Tuesday, June 21, 2011

Asia tops the world in home price increases

HOME price rises in the Asia-Pacific region have been leaving the rest of the world in their wake over the past year, but the region's real estate boom is beginning to show signs of strain. Increasing interest rates, tighter bank lending rules ...
HOME price rises in the Asia-Pacific region have been leaving the rest of the world in their wake over the past year, but the region's real estate boom is beginning to show signs of strain.

Increasing interest rates, tighter bank lending rules and other cooling measures have helped dampen overheated markets from Shanghai to Singapore and Sydney.

However, experts say still-low interest rates mean the risk of bubbles re-emerging in places like Hong Kong and Taiwan remain.

Hong Kong Chief Executive Donald Tsang told Bloomberg in Melbourne yesterday that home prices in the Chinese city were 'quite frightening', with increases of 2 per cent a month over the past 30 months.

A Knight Frank report out yesterday found that global home prices rose only 1.8 per cent from a year ago - the lowest annual growth rate since the fourth quarter of 2009 - but values in Hong Kong, Singapore, India and Taiwan defied gravity, shooting up more than 10 per cent.

Hong Kong had the fastest first-quarter price growth of 24.2 per cent year-on-year, according to Knight Frank, which tracks 50 economies.

Singapore was fifth, with a 10.5 per cent jump, while China - using values in Beijing and Shanghai - was eighth, with an 8.4 per cent rise.

Russia, Dubai and Ireland were the worst performers, with price falls of as much as 14 per cent year-on-year.

Knight Frank's head of residential research Liam Bailey said half of the places surveyed had flat or negative price growth in the first quarter.

While Asia cemented its lead as the top-performing continent with a robust growth of 8.4 per cent, North America languished with a 0.4 per cent dip.

Those high Asian figures are sparking concerns over potentially overheated markets. Said Mr Bailey: 'While many housing market experts consider the United States to represent the greatest risk to the stability of global housing markets, our view is that Asia still poses something of a threat.

'There is still potential in China, Taiwan and Hong Kong for their housing markets to become overheated and bubbles to appear once more, if government intervention proves insufficient.'

Demand from the mainland is a key driver of Hong Kong real estate, with Chinese buyers accounting for about a quarter of all property purchases, he noted. This has sent prices surging 70 per cent since the start of 2009.

Hong Kong's government has since raised minimum deposit levels, increased land supply and imposed extra transaction taxes to curb rising prices.

Amid the worry over soaring prices, some experts point to early signs indicating that Asia's property boom is finally stalling.

Mr Vishnu Varathan, an economist at Capital Economics (Asia) in Singapore, told Bloomberg yesterday: 'Credit conditions have become more onerous, and that has helped take some steam out of the property market across Asia.

'Gains in property markets around the region have slowed, but they haven't decisively peaked.'

China's prices rose at a slower pace in major cities in April, even as they quickened in smaller ones.

In India and Australia, prices are also falling after the two countries implemented the steepest interest rate increases among major economies, while those in Singapore and Hong Kong have been experiencing a moderate increase.

Mr Bailey expects the global housing market's slowdown to continue, with prices bottoming in the fourth quarter, assuming Asian markets continue to cool and government intervention is successful.

However, a slow recovery in global house prices is expected next year, he added.

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