2. ASIA-PACIFIC RESIDENTIAL Review
INTRODUCTION
Mainstream markets outperform prime
in Asia Pacific
Push and pull factors combine to opportunities abroad, some prime
“While Asia is undergoing huge encourage a number of prime Asian buyers have been “pulled” towards
economic changes, and we see prices in buyers to look abroad for luxury prime residential markets outside of their
the mainstream markets reflect this, the residential property. Knight Frank’s domestic markets.
more internationalised prime markets prime forecasts show that this is likely One thing is certain, and that is the
have not always benefited as much as we to continue in 2013. Nicholas Holt looks demand and supply drivers at the top
may have expected.” into the numbers and provides the end of the market are different to the
narrative. mainstream. While Asia is undergoing
huge economic changes, and we see
When analysing 2012 Asia Pacific
prices in the mainstream markets reflect
Nicholas Holt residential market data, one startling
this, the more internationalised prime
Research Director, trend that jumps out is the fact that prime
markets have not always benefited as
Asia Pacific markets have seemingly underperformed
much as we may have expected.
when compared with mainstream
markets across much of the region There are of course many other narratives
(see Figure 1). In this edition of the and explanations in each market and
Asia-Pacific Residential Review, we will sub-market, and with our research teams
explore some of the explanations for this, in each country, we have identified some
and provide an in-depth analysis of the of the key factors that have influenced
historic price performance of the region’s prime residential market performance
prime and mainstream markets. Some to date and the risks going forward into
of our conclusions will in turn provide a 2013.
platform for our 2013 prime forecasts, a
The biggest concern for the region’s
comprehensive regional complement to
markets remain macroeconomic, with a
Knight Frank’s Prime Global Forecast.
domestic slowdown viewed as the largest
Figure 1 This paper will provide a roundup of threat for prime market performance
Mainstream vs. prime market performance
the latest trends affecting mainstream in 2013. The possibility of further
in Asia (Q3 2007 = 100)
markets (see pg. 3), followed by an in- government intervention to reduce house
150 depth analysis of how the mainstream price inflation in these times of low
and prime markets (i.e. the top 5% of the interest rates is likely to remain, posing
140 market) have fared against each other a risk to several residential markets over
(see pg. 4), concluding with our prime the next 12 months.
130
forecasts for 2013 (see pg. 5).
If we take a slightly longer time horizon,
120 One of the key narratives that emerges, given the huge increases in economic
is that while prices rebounded strongly in activity and wealth in the Asia-Pacific
110
Mainstream 2009 after the global financial crisis, the region, the medium term forecast for
Prime increasing intervention of policymakers
100 prime residential property remains
in some countries has “pushed” some unanimously positive.
90 buyers out of the prime residential
2007 2008 2009 2010 2011 2012 markets. At the same time, given the
Q3 Q3 Q3 Q3 Q3 Q3
favourable investment and lifestyle
Source: Knight Frank Research
02
3. Asia-Pacific mainstream markets in Q3 2012 dominated by
strong price performance in Hong Kong and China
Perhaps the biggest headline in the more like a blip in the strong upward Finally, in the Pacific region, Australia’s
Asia-Pacific residential markets over the trajectory. Mainstream prices in Beijing housing markets have stabilised
last quarter has been the introduction in and Shanghai have risen 12.82% over following price falls in 2011 and the first
October of a 15% stamp duty for foreign the last six months, second only to Hong half of 2012. New Zealand‘s residential
buyers of residential property in Hong Kong in the region. markets have continued to enjoy solid
growth, notably in the key cities of
Kong. In Malaysia, nationwide prices slipped
Auckland, Wellington and Christchurch
1.81% in the third quarter, due to a more
Despite the large number of cooling which have been buoyed by low interest
challenging overall market sentiment.
measures introduced over the last three rates.
