All eyes on Asia

PUBLISHED : Friday, 21 January, 2011, 12:00am
UPDATED : Friday, 21 January, 2011, 12:00am

In the international investment community, property was a tainted word not very long ago, thanks to the subprime mortgage crisis in the United States which triggered the global financial crisis.

Last year, the property market was red hot, especially in Asia. Too hot, some governments felt. But there's still demand in the region's markets.

Piers Brunner, Asia CEO of Colliers International, believes the factors that strongly supported the market last year - tight demand, low interest rates, liquidity and the availability of financing - are unlikely to be challenged this year.

'The only real threat is if one of these variables starts changing. The obvious one that would affect the market almost immediately would be interest rates, but it doesn't look like those are going to change in the next 12 months,' he says. 'There is a lot of money being printed around the world. There is a whole lot of money in the system, and most of that, when it is looking for returns, seems to look to Asia. Property gets a fair share of that.'

A report by UBS says: 'In a low interest rate, low-growth environment, where investors are searching for yield and hard assets, real estate should continue to provide an attractive investment'.

However, UBS cautions that there may be policy announcements in Asia to 'slow residential price recovery'. It also says that other risks to the global real estate market include: a higher than expected increase in interest rates, asset allocation away from real estate towards higher growth sectors, such as equities, and a possibility of another economic downturn.

Two of the hottest markets are Hong Kong and the mainland. Both governments implemented strong measures last year to cool the market. Peter Yuen, deputy managing director at Savills Hong Kong, expects prices for luxury properties in the city to go up 20 per cent because of strong demand and insufficient supply.

'A strong source of demand is from the influx of senior expatriate executives,' he says.

Yuen believes the government is unlikely to introduce further measures to cool the market because 'it has already achieved what it wanted to achieve - there is no speculation in the mass market now'.

The mainland is another market where government policy plays a significant role. But, according to Anton Eilers, executive director, CB Richard Ellis Residential China, this affects the luxury sector much less than the middle and mass markets.

'The upper end of the market is affected much more by a lack of supply and by expected inflation. For luxury properties above 60,000 yuan (HK$70,500) per square metre, I expect a 10-12 per cent increase in prices for Beijing and an 8 per cent increase for Shanghai,' he predicts.

Eilers believes the lack of premium sites in core locations is driving luxury prices in Shanghai and Beijing. 'Despite the government's prevention of finance for those who own more than one home, we still saw the sales pick up in November and December. People are electing to use cash instead of a mortgage.' In Singapore, despite government measures to prevent a property bubble, analysts expect a positive economic outlook, with supply shortages pushing up private residential property prices by 5-12 per cent.

Outside Asia, probably the favourite overseas market for Hong Kong investors is Britain, which King Sturge believes is holding up well.

'The year-to-date has been marked by an excess of demand over supply, especially in the prime central London area. The low interest and exchange rates have been the main drivers of the market,' says Wong Mei-han, head of King Sturge Hong Kong and Shanghai. 'Overall, we see moderate price increases for 2011.'

Canada and Australia, two markets also with strong Hong Kong connections, are facing more challenges. A report on Canada from Toronto-based Scotiabank says it 'anticipates a fairly lacklustre year for residential housing'.

Scotiabank ranked Australia as the best performer among industrialised countries last year. But Charles Schwab, the US online brokerage, says Australian home prices have reached 'nosebleed levels' in major markets, household debt has risen and the currency has over appreciated.

Elsewhere, US home prices are expected to decline 3.7 per cent this year, while conditions in Europe are mixed, with housing activity in the core nations holding up better than in the periphery.