometimes markets outside their domestic arena hasTaking price performance following in contrast to the high end, where we continued to provide incentives to movethe collapse of Lehman Brothers in have seen developers eager to enter the their money abroad. With an increasinglySeptember 2008, when a number of smaller and potentially more lucrative mobile, educated and well-travelledmarkets saw a slight price correction, prime segment of the market. class of property owners in the Asiannational mainstream markets have region, the lifestyle choice of having aoutperformed the region’s prime city Secondly, across much of Asia, 2012 second home abroad, for personal ormarkets, with the exception of Jakarta has seen continued government for children’s educational use is proving(see Figure 4). We have identified three interventions, aimed at mitigating the to be one of the key narratives for HNWkey reasons for this Asian phenomenon. risk of asset bubbles and addressing Asian buyers. Purely from an investment concerns of affordability. These coolingFirstly, and perhaps most importantly, point of view, as a diversifier away from measures have, however, dentedalthough we are seeing growth in the steamy and controlled Asian markets, demand for prime residential productincomes across all income brackets, it has been seen as a sensible strategy in some markets through a range ofthe absolute growth in the number for their wealth portfolios. Domestic measures; limiting financing, introducingof middle class, first home buyers in currencies that have strengthened extra taxes for foreign buyers anddeveloping Asia is staggering (see Figure against destination market currencies penalties for disposing of the property5). It is the emergence of this property- have also provided a currency play, within a certain time period. Many ofbuying class - reinforced by historic which has made some purchases these measures have targeted the highlevels of urbanisation and a movement relatively cheaper. Figure 5Figure 4 Projected growth in middle classesPrice growth across key Asian markets from Q4 2008 2007-2012 by region120% Prime 60%100% Mainstream 50% 40% 80% 30% 60% 20% 40% 10% 20% 0% Asia Paciﬁc N. America Central and South Sub-Saharan Africa MENA Europe 0% Jakarta/ Hong Kong Shanghai/ KL/Malaysia Mumbai/ Singapore -20% Indonesia China IndiaSource: Knight Frank Research Source: OECD04
THE PRIMEASIA PACIFIC FORECAST As a complement to Knight Frank’s Prime Global Forecast, we have carried out in-depth surveys in respect to an additional six Asian prime city markets, to provide a comprehensive picture of the regional outlook for prime markets in 2013. Of all the markets we monitor, taking into account past year performance, supply and demand dynamics and potential risks, our forecasts predict that 2013 will look fairly similar to 2012. We forecast modest price growth across most markets, with a couple of significant exceptions.Jakarta and Bangkok tipped Safe haven and lifestyle stable political environment, will ensure that prices do not fall. Meanwhile into be top Asian performers destinations of Singapore and Hong Kong, where the new stamp dutiesthrough 2013 Hong Kong to remain stable for foreign buyers are likely to curtailOur forecasts show that we are more Over the last 12 months, Singapore some mainland Chinese demand thatbullish in 2013 about the markets that and Hong Kong, considered the Asian makes up a significant proportion ofhave solid fundamentals and little safe haven and lifestyle markets, have buyers, we expect prices to rise, but at aor no cooling measures. Jakarta and erected protectionist measures that have slower pace than the previous 12 months.Bangkok notably, are two markets that and will continue to curb demand at the Differing drivers of demandare well positioned to benefit from strong prime end of the market. In Singapore,economic growth and a growing affluent while robust demand remains for prime to bring about contrastingand aspirational property owning class. landed property or good class bungalows performance in Beijing andBoth of these markets have been the star (GCB); demand for luxury condominiums Shanghaiperformers over the past year, and we has proved weaker. Despite this, weexpect this to continue. expect the attractiveness of Singapore, In China, we are more bullish about with its transparent legal systems and the stronger domestic “establishment” Figure 6 Prime city residential price performance and forecasts 3 10 % change Forecast City 11 to Q3 ‘12 ‘13 1. Jakarta >20% >20% 4 7 2. Bangkok >20% 10%-20% 5 3. Beijing <5% 5%-10% 2 12 4. Hong Kong 5%-10% <5% 8 5. Mumbai <5% <5% 9 6. Sydney <5% <5% 1 7. Hanoi 10%-20% no change 8. Kuala Lumpur <5% no change 9. Singapore <5% no change 10. Tokyo 5%-10% no change 11. Shanghai <5% <5% 12. Ho Chi Minh City 10%-20% 5-10% 6 Source: Knight Frank Research 05
