Asia Archives - Amora Escapes

China Must Rethink Its Reliance on Property Sales to See Real Growth

Aaron Maxwell — Wed, 31 Jul 2024 14:06:15 +0000

The small eastern city of Zibo in Shandong province is experiencing an outdoor barbecue craze.

People from all over China are coming here to taste its lamb skewers, which have become legendary via social media.

It’s quite a raucous experience and certainly not for the faint-hearted.

The street is packed, you sit on little plastic chairs, drink beer and wrap chunks of meat with spring onion on the local flatbread while karaoke songs pump out in all directions.

On the face of it, these crowds appear to show an economy rebounding strongly from the coronavirus emergency – but according to economists that’s not the case.

Rather, they say, this is an example of people choosing a cheap, tasty, option at a time of great pressure on household incomes.

Zibo attracts people from all over China, who come for the lamb skewers and karaoke

A man sitting with his shirt off tells us this is the perfect spot to enjoy a hot summer night with his family, and that this type of fun has a price tag to match the moment.

“This place is great for ordinary people,” he says. “Recently, it’s been hard to make money but still easy to spend it. After three years of Covid, the economy is only slowly recovering.”

University graduates are being hit especially hard by China’s economic doldrums, with youth unemployment hovering at or above 20%.

Some students are feeling nervous about their futures.

“Yes, I’m worried,” says one woman who’ll soon graduate. “There’s a lot of competition. It’s hard to find a job. All my classmates feel the same pressure.”

For those who have jobs, a big reason for their reluctance to spend big is economic security.

They’re concerned about the potential to join the ranks of the unemployed, and their household’s largest single investment is, in many cases, no longer worth what they thought it would be.

The real estate sector is under great stress in China.

New residential blocks in Qingdao sit unfinished or barely occupied

To see this first-hand, we drive a few hours east of Zibo to the outskirts of a much larger city, Qingdao.

Here, a property explosion hasn’t matched real demand from buyers or renters, and the result has been huge housing estates built with very few residents in them.

A woman is selling cold noodles from a portable stand outside her housing complex where she has few neighbours.

A few years ago, her husband bought a flat here after moving to Qingdao to give their child a better start because they heard the schools would be good.

I ask her if she’s worried about the value of her home collapsing.

“Of course I’m worried,” she says. “But what can I do?”

Nearby a couple who are street cleaners have stopped for lunch. They point to the huge estate behind them and say that nobody lives there.

Across the road there is a small forest of concrete towers without paint, without windows and with window frames now looking the worse for wear, having been exposed to the elements.

The property explosion in Qingdao has outpaced demand from buyers and renters

“Construction just stopped there one day last year,” the man says.

According to his wife, the entire suburb is pretty dead. “There’s nothing here. There’s no petrol station. You have to go a long way for fuel. It’s really not convenient to live here,” she says.

There had been hope that this region would take off after the city hosted a major political meeting, the Shanghai Co-operation Organisation Summit, and China’s leader Xi Jinping gave it his personal stamp of approval as a place to invest and do business, potentially hosting international expos and the like.

But the factories, start-ups and other companies that would supposedly employ those who bought property here have been few.

According to a local real estate agent, sales volumes have halved in the area in recent years.

“Prices are down because the market is saturated,” she says. “Too many homes were built and it’s hard to sell them.”

We put up a drone to get a bird’s eye view and it looks even worse than at ground level.

Entire new housing estates where work has stopped can be found in all directions. Those that are finished don’t have much sign of life in them.

A boom in real estate in China has pushed city house prices out of reach for many families

What’s more, this supply and demand problem isn’t unique to this area. It isn’t even unique to this city. In province after province across China, evidence pointing to the danger of a property bubble is easy to find.

One reason for rampant real estate speculation in this country has been a lack of other options for investment. But the boom in real estate drove house prices out of the reach of ordinary families in many big cities. The government response was to cap the number of flats any person could buy.

It was a genuine attempt at an egalitarian reform, but pressure is now coming to reverse this. In Qingdao, such measures have already been eased, in an attempt to stimulate its stalled real estate market.

