Luxury markets are beginning to feel ripples from the global financial meltdown, but agents and developers remain bullish about longer-term prospects With the number of high-net-worth individuals increasing over the years, China's luxury property markets remain steady, with developers turning out in force to build ever more expensive residences for cash-flush buyers and investors. Nevertheless, price falls were reported by agents and the Beijing municipal government last month. These were largely attributed to the suspension of marketing campaigns during the Olympics in August, but now Centaline also reports that prices in the capital have dropped 15 per cent since last October, when the central government implemented measures to cool the property market. Significant wealth accumulation on the mainland over the past decade was the key driver behind the momentum in luxury home prices. 'The mainland's luxury residential market has a relatively short history. Before 2003, it was almost unheard of,' says Alan Chiang Sheung-lai, head of residential at DTZ. 'As there is no standard definition of luxury homes in China, anything large was once branded as luxury property. However, location, size and price are now all key considerations.' By DTZ's reckoning, luxury homes in China account for just under 10 per cent of the mainland's overall residential stock. Mr Chiang says general market sentiment has softened, resulting in declines in property transactions and prices, but selected newly released luxury projects in Beijing, Shanghai and Hangzhou continue to be the talk of the town. 'Prices of certain new projects in Beijing and Shanghai have even increased in the past two or three months, although corrections are likely in coming months given the global financial troubles,' he says. The Lakeville development in Xintiandi, Shanghai, fetched a selling price of 70,000-89,000 yuan [HK$80,000-HK$101,700] per square metre. In Beijing, luxury apartments at Park Hyatt Residences sold at a range of 53,000-95,000 yuan per square metre. In Hangzhou, the MIXC Residences project was a hit, with the first batch of units sold out at 28,000 yuan per square metre. Despite its rapid growth over the past few years, Mr Chiang says there is much room for improvement in the mainland's luxury market. Aside from a small number of projects by overseas developers, most developments feature relatively primitive designs with inadequate open space, utility and kitchen areas, and parking, he says. Simon Lo Wing-fai, director of research and advisory at Colliers International, says Shanghai's luxury sector has begun to soften lately but that developers have kept their prices firm, particularly in central locations, because of limited supply and resilient confidence in the medium-term market outlook. In mid-September, the average price of high-end residential units in Shanghai was one to two per cent lower than in the preceding month, he says, and rents for high-end apartments have edged down by 1 per cent in the third quarter from the second quarter. 'Interest in high-end residential properties will be affected by the uncertain market outlook, the slowdown of global and domestic economies, and volatility in the international financial markets. Prices and rents will undergo some correction in the near term, but not to the extent of a market crash, as market fundamentals remain solid,' Mr Lo says. In Beijing, the residential market remains relatively stable although individual developers have slashed selling prices to attract buyers, he says. While prospective purchasers, including institutional investors, tend to wait and see, the medium- to long-term trend for the Beijing market is still positive. Like the mainland's luxury market, the one in Macau has just begun to take shape over the past few years, driven by the rapid growth of gaming and casino developments. The large influx of expatriates has fuelled demand for high-end accommodation in Macau, supporting the increase in both luxury prices and rents. Jeff Wong Chi-wai, local director and head of residential for Macau at Jones Lang LaSalle, says: 'There is a small stock of luxury properties in Macau and they are mainly high-rise developments. There is almost no supply of deluxe houses. Given the lack of land, large-scale projects are not common. One Central (pictured), now selling at about HK$7,000-HK$8,000 per sqft, is one of the most popular developments.' He says luxury home prices in Macau have entered into a consolidation phase since the second quarter after a strong start to the year, while the leasing market continues to see stable demand due to the continued influx of expatriates for the growing gaming industry. 'Luxury rents have increased by about 15 per cent so far this year, following a 20 per cent rise last year. There were signs of stabilising recently, but we expect to see sustained support from tenants,' he says. 'On the sales market, developers are taking their time in the marketing of new projects. In Macau, developers are mainly privately owned and cash flush, and in no rush to sell at discounts. Also, it is difficult for them to replenish land banks in such a small place as Macau.' The luxury residential sector in Hong Kong is certainly much more developed than the mainland's or Macau's, with the provision of increasingly luxurious interior design, fittings and clubhouse facilities. Joseph Tsang Hon-ping, international director and head of residential at Jones Lang LaSalle, says Hong Kong's luxury sector performed solidly at the start of this year, followed by a slowdown in activity over the second quarter and a sales pick-up in June and July with the launch of more new projects. 'Market sentiment turned negative only after the recent collapse of Lehman Brothers and the escalation of the global financial troubles. Average luxury prices are likely see a 10 per cent fall over the rest of the year. But traditional luxury districts on Hong Kong Island, like Central and Island South, will probably stand firmer due to the scarcity of new supply and sustained underlying demand,' he says. 'The luxury sector in Hong Kong is usually more resilient to tough market conditions. It always stands out better.' Mr Lo of Colliers International says the fallout from the Lehman Brothers' collapse has prompted some homeowners to reduce their asking prices and rentals, while developers have adopted a wait-and-see attitude. 'With the recent turmoil in the global financial markets in September, individual purchasers simply walked away from deals even at the cost of their initial deposits,' he says. 'Asking prices have been reduced more than 10 per cent, and vendors have to become more realistic if they want to dispose of their units.' In Taiwan, the luxury residential sector also felt the chill of the global crisis. Wendy Hsueh, director of consulting and research at DTZ (Taiwan), says investment interest in Taiwan's luxury sector was hot during the presidential election earlier this year on rising inflation pressure and demand from Taiwanese businessmen and overseas Chinese buyers. 'In Taiwan, luxury homes are mainly apartments 3,500 sqft or more. Sales activity has slowed down recently with the global turmoil, but luxury supply will remain tight and our outlook is optimistic,' she says.