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RESIDENTIAL
RESEARCH




ASIA-PACIFIC
RESIDENTIAL REVIEW
December 2012




                 MAINSTREAM MARKET
                       PERFORMANCE
                              Page 3

                MAINSTREAM VS. PRIME
                               Page 4

                 KNIGHT FRANK’S PRIME
                           FORECAST
                                 Page 5
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
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
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
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
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
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
Residential
Research
Recent market leading research publications




The Wealth Report      The Wealth Report       Global House Price
2012 - English         2012 - Chinese          Index Q3 2012




Prime Global Cities    Global Development      Branded
Index Q3 2012          Review 2012             Developments


Knight Frank Research Reports are available at
www.KnightFrank.com/research




Knight Frank Residential Research provides strategic advice, consultancy
services and forecasting to a wide range of clients worldwide including
developers, investors, funding organisations, corporate institutions
and the public sector. All our clients recognise the need for expert
independent advice customised to their specific needs.


© Knight Frank 2012
This report is published for general information only and not to be
relied upon in any way. Although high standards have been used in the
preparation of the information, analysis, views and projections presented
in this report, no responsibility or liability whatsoever can be accepted by
Knight Frank for any loss or damage resultant from any use of, reliance
on or reference to the contents of this document. As a general report,
this material does not necessarily represent the view of Knight Frank in
relation to particular properties or projects. Reproduction of this report
in whole or in part is not allowed without prior written approval of
Knight Frank to the form and content within which it appears.

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Asia pacific residential_review_-_dec_2012

  • 1. RESIDENTIAL RESEARCH ASIA-PACIFIC RESIDENTIAL REVIEW December 2012 MAINSTREAM MARKET PERFORMANCE Page 3 MAINSTREAM VS. PRIME Page 4 KNIGHT FRANK’S PRIME FORECAST Page 5
  • 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
  • 8. Residential Research Recent market leading research publications The Wealth Report The Wealth Report Global House Price 2012 - English 2012 - Chinese Index Q3 2012 Prime Global Cities Global Development Branded Index Q3 2012 Review 2012 Developments Knight Frank Research Reports are available at www.KnightFrank.com/research Knight Frank Residential Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs. © Knight Frank 2012 This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank to the form and content within which it appears.