The challenge for Chinese policymakers is to find a way to wean this economy off such a heavy reliance on property sales to generate growth and business confidence.

Economists like Harry Murphy Cruise, from Moody’s Analytics, think China is facing significant problems.

“China’s economy is in desperate need of rebalancing,” he tells the BBC from Australia. “It’s had that massive period of growth over the last two or three decades from big infrastructure building, from a massive uptick in the property market that is actually not a sustainable growth driver going forward.

“Look around the world, developed economies need households as a key driver of economic growth, and that is just not what China has at the moment.”

The Chinese government is considering ways to promote more spending by individuals and by businesses from interest rate cuts to cash handouts.

But the problem is sentiment.

People will feel more secure when there are more jobs. Businesses need to invest to create more jobs, but they are reluctant to do so while customers are so insecure.

As Harry Murphy Cruise puts it: “It’s sort of like the chicken and the egg. You can’t have that uptick in the economy unless you have business spending. They’re not spending until they see that uptick. So, there’s a stalemate that’s really holding back a key portion of the economy.”

Then there’s the chance that all of this will bleed into global trade.

Meanwhile, tourism along Qingdao’s famous coastline appears to be picking up

China is big. What happens to the world’s second largest economy turns ripples into waves.

Reduced manufacturing here – off the back of weak international demand – has resulted in fewer exports, fewer Chinese-made goods available worldwide and less business activity in Asia’s mega factory. Then the subsequent slower consumption in China means fewer imports of other countries’ products.

The headache for the Chinese government is that it may have to choose whether to go for a short-term stimulus fix, which would delay the rebalancing it will eventually need to face, or whether to absorb more immediate pain and bring on the long-term solution more quickly.

Naturally, there are almost certainly those in Beijing’s upper echelons of power considering some sort of middle path, starting with a milder boost to stabilise the economy, then considering the larger problems at hand.

Because they know that, once negative sentiment sets in, it can be hard to turn around.

Yet if you want to feel optimistic about Qingdao, and about life, you go to the beach. Tourism along its famous coastline does seem to be picking up.

There’s laughter, sandcastle construction and everyone – whether they’re a captain of industry or a truck driver – is enjoying the great embrace of the ocean.

Whether it matches reality or not, here you almost can’t help but feel that, despite everything, the future still has good things in store.

Source : BBC

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Pita, Politics and Policies: How the Current Political Impasse is Impacting Thailand’s Property Market

Jeffery Blair — Wed, 31 Jul 2024 14:06:14 +0000

Thailand’s political deadlock is turning potential homebuyers cautious in Southeast Asia’s second-largest economy, posing risks to the property market as some 50,000 flats are likely to be launched this year, analysts say.

“The market is currently slow but quite stable in terms of supply and demand as local buyers are now adopting a more wait-and-see attitude, rather than making a decision,” said Wittaya Dave Apirakviriya, general manager of ThinkOfLiving.com and DDproperty, a unit of proptech group PropertyGuru.

“This is due to the current political situation as we are still in the process of forming a new government.”

Thailand’s political situation is in a bit of flux as Pita Limjaroenrat, the leader of the Move Forward Party that won the most seats in the May election, has been thwarted twice in his attempt to form a government by conservative members of the senate, most of whom have been appointed by the military junta. In another setback, the Constitutional Court has decided to proceed with two cases against Pita for allegedly violating election rules.

Supporters of the Move Forward Party hold a portrait of party leader Pita Limjaroenrat during a protest in Bangkok on July 29, 2023. Photo: AP Photo

To break the deadlock, Move Forward said it would give way to coalition partner Pheu Thai to try and form the government instead. It remains to be seen, however, if the less liberal Pheu Thai will be able to convince members of the senate and assume power after parliament cancelled plans to elect a prime minister on Friday and said a new date would be set.

