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International Property

Chinese investors turn to property markets in Southeast Asia, as western markets impose capital curbs

  • Chinese investors make a strategy U-turn as markets such as Vancouver and London are no longer so welcoming
PUBLISHED : Wednesday, 14 November, 2018, 9:00am
UPDATED : Wednesday, 14 November, 2018, 9:31am

Cashed up Chinese homebuyers are shifting their attention to emerging markets in the search for property bargains, reflecting a strategy U-turn as traditional western markets have initiated foreign investment curbs.

The change comes after the introduction of various measures in New Zealand, Australia, Canada, and the UK aimed at curbing foreign inflows of capital, as a way to cool runaway property prices, analysts said.

The measures are boosting interest in Southeast Asian property markets, according to some analysts.

Home prices in western markets traditionally favoured by Chinese buyers have either declined or slowed to single-digit gains in the second quarter when compared to the year earlier period, according to the Global Property Guide.

New Zealand home prices rose 5.86 per cent on a nominal basis in the April-to-June period on year, little changed from a 5.8 per cent rise a year earlier, ahead of a measure that restricts foreign buyer purchases to newly-built flats. Over the prior decade, home prices on a national basis have risen 51.86 per cent.

The UK recorded a 2.19 per cent nominal increase in home prices in the second quarter on year, decelerating from a 2.81 per cent gain a year earlier. Over the past decade, nationwide UK home prices are up 18.08 per cent. The cooling coincides with growing consensus towards a foreign tax to curb the influx of foreign capital into the property market. British Prime Minister Theresa May announced in late September her cabinet was looking at imposing a 1 to 3 per cent tax on foreign homebuyers.

What the UK foreign buyer tax means for Hong Kong investors

Canada's home prices rose 2.87 per cent in the 12-month period to the end of the second quarter, compared to a 14.16 per cent rise in the same period a year earlier. Over the past decade, nationwide home prices are up 68.85 per cent on a nominal basis. Vancouver imposed a heavier levy on foreign homebuyers by increasing the tax to 20 per cent in February, up from the 15 per cent which took effect in August 2016. Toronto and its surrounding area imposed a 15 per cent tax on foreign property investors in April 2017.

“Canada’s housing market is slowing sharply, amid the introduction of more market-cooling measures and rising mortgage interest rates. House prices in the country’s 11 major cities rose by a meagre 0.41 per cent during the year to Q2 2018, a sharp deceleration from last year’s 13.02 per cent growth,” the Global Property Guide said in its quarterly report.

Analysts said that an uptick in interest in Southeast Asia indicates international investors are exploring new markets.

“There is a possibility that investors are diversifying their portfolio to hedge risk. Also with the Chinese government's Belt and Road Initiatives, Southeast Asian markets will benefit greatly,” Binoche Chan, chief operating officer of luxury List Sotheby's International Realty, said.

Philippine-based developer Ayala Land said Chinese buyers have taken a stronger interest in its residential projects since 2016.

From January to September of this year, a fifth of sales by the property group went to foreign buyers, of which 45 per cent were Chinese, according to an Ayala Land spokesman.

“This translates to 9 per cent of Ayala Land's total property sales during the period,” said the spokesman.

David E Cook, a professor at the department of economics at the Hong Kong University of Science and Technology, said the outlook for emerging markets has stabilised in recent months, as they have absorbed the effects of US interest rate acceleration relatively well.

“This might make property markets in these emerging economies more attractive,” he said.

China's Belt and Road Initiative projects in the region, and the depreciation of currencies of Southeast Asian countries were additional factors making these property markets more attractive.

“Vietnam would benefit the most, as it is close to China geographically, and its population is also growing. It is a booming economy with a large manufacturing base, and relatively stable governance,” said Maggie Hu, an assistant professor of real estate and finance at the Chinese University of Hong Kong.

Sunny Hoang Ha, head of international residential sales at Savills, said that following a legal amendment in 2015, interest from foreign buyers has surged. Vietnam allows foreigners to own a maximum of 30 per cent of apartments in a single building.

According to Chinese international real estate website Juwai.com, Thailand, received the highest number of inquiries from potential investors from January to September, jumping 215 per cent from the year earlier period.

But not everyone is convinced of the allure of Southeast Asia as an investment destination.

“Some investors may still be looking at investing in Southeast Asia, but the overall trend will not tend to increase,” Arief Ramayandi, senior economist at Manila-headquartered Asian Development Bank, said. “If anything, perhaps it would even decline as the era of massively loose global liquidity is ending.”

Chris Leung, a lecturer in finance at Chinese University of Hong Kong, said that with tightening credit markets, investors need to be aware of the risks in emerging markets.

“Investors may withdraw their investments in emerging markets. Also, as perceived risk increases, investors tend to put their money in safe assets in well-developed countries. So it is even worse for emerging markets,” Leung said.

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