The effects of cooling measures, and
years, prices have continued to soar in
perhaps most importantly the impending
Hong Kong, nearly doubling since the
General Election, has encouraged a
beginning of 2009. The government
wait-and-see attitude amongst market Figure 2
has followed the example of Singapore,
participants. Global House Price Index Q3 2012
who introduced a similar stamp duty in
December 2011. Further down the archipelago, 16% Annual % change
Indonesia’s house prices continued to 14% Quarter % change
Singapore itself has seen record volumes
grow strongly. The loan-to-value ratio
transacted in 2012, as low interest 12%
cap of 70% which was introduced in July
rates have continued to fuel demand
for properties below 70 sq m seems to 10%
despite the continuing stream of cooling
have had little impact to date. Instead, 8%
measures. With the residential market
the economy’s robust growth is being
a serious concern for the government, 6%
translated into strong housing demand.
many commentators have noted that 4%
further intervention in 2013 cannot be In India, across the 15 cities surveyed,
2%
ruled out. ten saw price increases over the third
quarter, while five saw price drops. 0%
Reflecting the improving sentiment in the New Zealand
South Korea
Despite the relatively weaker economic
Hong Kong
-2%
Singapore
Chinese economy, the country’s housing Indonesia
Malaysia
Australia
performance of the Indian economy, the
China*
Taiwan
markets have continued to see strong -4%
Japan
India
strong underlying fundamentals have
demand. The price falls in Beijing and -6%
ensured that the market as a whole
Shanghai in the last half of 2011 now look *Based on Beijing and Shanghai
remains on an upward trajectory.
Source: Knight Frank Research
Figure 3
Global House Price Index (Q4 2007 = 100)
200 Hong Kong
India
180
China*
Malaysia
160
Indonesia
140 Singapore
South Korea
120 Australia
New Zealand
100 Japan
80
60
‘07 ‘08 ‘08 ‘08 ‘08 ‘09 ‘09 ‘09 ‘09 ‘10 ‘10 ‘10 ‘10 ‘11 ‘11 ‘11 ‘11 ‘12 ‘12 ‘12
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Source: Knight Frank Research
03
4. ASIA-PACIFIC RESIDENTIAL REVIEW
Mainstream VS. Prime
The huge increases in incomes and towards smaller family units - that has end residential market (loan-to-value
wealth that we have seen across brought about significant new levels of ratios in Hong Kong are limited to 50%
Asia have lifted residential prices demand. The reality is that even though for properties over HK$10 million), but
significantly over the last decade. we are seeing a large number of prime more often they have been introduced
However, when analysing price buyers emerging, this number pales to penalise multiple home owners at
in comparison to the number of new the expense of first time buyers, which
performance, notably over the last
entrants into the mainstream market. disproportionally impacts the prime
couple of years, mainstream markets
residential markets.
across Asia (excluding Japan) have Across many of these markets, supply
outperformed the prime end of the has found it hard to keep up with Finally, while the market has become
market. This is in contrast to many other demand with planning, infrastructure more difficult for some buyers, the
regions of the world. and land use issues often holding up attraction of ‘global’ prime property
development activity. This is sometimes markets outside their domestic arena has
Taking price performance following in contrast to the high end, where we continued to provide incentives to move
the collapse of Lehman Brothers in have seen developers eager to enter the their money abroad. With an increasingly
September 2008, when a number of smaller and potentially more lucrative mobile, educated and well-travelled
markets saw a slight price correction, prime segment of the market. class of property owners in the Asian
national mainstream markets have region, the lifestyle choice of having a
outperformed the region’s prime city Secondly, across much of Asia, 2012
second home abroad, for personal or
markets, with the exception of Jakarta has seen continued government
for children’s educational use is proving
(see Figure 4). We have identified three interventions, aimed at mitigating the
to be one of the key narratives for HNW
key reasons for this Asian phenomenon. risk of asset bubbles and addressing
Asian buyers. Purely from an investment
concerns of affordability. These cooling
Firstly, and perhaps most importantly, point of view, as a diversifier away from
measures have, however, dented
although we are seeing growth in the steamy and controlled Asian markets,
demand for prime residential product
incomes across all income brackets, it has been seen as a sensible strategy
in some markets through a range of
the absolute growth in the number for their wealth portfolios. Domestic
measures; limiting financing, introducing
of middle class, first home buyers in currencies that have strengthened
extra taxes for foreign buyers and
developing Asia is staggering (see Figure against destination market currencies
penalties for disposing of the property
5). It is the emergence of this property- have also provided a currency play,
within a certain time period. Many of
buying class - reinforced by historic which has made some purchases
these measures have targeted the high
levels of urbanisation and a movement relatively cheaper.
