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News: Warning on Asian residential markets

Asia’s residential markets have performed poorly once figures are adjusted for inflation, according to a report released today by the Global Property Guide www.globalpropertyguide.com...

Asia’s real estate markets seem, on the surface, to have recovered from the Asian crisis and to be back on their feet. In fact the entire world has enjoyed a residential property boom over the past decade - Europe, the US, Australia and New Zealand have seen property prices soar.

But in Asia the reality is quite different, says the Global Property Guide.  The research organisation points out that once the price rise figures are adjusted for inflation, Asia’s record looks poor.

How Asia’s residential property markets have performed since the peak (inflation-adjusted):

  • Hong Kong: still 61% below peak
  • Indonesia: still 50% below peak
  • Malaysia: still 10% below peak
  • Philippines: still 55% below peak
  • Singapore: still 37% below peak
  • South Korea: still 38% below peak
  • Thailand: still 10% below 1992 peak

“There have been few less profitable investments than Asian residential property over the past decade,” says Matthew Montagu-Pollock, publisher of the Global Property Guide. 

“And if the present construction boom continues across Asia, the next decade isn’t going to be much fun for property investors either.”

Rental yields are quite high in Indonesia, Thailand and the Philippines, while Asian countries benefit from strong economies.  But their real estate markets’ rise has been limited, primarily by government mistakes.

“Asian real estate markets would have been stronger had it not been for government mistakes,” says Prince Cruz, chief economist for the Global Property Guide.  “If it is not a coup, a protest rally or runaway inflation, then it is government meddling in the housing markets that has killed performance”.  Cruz’s study points to the housing markets of Singapore, Hong Kong and South Korea as victims of government subsidies and intervention, while the housing markets of the Philippines, Indonesia and Thailand have suffered from political instability.

After inflation, the picture's not quite so rosy

Despite gleaming reports of recovery, Asian house prices are still below their pre-Asian Crisis levels, according to Global Property Guide.  The property research organisation suggests that a combination of inflation, widespread subsidies of housing markets, political troubles, and overbuilding, have made the outcome in Asia quite different from other ‘boom’ markets.

Asia’s present apparent property boom is a ‘construction boom – not a property boom’, it says, warning investors to remain cautious in the face of media hype. When adjusted for inflation, the happy picture changes remarkably from the good news about property price rises.

Table 1. Annual House Price Change (%)

Nominal

Real

country

2004

2005

2006*

2004

2005

2006*

Philippines

6.02

10.91

8.45

-1.54

3.61

1.24

Indonesia

4.62

7.87

7.37

-1.59

-8.41

-7.05

Singapore

0.89

3.87

6.08

-0.28

2.53

4.61

South Korea

-2.10

-1.30

4.80

-4.99

-4.31

2.43

Thailand

9.27

7.19

3.92

6.16

1.33

-1.85

Hong Kong

27.37

23.90

-3.73

27.09

22.60

-6.07

Malaysia

2.60

2.20

..

-2.05

-3.18

..

*latest data available

Source: Various 

Indonesia, for instance, is having a difficult time battling inflation.  According to Global Property Guide, corrected for inflation, Indonesia’s house prices actually fell 8.4% in 2005 and 7% year-on-year during the second quarter of 2006.

This year’s mild nominal price fall in Hong Kong (3.7%) is amplified by considering inflation. Hong Kong dwelling prices have actually fallen by 6% in real terms.

The modest apparent price rises in South Korea, Singapore and the Philippines actually become price falls, or are greatly moderated, once inflation is factored in, says the research organisation.

Chris Davidson, Product Manager for www.E-Quity.com, however, suggested that the outlook may not be as gloomy as all that.  He said, “Whilst issues such as political instability, natural hazards and the economic wobbles associated with emerging markets makes Asian residential property a risky investment, there are still good opportunities to be had for those who are canny about exactly where, when and what they invest in.  After all, China is the fastest growing economy in the world at present and the Indian property market is also booming.  Neighbouring countries are benefiting from their links to these economic powerhouses and are also enjoying increasing tourism levels.   The fact that prices haven't reached their peak can be viewed as a good thing for investors as it demonstrates potential for future growth."

The Global Property Guide is a research publication and web site for the high net worth investor in residential property – providing information about the process and benefits of buying property in any country in the entire world.

To access the report, click here.

 


 

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