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International Property: Battle of the Capitals - Asia

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International Property: Battle of the Capitals - Asia

By - Thursday 10 May 2012

Right now around the world, many capital cities are markets-apart from the countries they represent, and even distanced from the world as a whole; like they have created a new world just for them. Ever since the US sub-prime crisis morphed into the international financial crisis and became the worst global economic time since World War II, cash has been a dangerous commodity to hold.

The wealthy have sought to solidify their assets. This first triggered the gold rush, but as gold prices soared, property became the next target. Not just any property; property that can hold its value during this financial volatility.

This basically equates to prime properties in prime locations. This is because such properties are always bought by the wealthy, and because they do not need to drop prices for a quick sale when things go bad prices rarely fall, and because the property is sought after it tends to grow in price much more quickly when times are good.

And times are certainly good in many capital cities right now, as wealthy buyers from emerging markets and around the world drive up prices even as the markets around them wither and stagnate. We thought it would be good to compare some of the hottest capital city property markets by continent.

Asia

If the Asian property boom were a man, it would be one of those guys you see on the televised body building competitions, ripped, rippled and pumped but just a little bit grrr at the same time. If it were a novel it would be the good, the bad and the ugly, with some cities managing the boom well and others completely overheating. Out of the carnage we will try to pick a winner.

Shanghai

Hot Stats:

  • Recovery Began: n/a it never crashed (ironically it is now)
  • Prime Property Prices above pre-crash peak: n/a
  • Prime Property Price Growth since Recovery: Prices have more than doubled since 2008

We have all heard of the Chinese property boom, and how the government put the brakes on it to prevent a bubble. But Chinese house prices were only growing at 7% per year on average. However, the government acted because of runaway growth on apartments in Shanghai and Beijing.

While the rest of the world was falling into housing market depression, Shanghai's high end housing market was really starting to take off. According to this article in the China Daily July 2008, accelerating house sales were causing massive price inflation, with the Oriental Post putting the average sale price at 17,400 Yuan ($2,547)  per sqm, which is close to the record set just the month before in June according to the paper.

The article also quotes figures from real estate information provider Youwin LST system, showing sales of high end apartments in Shanghai hit a record 163,000 sqm in June, an increase of 15.6 percent from a year earlier, up 30.4 percent over the previous month, and at an average price of 44,161 Yuan per sqm, which represented a 3.5% price jump over the previous month. The Knight Frank Wealth Report 2009 tells us that Shanghai property prices grew by 5.2% over the year, although this is all property and not just the high end market.

The next release of the Knight Frank Wealthy Report for 2010 shows us that Shanghai property prices grew 52% in 2009, making it the fastest growing city in the world, immediately followed by Beijing and Hong. Kong. Unfortunately the Wealth Report doesn't contain a price index as such in the 2011 edition, so we can't follow the trail on the same data. However, we have this article from January 2011, this time in the People's Daily and quoting the Mayor and the Shanghai office of the central bank, and price growth of 21.5% in Shanghai in the year ending December 2010.

We can then go back to Knight Frank, and its prime global cities index for 2011 data, where we find that after a strong start to the year the government measures crippled Shanghai price growth in the second half. In the year ending March 2011 Shanghai property prices grew 11%, in the year ending June 2011 growth slowed to 7.7%, then  to 3.8% in the year ending September and finally to -3.4% in the year ending December 2011.

Unfortunately the picture has continually worsened this year for the Shanghai property market. According to the Shanghai Daily the latest existing home index shows prices down for the 7th straight month in April, with a 0.09% drop on the month and a 0.59% drop on the year. However, reports earlier in the year told of new home prices falling 41% in the space of a week at the end of January.

Singapore

Hot Stats:

  • Recovery Began: 2009
  • Prime Property Prices above pre-crash peak: yes
  • Prime Property Price Growth since Recovery: over 100%

Well, at last we have a hot Asian capital that has had a crash and then a recovery. Singapore property prices fell 14.4% in 2008 after growing 31% in 2007, according to the Knight Frank Wealth Report 2009 and 2008 respectively. But the recovery was rapid in 2009, with the Knight Frank Wealth report 2010 putting growth at 17%. We then look to the Global Property Guide for data to learn that property prices grew 13% in Singapore in 2010 as a whole, but that is after inflation.

In Singapore, like in Shanghai we also have the government acting to quell the growth, and this took annual growth for last year down to 4.4% according to the Knight Frank global house price index. The government strategy to curb growth was a dual-pronged strategy - increasing land supply, and imposing market curbs. The market curbs included reducing the maximum LTV to 70% on second home purchases, lowering the wider maximum LTV from 90% to 80%, and a new seller’s stamp duty on residential properties sold within one-year.

The government measures have not had anywhere near the effects seen in China, as according to analysts’ sales remain healthy this year. Having said that, the governments’ Urban Redevelopment Authority residential price index fell 0.1% in the first quarter of this year, making it the first fall since June 2009. However, apartment prices outside the central region grew 1.9% on the quarter and sales remain healthy according to analysts.

Others

Bangkok and Kuala Lumpur property markets are performing well at the moment, but they do not come under the category of super-prime markets where wealthy buyers are fuelling exceptional growth levels.

Picking a Winner

Truth be told on this occasion there is no real winner in terms of where we should buy now, because both have pretty uncertain futures as the governments continually wrestle to curb speculation. However, we have to remember, that the data we get is usually on the mainstream market, not on the prime market. Taking this into consideration the winner is Shanghai, because reports still tell of super-wealthy individuals paying super-prime prices for top properties in the city.

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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.


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