Figure 5
Figure 4 Projected growth in middle classes
Price growth across key Asian markets from Q4 2008 2007-2012 by region
120% Prime 60%
100% Mainstream
50%
40%
80%
30%
60%
20%
40% 10%
20% 0%
Asia Pacific
N. America
Central and
South
Sub-Saharan
Africa
MENA
Europe
0%
Jakarta/ Hong Kong Shanghai/ KL/Malaysia Mumbai/ Singapore
-20% Indonesia China India
Source: Knight Frank Research Source: OECD
04
5. THE PRIME
ASIA PACIFIC FORECAST
As a complement to Knight Frank’s Prime Global Forecast, we have carried out in-depth surveys in respect to an additional six Asian
prime city markets, to provide a comprehensive picture of the regional outlook for prime markets in 2013. Of all the markets we
monitor, taking into account past year performance, supply and demand dynamics and potential risks, our forecasts predict that 2013
will look fairly similar to 2012. We forecast modest price growth across most markets, with a couple of significant exceptions.
Jakarta and Bangkok tipped Safe haven and lifestyle stable political environment, will ensure
that prices do not fall. Meanwhile in
to be top Asian performers destinations of Singapore and Hong Kong, where the new stamp duties
through 2013 Hong Kong to remain stable for foreign buyers are likely to curtail
Our forecasts show that we are more Over the last 12 months, Singapore some mainland Chinese demand that
bullish in 2013 about the markets that and Hong Kong, considered the Asian makes up a significant proportion of
have solid fundamentals and little safe haven and lifestyle markets, have buyers, we expect prices to rise, but at a
or no cooling measures. Jakarta and erected protectionist measures that have slower pace than the previous 12 months.
Bangkok notably, are two markets that and will continue to curb demand at the
Differing drivers of demand
are well positioned to benefit from strong prime end of the market. In Singapore,
economic growth and a growing affluent while robust demand remains for prime to bring about contrasting
and aspirational property owning class. landed property or good class bungalows performance in Beijing and
Both of these markets have been the star (GCB); demand for luxury condominiums
Shanghai
performers over the past year, and we has proved weaker. Despite this, we
expect this to continue. expect the attractiveness of Singapore, In China, we are more bullish about
with its transparent legal systems and the stronger domestic “establishment”
Figure 6
Prime city residential price performance and forecasts
3
10
% change Forecast
City 11
to Q3 ‘12 ‘13
1. Jakarta >20% >20% 4
7
2. Bangkok >20% 10%-20%
5
3. Beijing <5% 5%-10% 2
12
4. Hong Kong 5%-10% <5%
8
5. Mumbai <5% <5% 9
6. Sydney <5% <5%
1
7. Hanoi 10%-20% no change
8. Kuala Lumpur <5% no change
9. Singapore <5% no change
10. Tokyo 5%-10% no change
11. Shanghai <5% <5%
12. Ho Chi Minh City 10%-20% 5-10% 6
Source: Knight Frank Research
05
6. ASIA-PACIFIC RESIDENTIAL Review
market of Beijing than the Shanghai demand is met with little new supply in foreign buyers except in the primary
market, which is more linked to the Tokyo. In general, prices have been on market, is expected to recover after a
business performance of the financial a gentle downward trajectory as land decrease in the number of motivated
capital of the country. While the prices continue to lose value and the vendors, with a stable market forecast
Shanghai market is probably more economy struggles to regain the high for 2013. Sydney has and will continue to
sensitive to the economic and financial levels of growth of the past. be a target for Asian buyers, and could
markets, Beijing, which will see the benefit if the Australian dollar weakens
opening of a number of new metro lines Vietnam continues its against key Asian currencies in 2013.
in 2013, is expected to see strong price downward trajectory amid
performance over the next 12 months.