The political impasse is impacting the property market as real estate stakeholders expect the new government to implement measures to boost the market, Wittaya said. The previous government cut fees for registering mortgages and transferring ownership from this year until the end of 2025. Extending these measures would help the property market, he added.

Real estate stakeholders would like the government to further ease foreign property ownership laws, including allowing foreigners to own landed homes but limiting it to 20 per cent outside Bangkok or luxury villas in beach towns, where the market caters mostly to overseas buyers, according to Peerapong Jaroon-ek, founder and CEO of Origin Property.

Before the pandemic, foreigners accounted for a quarter of all property sales in Thailand, with Hong Kong-based buyers contributing to as much as a third of all purchases from 2018 to 2022, according to official data.

“Currently we see an unclear picture of the political situation, including stimulus measures for the property market and other economic activities, but we believe that we will have a more thorough outlook and understanding after we have a clear political picture and what’s driving the country’s economy,” ThinkOfLiving.com’s Wittaya said.

Real estate is a major driver of the Thai economy, accounting for about 10 per cent of the gross domestic product in 2022, according to a study in May by the Bank of Ayudhya, Thailand’s fifth largest bank.

Before the coronavirus pandemic, developers enjoyed a mini boom due to demand from foreign buyers. But when travel was disrupted in 2020 because of the pandemic, cutting off a vital source of buyers, developers began offering huge discounts and threw in freebies such as cars, hotel and restaurant vouchers and even transfer fees to drum up sales.

The current political uncertainty is likely to further weigh on the property market, as some 50,000 flats are likely to be launched this year in Thailand, slightly more than the 48,700 units last year, according to CBRE.

Thai developers are also likely to launch 35,000 landed units this year, nearly the same as the 34,364 launched in 2022. Developers are also forecast to offer 1,200 luxury and super luxury homes, nearly the same as the 1,218 units in 2022, CBRE added.

The political uncertainty will only have a short-term impact on the property market and investor sentiment, said Artitaya Kasemlawan, head of residential sales project at CBRE Thailand.

Real estate stakeholders would like the Thai government to further ease foreign property ownership laws, including allowing foreigners to own landed homes, an analyst said. Photo: Shutterstock

“The current deadlock will have minimal impact as it has little effect on day-to-day business or cause changes in real estate policy,” Artitaya said. “Any impact on Thai real estate is usually a result of what’s happening in the economy rather than in politics.”

Apart from the political drama, there are several reasons for local and foreign buyers to consider investing in Thailand, according to Kashif Ansari, co-founder and group CEO of Juwai IQI.

For example, average rental yields range between 4.3 per cent and 6.7 per cent in Bangkok, Pattaya and Phuket, he said. This compares with Hong Kong’s net annual return yield of less than 2 per cent.

“Developers have reduced the supply of new units in each of the past four quarters,” Ansari said. “The share of new listings sold in each quarter has nearly doubled to more than 40 per cent as a result. Prices are climbing slowly.”

The Thai property market remains fundamentally sound despite the current political challenges as the country continues to provide a safe and stable environment for foreign residents and investment, Ansari added.

“If you’re investing in Thailand, then the current situation is not a deal-breaker.”

Source : SCMP

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Yanlord Reports 26.1 Billion Yuan in Property Presales for First 9 Months of 2023

Julian Berry — Wed, 31 Jul 2024 14:05:31 +0000

CHINESE property developer Yanlord Land Group recorded 26.1 billion yuan (S$4.8 billion) in total contracted presales from residential units, commercial units and car parks for the first nine months of the year.

The presales were for a contracted gross floor area of about 1.02 million square metres (sq m) and were 51.7 per cent lower than presales for the year ago period, the group said in a bourse filing on Tuesday (Oct 10).

Presales include those by the group, its joint ventures and associates.

Yanlord Land’s total contracted presales for September was down by 83.2 per cent to 1.6 billion yuan for a contracted gross floor area of 67,835 sq m.

In its unaudited key operating figures for the nine months ended Sep 30, Yanlord Land said it has approximately 2.6 billion yuan of subscription sales, which are expected to be turned into contracted presales in the coming months.

