The once booming property market in the region is starting to feel the heat of the economic meltdown, with foreign investors disappearing in a slowdown that could worsen the economic problems of many countries.
According to various reports, the fall in the property market could trigger a bigger crisis as nearly half of the region's wealth is tied into the sector.
A recent report from CLSA indicated that half the wealth of Malaysia, Singapore, South Korea and India is tied to property. It said the continued double-digit decline in property values over the past year in places such as Hong Kong and Singapore, along with falling real interest rates, have made apartments more affordable, and home prices are forecast to slide another 20-25% this year as the global economy weakens.
These findings are in line with what CB Richard Ellis (CBRE), one of the leading property consulting firms in the region, said in a recent report, which showed Asian investment property markets slowed significantly during the second half of 2008.
The report suggested that the unprecedented events of recent months had eroded investor, occupier, consumer and overall business confidence, resulting in falling property prices and reduced investment activity, along with declining retail spending and external trade across the region.
This has created a situation where buyers are becoming sceptical of undertaking their purchases. Coupled with this, the fact that their stock market losses have been in the range of 40-50% has created a situation whereby property has become their least sought-after investment choice.
The CBRE Asia Investment MarketView report for the second half of 2008 said the other factor hurting the market is stricter lending to both consumers and developers, given the fact that financial institutions have their own deep problems.
CBRE reported record low investment volume in the July-December period as prospective buyers delayed acquisitions until the market shows signs of stabilising. Investors and lenders reassessed their appetite for risk as raising capital proved increasingly difficult task amid a widespread correction in property prices.
As homeowners see the value of their assets being eroded in tandem with the deteriorating economic climate, they become part of a vicious cycle, cutting back on consumption - which needs to grow significantly to offset declining Asian exports - and thereby accelerating the economic slowdown across the region.
"Asian loan-to-deposit ratios are lower now than during the Asian financial crisis," Reuters quoted Michael Buchanan, Goldman Sachs' Asian economist as saying.
In Hong Kong, for example, banks are offering 70% mortgages on just 85-90% of the value of a property, says the property consultancy Colliers International.
Michael Spencer, Deutsche Bank's Asia economist, says Asian property prices are unlikely to pick up until exports, now falling at double-digit rates in some economies, stabilise. And that will largely hinge on when US and European demand recovers.
"Exports are such a dominant source of income in Asia that their weakness is leading to a rapid decline in consumer spending," he said.
Receding inflation is enabling Asian policymakers to slash interest rates aggressively but that may not be enough to stimulate demand.
South Korea has introduced measures to support its property market, including easing tax rates on luxury property, but Mr Spencer expects more action may be needed, such as cutting taxes on property transactions and capital gains.
CBRE says that in South Korea, the stock of commercial property available for sale has increased as institutional investors offload real estate from their portfolios in order to shore up liquidity.
In China, capital gains tax exemptions and reduced down-payment requirements, together with hefty discounts by developers, have boosted property sales recently though they are still well down on a year ago and a supply overhang persists in major cities such as Beijing and Shenzhen, analysts say.
The situation in Thailand is very different, and cannot be compared to the difficulties faced in 1997. "The debt levels on existing, completed buildings are much lower this time. In the office and retail sectors, there is limited future supply under construction," said Kulwadee Sawangsri, director of investment and land services at CBRE Thailand.
Things were worse in Singapore, where the S$3.93 billion in investment volume recorded in the second half brought the 2008 total to just S$17.84 billion, 70% down from the S$54.02 billion recorded in 2007.
In Japan, a number of institutional funds aborted planned property acquisitions as the credit crunch compelled many developers to consolidate while a rising number of real estate firms were forced to seek bankruptcy protection.
Now governments are trying to put in various measures to put halt the decline in the property prices.
The Indian government put forward an economic stimulus toward the end of last year but it did little to improve investor sentiment. Investment activity slowed considerably in the third quarter and endured a further decline in the fourth quarter. Investors generally adopted a prudent stance in anticipation of a further correction in prices.
In Vietnam, financing costs fluctuated dramatically in 2008 as the government raised interest rates to curb inflation, and then lowered them five times in the fourth quarter to boost lending and liquidity.
Analysts anticipate further rate cuts if the 5.5-point reduction thus far fails to have the desired effect.
But with the falling prices there are those who are still awaiting the bottoming out before making a move, and various international funds still have large war chests raised before the crisis, and are biding their time and awaiting the right terms and assets.
The main stumbling block remains the considerable gap in expectations between Vietnamese and international parties, though this may narrow over the course of 2009 if the economic situation worsens and credit flows remain tight.
source : www.bangkokpost.com |
