Where are property prices in Asia heading

Where are property prices in Asia heading
Dec 18, 2009 - PropertyGuru.com.sg

Property prices in some parts of Asia have climbed sharply, prompting policymakers to rein in the sector and triggering worries about the formation of bubbles.

Here are some questions and answers on where prices are headed, where potential bubbles are, how they affect shares, and the policies that might be implemented by the government in 2010.

Where does the bubble threat loom largest?

Hong Kong and China experience the highest risks in Asia, followed by Singapore, as prices of properties have risen strongly, particularly during the second half of the year. This is attributed primarily to low interest rates, ample liquidity, and a rally in stock markets.

Some cities in China and Hong Kong's mass market have noticed the price increase of residential properties by about a third in 2009 while in Singapore, prices of private homes surged 16 percent in Q3 from Q2, the biggest jump this decade.

“Singapore and Hong Kong are held up as examples of the effects of excess liquidity and credit in Asia. The residential-property data certainly raises cause for concern,” said Mr. Alaistair Chan, an economist at Moody's economy.com.

The aggressive stimulus measures of China and developers canceling some projects late last year due to the economic downturn helped accelerate prices in 2009 while the limited land in Hong Kong, coupled with a government land-sales hiatus hiked up prices.

Earlier this year, the bubble threat also surfaced in South Korea and Australia, though various policies of the government have eased those fears.

How do potential bubbles affect shares?

Property shares have been surmounting major indexes in Hong Kong, China, and Singapore with sector sub-indexes rising by 70 percent to more than doubling.

Shares of China Overseas Land and Investment, the top developer in China, and CapitaLand in Singapore, the largest developer in South-east Asia, have significantly surpassed their local market indexes.

While some property stocks are possible to continue outpacing the broad markets in 2010, gains will be subdued due to wariness over the tightening policies of the government as they work to rebuff a possible property-market meltdown.

If a bubble bursts, it could restrain property agents and developers who have been exposed to the affected markets.

Where are prices of properties headed in 2010?

Most of the high price increases in Asia are seen in the residential sector as the company’s hesitation to hire kept office space demand relatively frail in the region.

In most markets, residential prices are set to stabilize in 2010 with gradual growth expected compared to the large swings in 2009. Prices from Japan to Singapore are anticipated to either rise by almost 10 percent or remain stable.

A Reuters’ poll showed that residential prices in China are anticipated to climb by as much as 5 percent by the end of 2010 from now.

Comparatively, commercial prices are likely to move on steady trend or grow marginally in China. However, according to industry executives and analysts, it might see a more substantial increase in Singapore.

What policies will the governments come up with?

Some countries have come up with monetary and property-related policies to ease concerns of speculation.

Australia raised interest rates earlier this month for a third straight time, while South Korea imposed in September mortgage lending in Seoul and nearby areas to staunch a housing boom. In the coming months, governments across Asia will possibly resort to releasing taxes, land supply and bank-lending measures to stabilize property prices instead of utilizing monetary tools as inflation is still benign.

“Governments are nevertheless unlikely to crack down on speculation too harshly. One worry is that this could deter legitimate investment, causing the market to slump,” Mr. Chan said.