Five cities in China – Nanjing, Suzhou, Shenzhen, Jinan and Tianjin – accounted for about 59.5 per cent of total contracted presales for the first nine months of the year.

For the first six months of 2023, Yanlord Land posted a net profit of approximately one billion yuan for the half year ended June 2023, down 20 per cent from the 1.4 billion yuan a year ago.

Property prices in China have slumped amid worsening business sentiment as property giants Country Garden face potential debt default and Evergrande Group aims to restructure US$22.7 billion of offshore debt.

Source : TheBusinessTimes

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Property Tax Not on Horizon, but Speculation Unlikely

Leon Clarke — Wed, 31 Jul 2024 14:05:30 +0000

When homebuyers are active, property tax is one factor that weighs heavily on their mind. So, it came as little surprise when all eyes turned to a recent legislative plan that made no mention of property tax.

Some in the housing market thought the much-discussed property tax would not be levied nationwide in the near future. This in turn sparked speculation. Could people buy homes for investment purposes?

But then, when I chatted with my friends to find out, it quickly became clear that homebuyers are becoming rational. For them, it seems, a home is a place to live in, not something to be bought just to resell later for a tidy profit.

“I’d not buy a property purely for investment, even if there is no tax. But I may buy a small flat for my family to live more comfortably and conveniently,” said a friend of mine whose family currently live in a leased apartment close to her son’s middle school.

“Since property prices are unlikely to rise substantially, I think the era of buying properties purely for investment purposes is now history. The possible property tax would only be considered in case of families buying or exchanging homes for living concerns,” said another friend who has no plan to buy any residential property in the near future.

This kind of conversations came after the Standing Committee of the 14th National People’s Congress, the nation’s top legislature, did not include property tax in its recent legislative plan. It is widely believed this special taxation will not enter legislative process at least before 2025, according to a report in 21st Century Business Herald.

James Macdonald, head and senior director of Savills China research, said the exclusion of real estate tax legislation from the 14th National People’s Congress legislative plan signifies a postponement rather than a cancellation of the legislative process.

The introduction of property tax has faced delays on multiple occasions in the past, with the most recent (perceived) delay likely being attributed to the current market conditions, where imposing additional taxes or costs might not be advisable.

However, looking to the future, property taxes hold the potential to offer substantial benefits. They can establish a dependable revenue stream for local governments, encourage responsible land use and enhance funding for essential local services, said Macdonald.

Chen Sheng, president of the China Real Estate Data Academy, said now is probably not the best time to introduce property tax, given the overall market condition and the mounting pressures developers are facing. Any tax now may cause market fluctuations.

“I think legislative procedures for property tax may be more likely when developers’ operations are stabilized, and the market sees an uptrend, or at least recovers to a stable condition,” Chen said.

The main purpose of levying real estate tax is to prevent investment speculation, but in the current market situation, the principle of “houses are for living in and not for speculative investment” still applies. So, whether the relevant legislation appears in the plan or not, this will not change the real estate fundamentals, said Shaun Brodie, head of research on the China market with Cushman & Wakefield, a global real estate services firm.

The ongoing real estate policy adjustments and optimization, such as relaxing housing loans, reducing interest rates for first homes and eliminating restrictions on purchases and sales, are intended to gradually meet residents’ needs for essential housing and promote the steady and healthy development of the real estate market, Brodie said.

Source : ChinaDaily

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China Property Stocks Fall 20% From May High as Concerns Linger

Sean Potter — Wed, 12 Jun 2024 08:09:35 +0000

China’s property stocks entered a technical bear market over concerns that Beijing’s efforts to bolster the sector are too small to end the rout.

A Bloomberg Intelligence gauge of Chinese developer shares fell 3.3% on Thursday, extending losses from a mid-May high to almost 21%. Sunac China Holdings Ltd. was the biggest laggard with a slump of 12%, while CIFI Holdings Group Co. sank 8.4%.

