Property Bubble Concerns Across Asia-Pacific

Asian countries fearing a disastrous US-style property bubble are striving to cool down their real-estate markets as the region powers out of the global financial crisis. Policymakers are worried that excessive exuberance could push property prices far above their real value, only to crash and bring down with them banks that lent money too freely and individuals who borrowed beyond their means.



"It is better to pre-empt a bubble than wait for it to get serious and have to take more drastic measures," Singapore Prime Minister Lee Hsien Loong said last month after the city-state took fresh measures against speculation. Low interest rates, strong demand and speculation have pushed property prices in many Asian cities higher, in some cases surpassing peaks reached in 2007.

"The risk of an asset bubble is quite high in certain (economies) such as China, Hong Kong and Singapore," said Chua Yang Liang, head of Southeast Asia research at property consultancy Jones Lang LaSalle.

In China, property prices in 70 major cities hit a 21-month high in January.Beijing has tightened lending, requiring buyers of second homes to put up a downpayment of at least 40 percent, and they also face higher interest rates on their mortgage loans. In Singapore, where housing prices have been heating up since last year, the government slapped additional duties on sellers who flip a residential property within a year of buying it.

Home buyers are also now limited to borrowing up to 80 percent of the property's value, instead of 90 percent.In densely packed Hong Kong, home to one of the world's most frenetic property markets, authorities are fretting about a surge of speculative money since late 2008.

Starting April, the territory will increase the stamp duty for sales of flats worth 20 million Hong Kong dollars (2.6 million US) or more from 3.75 percent to 4.25 percent. Prices of some Hong Kong luxury flats have returned to 1997 boom levels.

Australia's central bank on Tuesday lifted interest rates afresh. One factor it cited was a "solid" increase in mortgages, "and dwelling prices have risen significantly over the past year". Median house prices in Sydney rose 12.1 percent in 2009 and 18.5 percent in Melbourne, and observers said the rise was likely to continue.But Simon Vinson, head of Asian property at AMP Capital Investors, said he did not see the overall Asian market overheating.



When you ask around, most will cite bubble conditions in HK, Singapore, Australia and China. But somehow no one seems to think Malaysia is having a property bubble as well???!!! Do I think there is a bubble in Malaysian property, oh yes! Ask me that question again during the talk.

How do you know there is a bubble? When everyone cites only the positives: low interest rates, comparative valuations ... I see big bubble in HK and Singapore, driven by truckloads of buyers from China. In Singapore, they cite the inflow of PRs pushing up prices in private apartments and HDB housing. The whole thing reside on the recent financial crisis which saw truckloads of stimulus left, right and center, but Asian banks and corporates were really not that badly affected. Properties in Asia DID NOT go to the extremes like in the US subprime party or CDOs driven gains in most of Europe, in particular the UK and smaller European nations. Now with the stimulus, we have too much liquidity swishing in the system. Most Asian central banks are still keeping rates low to keep in step with US and EU rates as exports and real economy are still recovering. I see liquidity being diverted into property in Asia-Pacific.

Yes, some countries are hotter, such as Australia, HK and Singapore. China is next but Malaysia is not far behind. In Malaysia there are two markets, its the new developments that are getting the bulk of the funding and cheap financing. Seriously, look at our affordability ratios, how can families keep up with RM500,000-RM800,000 loans??? Unless I am mistaken, most middle class families don't make more than RM10,000 a month.

Have a look at just completed properties over RM1.5-2.0m, even after 6 months, more than half are empty. Those below RM1m still mainly owner occupied. Many of the higher priced ones are people's second or third investment homes or owned by foreigners. We all know what kind of yields these properties can get locally don't we.... lucky to get 3% yield. However, the party is still on because the foreigners are mainly Asians and they are riding on a good property wave in their own turf, hence no need to sell. See if there are buyers for properties above RM2m in the secondary market... very very few.

Of course no property developers would be caught dead saying its bubbling over. So, how will the whole thing unwind, we need one major market to correct and then you see the domino effect. Property markets are different to stock markets, their bull run is more sustained and the unwinding takes a lot longer. When you are in the property markets, its hypnotic and crowd driven. Every profitable sale gets whispered louder and louder, do you want to miss that. I have a friend who bought a Desa Park City link house and it has risen by RM400,000 in 6 months, how to argue that that is wrong.

Safe to say that a lot of new developments are still being built, even the super luxury condos in KL and Bangsar are mostly still under construction. It takes time to see a correction but its coming. You just cannot make a timeline prediction. Unless you can see a normal executive in their 30s being able to buy at RM1m, without any help from their parents, then you can say its affordable.