economic uncertainty Measuring risk
Mumbai’s lack of liquidity to Vietnam is passing through an extremely While the forecasts we have presented
represent what we believe to be the most
keep prices steady difficult economic period and this is
being reflected in the price falls in both likely outcome for 2013, there remains a
Mumbai, whose prime residential market Hanoi and Ho Chi Minh City during 2012. number of derailing factors which have
is closely correlated to the economic With ongoing macro-economic issues, we the potential to knock our forecasts off
performance of the country, has seen expect another tough year in 2013, which course.
prices stagnate over the last year. With will continue to impact the prime end of
uncertainty over the strength of the With much uncertainty in the world
the housing market, although the feeling
economy and an election on the horizon economy, it is no surprise that both
is that most of the price corrections have
in 2014, we forecast prices to edge up global and domestic economic factors
already taken place.
slightly in 2013. remain the biggest risk to property prices
Sydney still an attractive in Asia Pacific in 2013.
Tokyo prices to remain stagnant
lifestyle and investment choice China’s economic performance
At the top end of the market, prices are and the possibility of a significant
expected to remain relatively flat as weak Finally, Sydney, which is closed off to
slowdown is perhaps one of the most
Figure 7 Ranking
Risk analysis
Asia 1
Risk 1
Pacific Global Downside scenario and impact
2
2 The potential for a domestic slowdown, with the ensuing negative impact on employment and
A slowing domestic 1 3 earnings growth, would have a substantial direct and domestic impact on housing markets, although
economy (Highest)
3 the main effect would be felt in the mainstream rather than prime markets.
2
1 1
4
4 The global economy has essentially stalled since the second quarter of 2012. Consumers, businesses
A slowing global economy 3
2 2
5
1
and investors are awaiting clear global signals as to how key risks play out, from the US’s fiscal cliff
1 5 to the Eurozone debt crisis. A weakening global economy would limit economy wealth creation and
1
4
3 3
6
2 dampen confidence. The pull of ‘safe-haven’ investments would lessen the impact in some markets.
2 6
High inflation & low 2
5
1
4 4
7
3
High inflation in parts of Asia has already pushed interest rates higher. This, together with lower
household income growth
3 7 incomes would have the effect of & low household stifling demand but it would be more of a concern
for mainstream than prime markets which are less exposed to credit availability.
3
6
2
5 5
4
4
1 Those cities with a high degree of transparency, a strong legal system and relative political stability
Political/security issues 4
7
3
6 6
5 frequently see demand strengthen security at times of geo-political risk around the globe.
5
1
2
5
4
7 7
1
6
The efforts on the part of mainly Asian governments to improve domestic affordability and avert a
Government cooling
6
2
3 1 housing bubble have become cooling increasingly wide-ranging and targeted at high-end properties.
measures 6
5
7 2
7 Regulatory measures such as higher stamp duty rates in Singapore have already had a direct impact
3
4 2 on the number of foreign buyers, a similar trend may now be seen in Hong Kong given its 15% Stamp
7
6 3 Duty rate for foreign buyers.
4
5 3 If the Eurozone were to collapse all bets would be off and the global economy would enter a period of
7 4
Eurozone crisis 5
6 4 unchartered territory. Bank crisis lending would be severely restricted and volatility would return to
the world’s financial markets would return. But some investors may view the tangible asset of luxury
5
6
7 5 bricks and mortar as safe an investment as any at a time of immense turbulence.
6 With interest rates in much of Asia at historical lows, this availability of credit has helped push prime
Interest rate rises 7 6 prices higher. Rate rises could dampen demand to some extent.
(Lowest) 7
Source: Knight Frank Research
7
06
7. Figure 8 in Asia Pacific than globally. This is due Asia Pacific Research
Government Intervention to the increasing risk of interventions
Which cooling measures pose the greatest Nicholas Holt
risk to prime residential markets? in mature real estate markets, such as Research Director, Asia Pacific
London and Paris. Figure 8 provides a T +65 6228 7313
Asia Global ranking of the degree of risk posed by nicholas.holt@asia.knightfrank.com
(Highest) 1
1 the main cooling measures.