Real estate stocks have retreated amid skepticism over a broad support package unveiled by the central government on May 17. While investors initially cheered the policies, which include lower down-payment requirements for homebuyers, they have since questioned how useful they will be in reviving demand and addressing a housing inventory glut.

There’s also the concern about the size of the measures. Officials have said that a central bank program would incentivize bank loans worth 500 billion yuan ($69 billion), but that’s a small fraction of the value of China’s vacant apartments.

”The latest sales data show there’s not much improvement in property fundamentals,” said Jeff Zhang, an analyst at Morningstar Inc. “We may need to wait until the end of year to see a narrowing of declines or a rise in monthly sales as a result of the government’s rescue package.”

New-home sales at the 100 biggest real estate companies dropped 33.6% from a year earlier in May, easing from a 45% decline in April, China Real Estate Information Corp. data showed. While the slight month-on-month pickup buoyed property shares earlier this week, worries over the long-term outlook later pushed investors to take profits.

“We only do short-term investment in Chinese property stocks as the industry’s fundamentals are still weak,” said Joy Young, the founder of Shenzhen Infinite Fund Management Co.

As some investors wait for a clearer sales-recovery picture, others are seeking clues on major policy shifts that may be unveiled at the Third Plenary Session in July.

Beijing will likely follow other cities such as Shanghai and Shenzhen in relaxing housing curbs, according to John Lam, an analyst at UBS Group AG. Other possible measures may focus on destocking, he added.

Morningstar’s Zhang expects the Chinese government to be more active on property supports until July’s plenum, “but the room for policy adjustments may be smaller than before, as the May rescue package is already very forceful.”

Source: Bloomberg

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Javier Valdez — Sat, 08 Jun 2024 10:58:28 +0000

KUALA LUMPUR: Malaysia’s property market is poised to remain stable in 2024, followed by sustained growth in the next three years, bolstered by various initiatives of the Madani government under Budget 2024, said Housing and Local Government Minister Nga Kor Ming.

He said the property market has demonstrated significant growth and resilience, with individual property counters experiencing up to 600% growth in share price appreciation.

He said property counters in the stock market have been on the rise from January 2023 to June 2024, with 76 out of 100 on Bursa Malaysia experiencing an increase in share prices.

“(Meanwhile,) 22 counters showed a decrease in share prices, (and) two counters maintained their share prices despite fluctuations,” Nga said in a statement today.

He noted that among the top counters were DPS Resources Bhd, registering 600% growth in share price, UEM Sunrise Bhd, posting a 347% increase and WMG Holdings Bhd, which appreciated by 326% from January 2023 to June 2024.

“This positive trajectory is expected to continue into the second half of 2024. I firmly believe that under the leadership of Prime Minister Datuk Seri Anwar Ibrahim, our property market will have a bright future in the coming years.

“We must work together to enhance our industry’s reputation and increase the confidence level of investors to make the property market even more resilient,” said Nga.

According to the statement, Malaysia’s property market transactions were valued at RM42.31 billion, with more than 89,000 transactions recorded in the first quarter of 2023. In the first quarter of this year, the value of property market transactions hit RM56.53 billion, an increase of RM14.22 billion, with more than 104,000 deals.

“This significant growth indicates that Malaysia’s property market is recovering well and on the rise,” the statement added.

Source: The Sun

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China’s Big Property Market Problem Will Take at Least 4 to 6 Years to Resolve

Jeffery Blair — Mon, 08 Jan 2024 10:52:32 +0000

BEIJING — China has a big problem within real estate that will take years to resolve, according to analysis from Oxford Economics lead economist Louise Loo.

Looking at nationwide data — whether based on official estimates of unsold inventory or the construction-to-sales ratio — Loo found it will take at least four to six years for real estate developers in China to complete unfinished residential properties.

That means efforts to boost funding to developers and other efforts to resolve China’s property market problems don’t directly address the bigger issue of uncompleted homes.

“However one slices the data, the existing excess supply in the market is likely to take at least another four years to unwind, absent a meaningful pickup in demand,” Loo said in a report Tuesday.

