The Shine Is Off Asian Properties

DECEMBER 16, 2011   THE WALL STREET JOURNAL

By POLLY HUI And ERIC BELLMAN

HONG KONG—Real-estate prices are falling across much of Asia as government measures to rein in once-booming prices start to bite and the slowing global economy hits export-dependent economies.

The slowdown ends years of increases that have driven prices up by 70% or more since the start of 2009 in the hottest markets, spurred by strong economic growth and an influx of investors, many of them foreign, who view Asian real estate as an investment that is relatively immune to the global financial turmoil.

Markets such as Beijing, Hong Kong, Singapore and Sydney are all seeing outright price declines, while prices are flat in Seoul. In smaller markets, prices are flat in Bangkok and Kuala Lumpur. In Japan, land prices are down for the 20th consecutive year.

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A luxury tower in Hong Kong, where prices in July fell for the first time in three years.

Few expect a property bust like in the U.S., though real-estate developers could suffer as sales volumes tumble, leaving them unable to pay off their lenders. Residential sales volume in China, for example, fell 3.3% in November from a year earlier, according to the National Bureau of Statistics, following an 11.6% drop in October.

Strong demand in many markets such as China is expected to underpin prices. The exception is Singapore, which is the one market where some analysts think price declines could hit 30% in the next three years.

More than 100,000 new residential units in Singapore are expected to be completed in the next three years, according to Standard Chartered analysts. The construction boom comes as prices have risen 70% in the past five years, prompting the government to impose taxes on sales to foreigners or on locals buying multiple units. Foreigners, mostly Chinese, Indonesian, Malaysian and Indian, made up 36% of all new-home sales so far this year.

"From late 2012 we believe the sector's structural issues—rising levels of unsold inventory due to robust launch schedules coupled with a formidable pipeline of completions—will continue to depress rents and capital markets," said David Lum, an analyst for Daiwa Capital Markets, in a recent report.

While Singapore's official government residential-property indexes show that prices edged up in the city-state last quarter from the quarter before, property consulting company CBRE Group Inc. said average luxury-home prices in the third quarter fell close to 2% from the previous quarter. Data from the Urban Redevelopment Authority shows the number of vacant apartments is climbing.

The declines often can be blamed on governments looking to cool soaring property markets in part to quell anger by residents who have been priced out of the market.

Real-estate prices are on the decline in many Asian cities. Richard Price, Asia-Pacific CEO of CBRE Investments, joins Asia Today to discuss which markets are the best bets for aspiring property investors.

While some of the region's developers and investors are hoping that governments may roll back their property-cooling measures, others say concerns about property bubbles will force governments to keep their restrictions in place. "Right now, to many of the governments including China and Singapore, they see more risks in asset bubble forming than a sharp fall in housing prices," said Jinsong Du, an analyst at Credit Suisse.

In China, where the government has clamped down on speculation in the housing market, average property prices in 70 Chinese cities posted their first monthly decline in October.

"We still see a strong medium-, long-term demand for residential developments in China because people always want to upgrade or improve their living standards," said Justin Chiu, executive director of Cheung Kong Holdings Ltd., the property flagship of Hong Kong tycoon Li Ka-shing, which has increased its presence in China in recent years.

Hong Kong, which has seen home prices surge almost 75% since the beginning of 2009, recorded its first fall in property prices in three years in July. From July to October, prices fell 4%. In November, the number of residential property transactions in Hong Kong fell 64% from a year earlier, according to Land Registry data.

"The drops in home prices in China and Hong Kong are moderate partly because there are simply not that many transactions. Property owners are holding onto their properties and refusing to sell them cheap in bad times," said Nicole Wong, regional head of property research at brokerage firm CLSA.

Hong Kong Chief Executive Donald Tsang said Friday that the government's measures to curb speculative activity, including an additional tax on buyers who sell within two years of purchase, will remain in place.

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Viktor Vo of Hungary powers his boat across Marina Bay with the skyline of Singapore in the background on November 18, 2011.

Australian property prices have fallen steadily this year, stopping a multidecade run higher. In the most recent statistics available, home values fell a seasonally adjusted 0.5% in October from September, according to RP Data-Rismark. Price declines have been worse in flood-ravaged Brisbane and mining boomtown Perth.

In Southeast Asia, real-estate prices in Kuala Lumpur are expected to follow Singapore lower, while Bangkok, where the market was already weak, was hurt by Thailand's worst floods in 50 years. The two healthiest markets appear to be Jakarta, boosted by local demand, and Manila, by strong remittances from abroad.

Prices of homes in the Seoul metropolitan area rose by only 0.6% from January to November this year, while construction-related investments fell from the second quarter of 2010 to the third quarter of this year.

—Geoff Rogow in Sydney, Miho Inada in Tokyo and Se Young Lee in Seoul contributed to this article.