The worse defense is that Malaysia is still cheap compared to Singapore or HK .... so what???!!! When is there an average for Asian property prices??? That argument is the same as saying my salary in Malaysia will soon double because its so far from Singapore's salary - yes, quite bullshitty. So, make your money while the sun shines, and then hope that it is sufficient to cover the losses when they correct.

p/s photos: Titi Kamal

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Friday, March 10, 2006

Asian Real Estate

Or Why Malaysian Real Estate Is So Cheap

Did you know that KL real estate is one of the cheapest in Asia - another reason why 5 star hotels in Malaysia are also among the cheapest in the world. One can understand if Malaysian real estate values lag those of more developed nations such as Singapore, Hong Kong, Seoul or Tokyo... but KL even lags Indian cities, Bangkok and certain places in Jakarta. We can understand why Shanghai or Beijing would be more expensive too compared to KL - population, out-sourcing and investment.

Is this a correlation to our GDP per capita (roughly translated is how much money a citizen earns in a specific country a year). The figures were obtained from CIA files, yes the American Central Intelligence Agency for 2005: www.gov/cia/publications/factbook/rankorder/2004rank.html

1) Luxembourg US$62,700
2) Equatorial Guinea US$50,200 (where is that, I want to move there ... but a cafe latte will probably cost US$15)
3) Norway US$42,400
4) USA US$41,800
8) HK US$36,800
16) Canada US$32,800
18) Australia US$32,000
20) UK US$30,900
22) Japan US$30,400
26) Singapore US$29,700
36) Taiwan US$26,700
41) New Zealand US$24,100
42) Brunei US$23,600
51) South Korea US$20,300
82) Russia US$10,700
83) Malaysia US$10,400
86) Mexico US$10,000
88) WORLD AVERAGE US$9,300
97) Thailand US$8,300
118) China US$6,200
132) Philippines US$5,100
150) Indonesia US$3,700
155) India US$3,400
229) Somalia US$600
231) Gaza Strip US$600
232) East Timor US$400

If you look at the table above, it bears little correlation. A poor country can have high city real estate values - hence a big factor is city population. You need to cram a lot of people into a tiny space, then real estate values will soar - take New York, Tokyo, HK, Singapore, Bangkok, Shanghai, Shenzhen, Karachi, Mumbai ... many are in the region of 10-30 million city population. KL has about 5 million but it is also quite spread out. So, another factor is it has to be CRAMPED - or rather business activity CBD has to be cramped.

Another factor for high real estate values is whether you are a financial center. Is your city a crucial outpost to doing business in the region - HK, Shanghai, Singapore, Tokyo, Mumbai, New York, etc... KL is neither here nor there. What about Bangkok? Well, it has a super duper population (have you seen the weekend exodus from Bangkok every Friday). Even though it is not a financial center, it the the center for a country with a decent population size. If your capital city is the center of a country with a decent population, you can be assured of good commercial real estate values - e.g. Thailand, Taiwan, South Korea. We need Malaysia to move quickly from 26 million to at least 60 million. Then you can have some good ripple on effect on real estate values.

If you are not a financial center, you can still command high rates if high-value services businesses are aplenty. Hence Singapore's commercial real estate will have a very strong long term uptrend as it does not depend on its reputation as a financial center/port/MICE biz like HK but moves higher up the value-added curve by encouraging designers/inventors in animation, biotech, education, etc. Does KL look like a city with good high value added industries?

Good amenities and public infrastructure would not be a bad thing, look at Tokyo, HK, Singapore or even New York - but infra is not crucial in giving higher real estate values. If you look at the capital cities of the high GDP per capita countries such as Oslo, Amsterdam, Stockholm, etc.. you will find that good infra is a good thing but not necessarily stratospheric real estate prices.

Lack of good quality commercial space will also spruce up real estate values. Just look at Indian cities, cities in Vietnam or even Jakarta. We in KL, unfortunately builds okay buildings cheaply as land is cheap and plentiful. I mean, KL commercial just keeps getting drawn wider and wider. First the CBD, then the city kind of move wider to include PJ, then it moves out to Shah Alam, now Klang. Too much cheap flat land.

So, commercial real estate value in Malaysia will lag the rest of Asia, even some cities in Vietnam (my gawd), and it will not change until the fundamentals change. The only exciting part for Malaysian real estate is residential, and you know how people get crazy with houses, every now and then, good houses in good locations will have its own bull run. The rental yields never match the house prices - but hey, who the heck cares. Commercial and retail, fergedaboudit!