ASIA-PACIFIC RESIDENTIAL Reviewmarket of Beijing than the Shanghai demand is met with little new supply in foreign buyers except in the primarymarket, which is more linked to the Tokyo. In general, prices have been on market, is expected to recover after abusiness performance of the financial a gentle downward trajectory as land decrease in the number of motivatedcapital of the country. While the prices continue to lose value and the vendors, with a stable market forecastShanghai market is probably more economy struggles to regain the high for 2013. Sydney has and will continue tosensitive to the economic and financial levels of growth of the past. be a target for Asian buyers, and couldmarkets, Beijing, which will see the benefit if the Australian dollar weakensopening of a number of new metro lines Vietnam continues its against key Asian currencies in 2013.in 2013, is expected to see strong price downward trajectory amidperformance over the next 12 months. economic uncertainty Measuring riskMumbai’s lack of liquidity to Vietnam is passing through an extremely While the forecasts we have presented represent what we believe to be the mostkeep prices steady difficult economic period and this is being reflected in the price falls in both likely outcome for 2013, there remains aMumbai, whose prime residential market Hanoi and Ho Chi Minh City during 2012. number of derailing factors which haveis closely correlated to the economic With ongoing macro-economic issues, we the potential to knock our forecasts offperformance of the country, has seen expect another tough year in 2013, which course.prices stagnate over the last year. With will continue to impact the prime end ofuncertainty over the strength of the With much uncertainty in the world the housing market, although the feelingeconomy and an election on the horizon economy, it is no surprise that both is that most of the price corrections havein 2014, we forecast prices to edge up global and domestic economic factors already taken place.slightly in 2013. remain the biggest risk to property prices Sydney still an attractive in Asia Pacific in 2013.Tokyo prices to remain stagnant lifestyle and investment choice China’s economic performanceAt the top end of the market, prices are and the possibility of a significantexpected to remain relatively flat as weak Finally, Sydney, which is closed off to slowdown is perhaps one of the most Figure 7 Ranking Risk analysis Asia 1 Risk 1 Pacific Global Downside scenario and impact 2 2 The potential for a domestic slowdown, with the ensuing negative impact on employment and A slowing domestic 1 3 earnings growth, would have a substantial direct and domestic impact on housing markets, although economy (Highest) 3 the main effect would be felt in the mainstream rather than prime markets. 2 1 1 4 4 The global economy has essentially stalled since the second quarter of 2012. Consumers, businesses A slowing global economy 3 2 2 5 1 and investors are awaiting clear global signals as to how key risks play out, from the US’s fiscal cliff 1 5 to the Eurozone debt crisis. A weakening global economy would limit economy wealth creation and 1 4 3 3 6 2 dampen confidence. The pull of ‘safe-haven’ investments would lessen the impact in some markets. 2 6 High inflation & low 2 5 1 4 4 7 3 High inflation in parts of Asia has already pushed interest rates higher. This, together with lower household income growth 3 7 incomes would have the effect of & low household stifling demand but it would be more of a concern for mainstream than prime markets which are less exposed to credit availability. 3 6 2 5 5 4 4 1 Those cities with a high degree of transparency, a strong legal system and relative political stability Political/security issues 4 7 3 6 6 5 frequently see demand strengthen security at times of geo-political risk around the globe. 5 1 2 5 4 7 7 1 6 The efforts on the part of mainly Asian governments to improve domestic affordability and avert a Government cooling 6 2 3 1 housing bubble have become cooling increasingly wide-ranging and targeted at high-end properties. measures 6 5 7 2 7 Regulatory measures such as higher stamp duty rates in Singapore have already had a direct impact 3 4 2 on the number of foreign buyers, a similar trend may now be seen in Hong Kong given its 15% Stamp 7 6 3 Duty rate for foreign buyers. 4 5 3 If the Eurozone were to collapse all bets would be off and the global economy would enter a period of 7 4 Eurozone crisis 5 6 4 unchartered territory. Bank crisis lending would be severely restricted and volatility would return to the world’s financial markets would return. But some investors may view the tangible asset of luxury 5 6 7 5 bricks and mortar as safe an investment as any at a time of immense turbulence. 6 With interest rates in much of Asia at historical lows, this availability of credit has helped push prime Interest rate rises 7 6 prices higher. Rate rises could dampen demand to some extent. (Lowest) 7 Source: Knight Frank Research 706
