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Debt Worries Helping to Cool Property Markets

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Property Market Cooling  Asian Real Estate  Debt Concerns 

By - Friday 27 August 2010

European debt concerns, stock market worries and increased land supply are all having an effect on the private residential market in Singapore.

According to the latest report from property consultants DTZ, market activity in the country slowed during May and June as a result of a combination of global factors. DTZ claims that many developers in the country slowed the pace of new launches because of the subdued sentiment from overseas buyers.

As a result, primary sales over the whole second quarter fell by eight per cent to 4,033 units.

"This shift is due to prices having risen almost 20 per cent since the third quarter of 2009, according to the residential property price index compiled by the Urban Redevelopment Authority," the report said. The concerns over European debt and stringent government spending cuts across the region have led to a number of potential buyers giving the Asian market a wide berth.

A recent report from RightMove Overseas found that cash-strapped Brits are now losing interest in real estate in the region. Robin Wilson, head of overseas at Rightmove, explains the radical shift in market conditions. "Many of the market dynamics that used to be in place have gone, some would argue for good," he said. "You'd be hard pushed to find a casual investor looking to make a quick buck by flipping off-plan apartments in out of the way places, availability of mortgage finance is much harder and many businesses have failed to adapt to the new conditions."

Optimistic Feeling for Asian Property

However, despite this dampening of investor sentiment in Singapore overall the potential and opportunities in Asian markets look plentiful. So far this year, there have been steady improvements in investment levels compared to 2009.

CB Richard Ellis's Asia Investment Market Overview showed that direct real estate investment in the region has risen 136 per cent year-on-year to an estimated USD 30 billion. But, as has been the case in Singapore, concerns over eurozone debt meant that the total investor volume actually fell by 22 per cent in the second quarter of the year compared to the first. "The relatively steady level of activity witnessed in the first half could potentially be matched in the second half and total investment volume in Asia for 2010 could therefore reach around USD 60 billion," said Andrew Ness, executive director of CBRE Research Asia.

Mr Ness went on to point out that the high level of outstanding corporate and government debt in the region remains a cause for concern and continues to be viewed as a potential downside risk to investing in the area. But, one sector of the market which is performing strongly across the region is sales of prime property.

Prime Property

However, the luxury section of the market showed no signs of abating, highlighting the strength of prime property in the current global market conditions. Transactions on units worth at least USD 3 million climbed by one per cent over the period.

More buyers are paying more than USD 1 million each for their new properties, the report also reveals. A total of 43 per cent of investors purchased real estate worth USD 1 million or more in the quarter compared with 36 per cent in the first three months of the year.Globally, a shortage of prime property is squeezing prices sharply higher at the moment and with the potential to gain an impressive return on investment the sector is expected to continue to thrive.

Chinese Buyers Look to Dominate Market

Malaysian property investors continued to be the major overseas investors to the country, accounting for 22 per cent of the total transactions, they were closely followed by Indonesians, at 18 per cent of the total transactions.

Meanwhile, there has also been an increase in the number of Chinese investors in Singapore - with them likely to eventually become the main overseas buyers in the country - currently making up 17 per cent of transactions. The news that Chinese investors are becoming a more dominant force in the property marketplace is unlikely to come as much of a surprise to many.

Earlier this year, we reported that the current strength of the renminbi had prompted potential Chinese buyers to look outside of their own country for investment opportunities. At the time a Reuters report suggested that new developments in Singapore, the US and the UK had all caught the attention of buyers.

"I think you will start to see more strength in that currency and that will give further impetus to look elsewhere for investments," James Moss, managing director of real estate services company Curzon Investment Property, told the news provider. "The whole economic situation (in China) is prone to change and so people are looking for a safe haven for their money."ADNFCR-3415-ID-800039592-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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