Restrictions on multiple
1
2
2 ownership We have ranked interest rates, which are
1 at historic lows across much of the region Global Residential
2 3
3
1 Shrinking mortgage as a low risk. High inflation is seen Andrew Hay
2 1
1
3
2 1
4
4
availability as a risk in Asia Pacific, although the Global Head of Residential
3
1 2 negative real interest rates that inflation T +44 20 7861 1077
4
2
2 5 generates could actually prove beneficial
3
4 5
3
Stamp Duty increases andrew.hay@knightfrank.com
2 to property as an asset class, as buyers
3
5
4 3
6
6 look for a store of wealth.
5
3 4
1 Large-scale
74
6 4
7 housebuilding Asia Pacific Residential
55
6
4
Beyond the core risks examined above,
2 programmes
7
5 5 there are countless factors such as Australia
6
7
6
5 3 currency fluctuations, tax changes and Noel Lucas-Martinez
Changes to CGT rules
6
7
(Lowest)
6 political events which could change T +61 2 9036 6711
6 7
4 the patterns of demand and supply noel.lucas-martinez@au.knightfrank.com
7 7
Source: Knight Frank Research in the region’s prime markets. But
7 5 Hong Kong
the fundamentals are likely to remain
Renu Budhrani
6
important threats to the global and unaltered; the supply of luxury homes
T +852 2840 1177
regional economy. With fears of a “hard is fairly tight in most cities, with wealth
7
landing” seemingly receding, the risk growth and concentrations increasing
renu.budhrani@hk.knightfrank.com
of a slowdown remains, as the world’s across the region. While the feeling is China
second largest economy continues its that 2013 could look similar to 2012, the Larry Hu
transition under new leadership. longer term outlook is extremely positive. T +86 21 6032 1788
larry.hu@cn.knightfrank.com
Although the Eurozone crisis did not rank
as high a risk as elsewhere, there is no Figure 9 Singapore
Asia Pacific Hotspots
doubt that indirectly, a serious economic Luxury housing markets are an amalgam Wendy Tang
shock caused by the region’s ongoing of numerous sub-markets, some often T +65 6222 1333
problems could impact prime markets, amounting to only a few key streets or
developments. We asked our network of
wendy.tang@sg.knightfrank.com
even in Asia Pacific. Certainly the more Asia-Pacific research teams for their view as
to which areas or price brackets they think India
international markets of Singapore, Hong
will be their strongest performers in 2013. Rohan D’Silva
Kong and Sydney would be susceptible
T +91 22 6745 0101
to a global economic slowdown. City Submarket
rohan.dsilva@in.knightfrank.com
Bangkok Central Lumpini
There are however more insular concerns
Beijing CBD Indonesia
surrounding the health of domestic
Hanoi Tay Ho District Natalia Sutrisno
economies in the region, most notably in
Ho Chi Minh City Villas in District 2 T +62 21 570 7170 (500)
India and Vietnam, who have both seen
Hong Kong Landed property on The natalia.sutrisno@id.knightfrank.com
significant slowdowns in 2012 from the
Peak and Island South
strong growth of previous years. How Jakarta Downtown CBD
Thailand
these countries manage with some of Kuala Lumpur Fringe locations with Frank Khan
the structural issues and whether they easy accessibility and T +66 89 213 0248
successfully implement reform in 2013 good connectivity frank.khan@th.knightfrank.com
will have an impact on the property Mumbai Worli Malaysia
markets. Shanghai Little Lujiazui area of Herbert Leong
Pudong
Further cooling measures are T +60 3 22 899 688
Singapore District 9
understandably seen as a significant risk herbert.leong@my.knightfrank.com
Sydney Inner city (15km radius)
to the prime markets, with Singapore
apartment market Vietnam
notably ranking this as the highest risk
Tokyo Roppongi, Azabu and Stephen Wyatt
going into 2013. Somewhat surprisingly,
Akasaka T +84 8 3822 6777
government intervention is ranked lower
stephen.wyatt@vn.knightfrank.com
Source: Knight Frank Research
07