Figure 8 in Asia Pacific than globally. This is due Asia Pacific ResearchGovernment Intervention to the increasing risk of interventionsWhich cooling measures pose the greatest Nicholas Holtrisk to prime residential markets? in mature real estate markets, such as Research Director, Asia Pacific London and Paris. Figure 8 provides a T +65 6228 7313 Asia Global ranking of the degree of risk posed by firstname.lastname@example.org (Highest) 1 1 the main cooling measures. Restrictions on multiple 1 2 2 ownership We have ranked interest rates, which are 1 at historic lows across much of the region Global Residential 2 3 3 1 Shrinking mortgage as a low risk. High inflation is seen Andrew Hay 2 1 1 3 2 1 4 4 availability as a risk in Asia Pacific, although the Global Head of Residential 3 1 2 negative real interest rates that inflation T +44 20 7861 1077 4 2 2 5 generates could actually prove beneficial 3 4 5 3 Stamp Duty increases email@example.com 2 to property as an asset class, as buyers 3 5 4 3 6 6 look for a store of wealth. 5 3 4 1 Large-scale 74 6 4 7 housebuilding Asia Pacific Residential 55 6 4 Beyond the core risks examined above, 2 programmes 7 5 5 there are countless factors such as Australia 6 7 6 5 3 currency fluctuations, tax changes and Noel Lucas-Martinez Changes to CGT rules 6 7 (Lowest) 6 political events which could change T +61 2 9036 6711 6 7 4 the patterns of demand and supply firstname.lastname@example.org 7 7Source: Knight Frank Research in the region’s prime markets. But 7 5 Hong Kong the fundamentals are likely to remain Renu Budhrani 6important threats to the global and unaltered; the supply of luxury homes T +852 2840 1177regional economy. With fears of a “hard is fairly tight in most cities, with wealth 7landing” seemingly receding, the risk growth and concentrations increasing email@example.com a slowdown remains, as the world’s across the region. While the feeling is Chinasecond largest economy continues its that 2013 could look similar to 2012, the Larry Hutransition under new leadership. longer term outlook is extremely positive. T +86 21 6032 1788 firstname.lastname@example.orgAlthough the Eurozone crisis did not rankas high a risk as elsewhere, there is no Figure 9 Singapore Asia Pacific Hotspotsdoubt that indirectly, a serious economic Luxury housing markets are an amalgam Wendy Tangshock caused by the region’s ongoing of numerous sub-markets, some often T +65 6222 1333problems could impact prime markets, amounting to only a few key streets or developments. We asked our network of email@example.com in Asia Pacific. Certainly the more Asia-Pacific research teams for their view as to which areas or price brackets they think Indiainternational markets of Singapore, Hong will be their strongest performers in 2013. Rohan D’SilvaKong and Sydney would be susceptible T +91 22 6745 0101to a global economic slowdown. City Submarket firstname.lastname@example.org Bangkok Central LumpiniThere are however more insular concerns Beijing CBD Indonesiasurrounding the health of domestic Hanoi Tay Ho District Natalia Sutrisnoeconomies in the region, most notably in Ho Chi Minh City Villas in District 2 T +62 21 570 7170 (500)India and Vietnam, who have both seen Hong Kong Landed property on The email@example.com slowdowns in 2012 from the Peak and Island Southstrong growth of previous years. How Jakarta Downtown CBD Thailandthese countries manage with some of Kuala Lumpur Fringe locations with Frank Khanthe structural issues and whether they easy accessibility and T +66 89 213 0248successfully implement reform in 2013 good connectivity firstname.lastname@example.org have an impact on the property Mumbai Worli Malaysiamarkets. Shanghai Little Lujiazui area of Herbert Leong PudongFurther cooling measures are T +60 3 22 899 688 Singapore District 9understandably seen as a significant risk email@example.com Sydney Inner city (15km radius)to the prime markets, with Singapore apartment market Vietnamnotably ranking this as the highest risk Tokyo Roppongi, Azabu and Stephen Wyattgoing into 2013. Somewhat surprisingly, Akasaka T +84 8 3822 6777government intervention is ranked lower firstname.lastname@example.org Source: Knight Frank Research 07