Asia Pacific Property: Boom or Bust?

In recent times the property markets in the Asia Pacific region have been comfortably outperforming their counterparts in the west....

In recent times the property markets in the Asia Pacific region have been comfortably outperforming their counterparts in the west.

Property investors who looked to capitalise on the market early will have, in certain destinations, enjoyed capital appreciation in excess of 20 per cent on some real estate.

However, many believe that this rapid growth cannot be sustained for an extended period of time and fears have been raised that the markets in the region may be heading towards the formation of a bubble.

Indeed, earlier this month, data was released pertaining to the Chinese property market which would suggest that this ascent is gradually coming to an end.

For the first time in 16 months, prices across 70 cities in the country fell by an average of 0.1 per cent, as a result of government measures designed to clampdown on speculators.

But despite this fall in values, the National Bureau of Statistics has revealed that prices still remain elevated by 11.4 per cent compared to the same period in 2009.

Government Cooling Measures

Many are attributing the slowdown in growth in the market to the introduction of restrictions by the Chinese government, designed to prevent speculative buying from taking place.

Among the restrictions introduced were the demand for higher down-payments on house purchases, stricter lending rules for property developers and limits on the ability of investors to buy more than one home.

Many commentators - both inside and outside of the country - worry that Chinese real estate may be experiencing a bubble brought on by excessively low interest rates, which has fuelled speculators.

Real estate agencies and private research firms generally reported significant drops in sales in May and June, with many consumers waiting to see how the government's crackdown on the market plays out before making a purchase.

Meanwhile, a broader consensus will be able to be garnered later this week when economic indicators for June and the second quarter are to be released.

Many are expecting them to show China's economic growth slowing from the 11.9 per cent seen in the first quarter of the year.

"We don't see a change in official policy yet but we're expecting banks to start making more mortgage loans by the end of the year," Michael Klibaner, head of research at Jones Lang LaSalle in China, said. "The GDP number will be a telling sign of whether it could happen sooner."

Price Rises Slowing

The news that prices are beginning to cool in China is something that may be being replicated in other markets within the Asia Pacific region.

Falling transaction numbers in Singapore mean that it is likely that the property market could experience a correction in coming months, with many buyers feeling that prices have become over-inflated.

The growth which had previously been seen in recent months has now begun to slow and, with the exception of the luxury prime market, prices could begin to fall as we enter the latter stages of 2010.

Furthermore, Singapore's economy grew at a record pace in the first half of the year.

The destination posted growth of 18.1 per cent in the first half of the year compared with the same period last year, according to government data released on Wednesday.

"The very strong figures highlight the strong rebound in the region that we have seen across Asia in Taiwan, Korea, China and Hong Kong," David Cohen, economist at Action Economics in Singapore, told the Financial Times.

However, this slight drop in prices may not be a bad thing for the markets.

"Not Immune From Bubble"

Indeed, the International Monetary Fund (IMF) warned earlier this year that the Asia Pacific region, including Australia, was not immune from entering a potential property bubble.

The body said that, while there was no evidence to suggest it would appear in the short-term, failure to address the economic conditions of many countries in the region could result in problems.

"As typically happens in housing bubbles, many purchasers may have been buying in the expectation of price appreciation, rather than simply for dwelling purposes," the IMF report said.

The speed at which the markets were able to recover last year after the financial crisis led many real estate investors to head to the region, further buoyed by the prospects for strong growth and appreciating economies.

Current measures to prevent the markets in the Asia Pacific region from overheating appear to be working well, however, because of this there are not many real estate investment opportunities available for individuals looking for long-term appreciation in values.ADNFCR-3415-ID-19890164-ADNFCR

- Friday 16 July 2010

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