“Increasing supply coming from secondary market transactions – as households, worried about depleting profits from price declines, sell their second or third homes – is an additional drag to this process,” she said, noting that “developers’ inventory is far too large for households to absorb quickly.”

Apartment homes are typically sold ahead of completion in China, making it critical that developers finish constructing the houses if they are to sell more.

But financing struggles and other issues have meant developers have had to delay home delivery times — discouraging future home sales.

On the extreme end, residential construction in the relatively poor province of Guizhou could take well over 20 years to complete, Loo said in an email, while it will likely take at least 10 years in several other provinces such as Jiangxi and Hebei.

Nomura last month estimated the size of unfinished, pre-sold homes in China is about 20 times the size of property developer Country Garden as of the end of 2022.

Real estate and related sectors have accounted for about a fifth to one-fourth of China’s economy.

Ratings agency Moody’s said late Tuesday it expects that share to decline, in-line with Chinese government objectives. However, the firm pointed out the resulting drop in land sales means local governments may face financial strain if they are unable to offset what’s been a driver of more than a third of revenue.

That means Beijing may need to step in, posing “downside risks to China’s fiscal, economic and institutional strength,” Moody’s said. It downgraded its outlook on China’s government credit ratings to negative from stable.

Moody’s expects China’s growth domestic product to slow to 4% growth in 2024 and 2025 and average 3.8% a year from 2026 to 2030. The firm maintained an “A1” long-term rating on China’s sovereign bonds.

Spillover?

Despite persistent property market troubles, Oxford Economics’ Loo doesn’t expect significant spillover to the rest of the economy.

“We think China’s housing downturn will tread a different path than that of the US, Spain, or Ireland 10-15 years ago, and is unlikely to trigger a broader financial crisis,” she said.

In those situations, falling house prices, mortgage failures and bank lending were interlinked, Loo said, pointing out the difference in China: the greater role of policy, state-controlled banks and more stringent mortgage terms.

Other analysts also expect China’s economy will take its own path.

“We do see some similarities between China’s situation and the economic stagnation in Japan after the latter’s property bubble burst in 1991,” S&P Global Ratings said in a report Monday. “However, S&P Global Ratings believes China can avert this outcome, helped by regulatory action and the strength of its banking and corporate sectors.”

Source : CNBC

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S. Korea’s Household Assets Fall on Property Market Slump

Garrett Townsend — Sat, 06 Jan 2024 02:17:38 +0000

SEOUL, Dec. 7 (Xinhua) — South Korea’s household assets fell for the first time in over a decade on the back of the property market slump, government data showed Thursday.

The average asset per household amounted to 527.27 million won (398,420 U.S. dollars) at the end of March, down 3.7 percent from a year earlier, according to joint data from Statistics Korea, the Bank of Korea, the Financial Supervisory Service.

It marked the first reduction since relevant data began to be compiled in 2012.

Per-household real asset, such as land and housing, retreated 5.9 percent in the cited period, but the financial asset expanded 3.8 percent.

The average value of residing homes per household tumbled 10.0 percent for the past year amid higher borrowing costs.

The Bank of Korea had left its key rate unchanged at 3.50 percent since January after hiking it by 3.0 percentage points for the past one and a half years.

Of the total household assets, the real asset accounted for 76.1 percent at the end of March, down 1.7 percentage points from a year earlier.

The average asset among households in the top 20-percent income bracket stood at 1,174.58 million won (887,550 dollars), about 6.8 times larger than 172.87 million won (130,630 dollars) in the bottom 20-percent income group.

Asset for those in their 60s or older added 0.9 percent in the cited period, but assets in all other age groups shrank in single digits for the past year.

The average debt per household inched up 0.2 percent from a year earlier to 91.86 million won (69,410 dollars) at the end of March.

Per-household financial debt reduced 1.6 percent, but security deposit for homes advanced 5.3 percent.

Of the total households, the proportion of households with debt came in at 62.1 percent at the end of March, down 1.3 percentage points from a year earlier.

