EAST ASIA'S PROPERTY BOOM
What's gone Up won't come Down
Housing prices in China, Hong Kong and Taiwan are on a seemingly relentless climb despite government efforts to step on the brakes. Here's a look at what's fuelling this rise and the outlook ahead.
Report by Grace Ng in Beijing, Diego Laje in Hong Kong & Lee Seok Hwai in Taipei
In many Chinese cities such as Shanghai (above) as well as in Hong Kong and Taipei, home prices have been rising on the back of urbanisation, rising incomes and funds deserting slower-growing Western economies. -- PHOTO: AGENCE FRANCE-PRESSE
MR ZHANG, a heavyset man in his 40s, has just taken his Beijing apartment off the rental market and is looking for a buyer.
The factory owner has four apartments in southern China, and is considering selling two of them before a widely expected property tax is introduced by the authorities to cool the red-hot property market.
'I want to retire early and maybe go settle in Macau,' he laughs, declining to give his full name. With an expensive gold Swiss watch flashing on his wrist with every gesture he makes, he adds: 'I do not want to pay millions in tax.'
In Hong Kong, where a steady stream of mainlanders is pushing up the housing market, Mr John Harper, a Canadian who has lived on the island for 13 years, faces a different problem while house-hunting in Wanchai. Does he buy now, or wait for the next crash, he wonders.
But the next crash does not seem to be around the corner, despite recent measures to put a brake on prices. In the first eight months this year, property prices rose by 10 per cent, according to official figures. From 2008 to last year, prices rose 12 per cent.
And the longer Mr Harper delays, the more likely the downpayment will grow. 'It's hard enough to come up with 30 per cent of a property for HK$6 million (S$1 million),' he said. 'But the more I delay my purchase, the more will be the downpayment required because any mortgage over HK$12 million requires 40 per cent up front.'
Welcome to East Asia's property boom. Fuelled by urbanisation, rising incomes and funds deserting slower-growing Western economies, home prices have been rising dramatically in Beijing and numerous other Chinese cities, Hong Kong and Taipei.
Beijing real estate prices had their biggest jump on record in April.
Governments are beginning to worry.
Two years ago, China pumped in four trillion yuan (S$780 billion) to pump up its economy during the global downturn and, last year, it loosened credit and home purchase rules. Now, it considers skyrocketing property prices the biggest headache of the people. Since April, policymakers have tightened downpayment requirements, suspended loans for third-home purchases and are laying plans for a nationwide property tax. Last week, the government raised bank lending and deposit rates by 25 basis points.
Hong Kong, meanwhile, is moving to cut speculation and expand supply.
And Taiwan plans to start building apartments for young adults and students from next year. Social housing currently accounts for a mere 0.08 per cent of dwellings in Taiwan, compared with 30 per cent in Hong Kong.
But it appears that every move by governments to rein things in is blunted by the ingenuity of peoples crazed by the market and unshaken in their belief that 'you cannot go wrong with property'.
In China, for instance, some people have resorted to dubious divorces and 'house-sitters' with fake ownership certificates to work around the 'one-home-per-family' policy. Under this rule - implemented in 12 cities including Beijing, Shanghai and Guangzhou - after their first property each married couple would have to fork out at least a 50 per cent downpayment and face tougher conditions for bank loans for additional house purchases.
Or take the case of Madam Chang, a 54-year-old Taipei resident, who pooled NT$10 million (S$424,000) with her friends a few years ago to speculate in the market. According to Liberty Times, the bunch of friends quickly resold their first apartment for a profit. Since then, Madam Chang has made NT$20 million and is sitting on 27 apartments.
The only thing curbing her appetite is that fresh credit is increasingly difficult to get.
Professor Chang Chin-oh, an expert on land economics at Taipei's National Cheng Chi University, attributes the property fever to the loose monetary policy of low interest rates and higher currency circulation that Taiwan adopted during the recession.
The easing of political tension and closer economic engagement with the mainland over the past two years also boosted investors' confidence.
As a result, he said, more people are buying property for investment and selling it off quickly. 'Very few people are buying for their own use,' he said.
Likewise, Hong Kong's property boom is in some part the result of the local dollar's peg to the greenback. Cheap credit in the US is reflected locally as well, fuelling demand for property.
Will property prices cool? The signs are not good.
Beijing's moves to curb the hike in home prices had some effect between May and July but, by last month, the speculators had returned with a vengeance. And with real estate accounting for nearly 10 per cent of gross domestic product (GDP), which planner wants to shut down a growth engine?
Likewise, the Hong Kong Monetary Authority has been trying to prevent a local version of the sub-prime mortgage crisis by tightening lending conditions for banks, according to Mr Ricky Poon, an executive director at Colliers International.
Among the moves, as Mr Harper noted, is that any mortgage above S$2 million requires a 40 per cent downpayment. But even that is like spitting into a stiff wind.
There is no evidence that the demand from the mainland for Hong Kong homes will ease. Besides, it is tough to control property prices when the broader economies themselves are so buoyant.
Earlier this month, the International Monetary Fund forecast that China's GDP would expand 10.5 per cent this year. A high savings rate and that too few investment channels are available to investors are also contributing to Chinese parking their money in real estate. In the five years to 2007, China's savings rate jumped nearly 10 percentage points to 38 per cent of GDP.
What is more, over a 20-, or even 10-year horizon, it is difficult to find a major city in much of developing Asia - from Beijing to Bangalore - where property prices have slid.
Such is the appetite for a private shelter, never mind if it is only the size of a shoe box.
And even if you provided government-subsidised rental apartments, as Taipei is planning to do, the young would still be loath to trade that for a life away from the pulsing downtown.
Ms Emily Wu, a Taiwanese video technician in her 20s, pays NT$9,000 a month for a room just one metro rail stop away from the Xinyi business and shopping district. She says she would rather live there than in a spacious apartment in the suburbs. 'I want to be near where all the action is,' says Ms Wu.
Difficult as it is, governments need to watch property prices - and intervene where necessary - for a variety of reasons. For one thing, a healthy property market undergirds the broader economy by boosting the values of stocks and commodities. Also, most people in Asia tend to keep a good part of their nest eggs in property.
While a steady increase in real estate prices is welcome, bubbles are feared because a housing market collapse will destroy consumer confidence and shake every industry from salt to software.
Excessive run-ups in prices that put home ownership out of reach also tend to fuel frustration and even social unrest.
Earlier this month, as Hong Kong Chief Executive Donald Tsang outlined measures to cool the property market, an angry crowd of some 200 people protested outside the Legislative Council building, demanding that the government do more to put affordable housing within their reach.
'With property prices soaring to new heights, the poorer sections of society have no hope of buying their own apartments,' said Ms Penny Keung, one of the protesters.
Mr Jack Liu, 28, has a similar complaint. He earns 10,000 yuan a month in Beijing's flourishing information technology sector but fears he will not get to buy his dream house: 'I'm working so hard... but the prices are rising so much faster than my income.'
graceng@sph.com.sg
contact@diegolaje.com
seokhwai@sph.com.sg
Additional reporting by Lina Miao
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OUT OF REACH
'With property prices soaring to new heights, the poorer sections of society have no hope of buying their own apartments.'
Hong Kong resident Penny Keung
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