Like bullish Asian economies, the realty markets in Asia are among the strongest in the world. Asia Pacific is the strongest growth region worldwide. Even with the US reversing its interest rate policy the price of property has remained inflated. The US real estate market has cooled off recently with definite signs of stress such as high inventories of new property, sub-prime issues and falling prices. With the housing market issues unfolding, soaring oil prices, inflation, serious credit crunch, tumbling stock markets, weakening dollar, Middle-East crisis getting out of control, etc. - many fear that the US is approaching a recession!
The Bear market in US is also affecting many emerging property markets in Asia to some extent, if not spreading like wildfire. For example, it has already affected Hong Kong, where the property market is intertwined with US because of it's currency's peg to the U.S. dollar. Hong Kong has seen many transformations over the years, with growth at above 20% in 2005 replaced by negative growth now. The prime lending rate used for most mortgages in Hong Kong is rising.
As per reports, property in many markets is 50% overvalued on many valuation yardsticks. What remains to be seen is whether real estate prices will now stagnate for a period to achieve an adjustment to rising incomes, or whether a more dramatic price correction or slump will ensue.
Market watchers suggest that most Asian countries may be spared any significant reaction to the U.S. downturn thanks to the region's strong economies. Countries like China are still posting growth, and the average Asian growth rate of 8% this year is well above the worldwide average of 5%. Nevertheless, if the global flow of capital into real estate continues to falter then this is bound to impact on many Asian property markets, but for the moment these buyers are still very much in evidence and one of the major factors supporting the current boom.
Asian economies are forecast to slow down next year, with a similar drop in the global growth to slightly more than 4%. Even China's robust 10.4% growth this year is expected to be a peak, with growth slowing to slightly less than 9% next year. Most of it will be due to the slowdown in the U.S. economy and the resulting drop in Chinese exports.
Property investors are watching China's real estate market to see how it responds to cooling measures introduced during past years. In a bid to make property more affordable for middle-class Chinese buyers, the government has attempted to shift developers' focus away from luxury properties. More than 80% Chinese are not part of its economic growth and prosperity! The figures are also NOT encouraging in India, only the existing rich middle-class and upper-class are reaping benefits, pushing millions of common Indians into desperation.
Big investors have not been fazed. Chinese government has attempted similar crackdowns in the past and, if history is any indication, the market is unlikely to change. The prospects are best in Beijing, and not just because of the effect of the 2008 Olympic Games. Shanghai, in contrast, suffered last year and this year the city's property prices dropped by 1.1%, while the country showed an average gain of 5.5%. Shanghai has China's largest share of overseas property owners, the most speculators and a oversupply of housing.
Still, high-end property is expected to offer the best chance for gains both in mainland China and in Hong Kong, where luxury properties bucked a downward trend this year. As per a Knight Frank survey of 32 housing markets around the world, Hong Kong housing prices dropped 2.6% in 2006. But government statistics suggest that prices for luxury residences on Hong Kong island were stable toward the end of the year, at around 10,000 Hong Kong dollars per square foot. That is a 7% increase over the same period a year ago.
As per Colliers International, prices for luxury properties will gain another 7% in Hong Kong over the next 12 months, driven partly by demand from big financial institutions, which are hiring more highly paid workers and expanding their housing allowances. Japan has also seen a divergence between luxury property and the rest of the market. Last year, housing prices rose in Japan's major cities of Tokyo, Osaka and Nagoya for the first time in 16 years.
But the trend did not carry over nationally, with Japanese residential prices down 2.3% on average. That is because the country's economic recovery is only really having an impact in the major cities, a situation that is not likely to change, as per property analysts.
With the present situation, it is going to impact on land prices, urban locations may benefit and not rural areas in the short to medium term. In some prime residential locations in Tokyo, prices are already up some 20%.
Real Estate Developers in rest of Asia are keen to expand the market for villas and holiday properties into new locations. For example, several developers are starting to promote projects in Vietnam, despite that country's fuzzy property laws and a market that ranked dead last for real estate transparency as per market reports.
One cannot own land in Vietnam and foreigners are limited to 50 year leases. With Vietnam's first property legislation, it is getting easier to own property for development and codifying other areas of the law. The changing shape of the regulatory picture has not stopped country's first few villa projects. Vietnam is likely to continue to attract aggressive investors as its fledgling property market expands, particularly in light of the
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