The average debt among households in the bottom 20-percent income bracket surged 22.7 percent to 20.04 million won (15,140 dollars), while debt in the top 20-percent income group rose 0.4 percent to 206.34 million won (155,920 dollars).

Meanwhile, the per-household average income grew 4.5 percent over the year to 67.62 million won (51,100 dollars) in 2022.

Earned income increased 6.4 percent to 43.90 million won (33,170 dollars), and business income climbed 4.0 percent to 12.06 million won (9,110 dollars).

Public transfer income declined 4.8 percent to 6.25 million won (4,720 dollars) last year on lower government grants for small merchants and micro businesses suffering from the COVID-19 pandemic.

The average non-consumption expenditure per household, including tax, social insurance fee and interest payment, expanded 8.1 percent to 12.80 million won (9,670 dollars) in 2022 compared to the previous year.

Interest payment surged 18.3 percent last year, while expenditure for tax and social insurance fee gained 4.1 percent and 8.2 percent respectively.

Source : Xinhua

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Will Hong Kong’s Tax Tweaks End Its Real Estate Slump?

Billy Day — Tue, 02 Jan 2024 01:24:07 +0000

Rescue measures intended to coax mainland Chinese to purchase residential property in Hong Kong have failed to woo buyers, as the financial hub’s property market slump deepens.

It comes six weeks after Hong Kong Chief Executive John Lee tweaked official housing policy, lowering purchase duties and weakening disincentives against quick resales.

“My WeChat has been buzzing with inquiries from [Hong Kong-based mainlanders] about the specific [changes], but not a single one is interested in viewing properties,” said a real estate agent surnamed Pan, who has some two decades of experience in Hong Kong.

For the past five years, Pan has focused on so-called Hong Kong drifters, a mostly professional class who plan to be in the city long term and lack permanent residency but may be working toward it. Hong Kong is thought to be home to about 350,000 such people.

On Oct. 25, the chief executive delivered his second policy address, an annual speech that sets the political agenda in the city. Lee adjusted a regime of property controls intended to keep a lid on prices that dates back to the global financial crisis. Two key stamp duties that previously added 30% to a purchase price would be cut in half, he said.

Lee also beefed up talent incentives, announcing certain professionals that move to Hong Kong would not need to pay stamp duty so long as they subsequently obtained Hong Kong permanent residency (HKPR).

For long-term renters from the Chinese mainland, it should all have been good news. But Caixin has found that despite an uptick in the city’s new residential transactions, many still remain hesitant to buy.

“Mortgage rates are too high right now,” said Chen Yuan, a financial services professional who has worked in the city for six years. “There’s no good reason to take out a loan during a property market downturn.” Chen said turbulence in her industry, where her husband also works, was a key factor in their decision to put off buying a house.

Hong Kong’s property market continues to slump as rates rise and capital flees in search of safer investments like fixed deposits. The uncertainty has dented confidence as more potential buyers adopt a wait-and-see posture. A recent UBS report predicts the drop in property prices will reach 5% this year and accelerate to 10% in 2024.

Hong Kong’s property prices remain some of the world’s highest. They rose continuously, with occasional short-term corrections, from the global financial crisis of 2008 up until a historic annual decline in 2022. But the recent shift, and the absence of a sustained post-pandemic bounce, has many investors asking where the market is headed and what a recovery will look like.

Less than expected

Lee’s changes announced in the policy address fell short of market expectations. “This is not even half of what was expected,” said Joseph Tsang, chairman of the Hong Kong branch of global developer giant JLL.

“Over the past year, interest rates have risen significantly, various economies have shown moderated growth and transactions of the local residential property market have declined alongside a downward adjustment of property prices,” Lee said in his address.

He said an expected increase in housing supply in the near term justified easing the measures intended to cool demand. Those measures include three taxes on property sales: the special stamp duty (SSD), the buyer’s stamp duty (BSD) and the new residential stamp duty (NRSD).

Lee said that from Oct. 25 buyers would only need to wait two years before reselling if they wanted to avoid an SSD of 10%. Previously, homeowners were required to wait three years if they wanted to avoid the additional tax.

