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Government Measures Will Cool Asian Property Markets

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Property Speculation  Investment Property Down Payments  Chinese Real Estate Regulation 

By - Tuesday 17 August 2010

Property markets in major Asian destinations are preparing themselves for a slower second half to 2010.

An expected increase in housing supply, policy risks and numerous government cooling measures in the markets are expected to be behind the slowdown, which will be in contrast to the first six months of the year. Fears surrounding the formation of asset bubbles in many countries have led to the introduction of various restrictions designed to put off property speculators.

"Every market will be a little different in the coming six months," said Nicole Wong, regional head of property research at CLSA. "Some markets might have policy risks - like Singapore and Hong Kong. And there will be some markets where policy risks have peaked in our view, like China."

New Government Measures

It has been announced that new rules surrounding mortgage lending in Hong Kong are to be implemented in an attempt to control rocketing prices in major cities. As part of the measures it is expected that deposits for apartments costing HK $12 million or more will increase by ten per cent to 40 per cent and the government will increase land sales next year, said Hong Kong Monetary Authority chief executive Normand Chan. In addition, down payments for investment properties will also rise to 40 per cent and Hong Kong banks will be required to apply stress tests on mortgage rates rising two per cent.

According to Mr Chan, when the interest rate increases by 200 basis points, mortgage borrowers' debt-to-income ratio should not be higher than 60 per cent. The cooling measures have been implemented because of an alarming 40 per cent increase in real estate prices since the beginning of 2009 as low interest rates and the buying power of mainland Chinese investors has caused demand for property to soar.

Leading analysts have warned that prices in Hong Kong are set to rise by a further ten to 15 per cent by the end of the year. "We want to remind all potential homebuyers that the interest rate right now is at a very abnormal level and it is impossible for this to be sustained," Mr Chan said. Since the early 1990s, Buyers in Hong Kong have been restricted to taking out 70 per cent of the purchase price of a home from banks as a means of reducing the chance of a market crash.

Successful Property Market Control?

It was China who first began a clampdown on housing speculation following the sudden growth in its property market. Predictions have been released which suggest that residential property prices in China's major cities will fall later this year as a result of the measures and a coming surge in housing supply.

According to Wang Shi, chairman of Vanke, the country's top listed developer, the government will not end its clampdown on housing speculation even as the economy begins to slow. As such Mr Wang claims that developers who try to resist lowering prices are being unrealistic. "Property prices in some cities have risen to levels unacceptable to the middle class. Many developers who do not cut prices now are making a bet on policy," said Mr Wang.

No Fear of a Bubble

However, not everyone subscribes to the view that the Asian markets, and China in particular, are in danger. City Wire reports that the Veritas' private client team is maintaining exposure to Chinese property. The team has experience in the Chinese property market and remains confident about the potential for future growth. "We do not subscribe to the view that China is in a property bubble. There are pockets where property prices have become very inflated, including Beijing and Shanghai," Meg Woods, director of private clients at Veritas, told the news provider.

"If you strip out tier one cities and look at tier two and tier three cities, house prices are not up by nearly as much. If you factor in that everyone in China pays a deposit of at least 20 per cent and more than half pay cash in full, you can appreciate the property market is very different to that of the US, UK, Spain and Ireland."

Thai Market Looking Strong

Meanwhile, the property market and outlooks for other Asian destinations, such as Thailand, remains positive. The Thai government has been helping support the property industry as internal political strife impacted its economy.

Thai Land and Houses, the country's leading home builder, is confident that its revenue will grow by about 15 per cent this year and Ayala Land Inc, the Philippines' largest property company, recently reported that its second-quarter net income was up by more than a third.ADNFCR-3415-ID-800026664-ADNFCR

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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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