Long an attractive place for mainlanders to park their money and hedge against risks closer to home, Hong Kong’s speculative inbound capital had nonetheless come in waves. A key instance was after the 2008 global financial crisis, when quantitative easing made the city’s property market an attractive proposition. The SSD was introduced in 2010 in part to combat that. The BSD followed in 2012 as a tax on purchases by non-HKPRs.

In his October policy speech, Lee also announced that the BSD and NRSD would be cut in half to 7.5%. The change was intended to ease the financial burden of housing purchases on HKPRs and non-HKPRs alike, he said.

Finally, a refundable upfront payment of the BSD and NRSD would be scrapped for “inbound talent,” meaning incoming professionals who eventually obtained HKPR. Lee said this was an “enhancement” of the refund arrangement, introduced last year, under which the cohort did have to pay the duties up front, but were entitled to a refund after they had lived in Hong Kong for seven years and obtained HKPR.

Rosanna Tang, executive director and Hong Kong head of Research at Cushman & Wakefield, said the new stamp duty exemptions for incoming talent were in line with the government’s broader efforts to remove barriers for individuals interested in developing their careers in Hong Kong.

Market carnage

Last year, Hong Kong’s preowned home price index fell 15.6%, with transaction volumes falling nearly 40%. Then, in the first four months of 2023, the property market experienced a rapid recovery after the border reopening with the mainland. From January to April, its preowned house prices rose for four consecutive months.

It would not last. According to data from Cushman & Wakefield, there were less than 9,200 housing sales in the third quarter of 2023, 25% down on the prior quarter and 21% down on the prior year. Edgar Lai, a senior director of valuation and advisory at Cushman & Wakefield in Hong Kong, told press that the third quarter, usually peak transaction season, was the worst he had seen in more than 20 years in the industry.

The strong stock market rebound at the end of 2022 also petered out. Hong Kong stocks have been hemorrhaging since then, disrupting the traditional investment approach of making money on the stock market and investing it in property.

Meanwhile, the continued rise in mortgage rates has discouraged potential homebuyers from entering the market. The U.S. Federal Reserve began a round of successive interest rate hikes from near zero at the beginning in March 2022 to a range of 5.25% to 5.5% in September this year.

Facing the high cost of funds, several major commercial banks in Hong Kong started to raise their prime lending rates for mortgage loans in September 2022. After the latest hike in July 2023, HSBC, Bank of China and Hang Seng Bank currently have a prime rate of 5.875%, representing a cumulative increase of 0.875 of a percentage point. Smaller banks such as Bank of East Asia and Citibank have raised their prime rate to 6.125%.

Meanwhile, Hong Kong’s tourism and retail sectors recovered less than expected following the city’s reopening. Locals cleared out in favor of tourist destinations abroad. Dampened by the sputtering Chinese economy, few inbound tourists replaced them. In the first eight months of 2023, only 20 million tourists visited Hong Kong, less than half as many as in the comparable period of 2018.

Sellers quick to offload

As U.S. interest rates remain high, the interest on Hong Kong dollar fixed deposits continues to rise steadily. Major banks have all raised their three-month fixed deposit rates to 4.5%, with some smaller banks offering more than 5% interest on large fixed deposits.

Timed deposits, which tend to offer lower returns than stocks and bonds and lack flexibility, have become the de rigueur place to park cash from a housing sale.

Meanwhile developers are struggling with unsold inventory. According to data from Centaline Property Hong Kong, unsold inventory of new private residential properties surged to 20,483 units in the third quarter of 2023, reaching a near 20-year high.

In fact, since the second half of this year, the market has seen a number of residential properties at lower prices. In early August, CK Asset Holdings, the property flagship of Hong Kong billionaire Li Ka-shing, sold its Coast Line II project in Yau Tong at a discounted price, causing a stir in the primary market.

Road to recovery

In the six weeks since the changes, the transaction volume of new residential properties has noticeably rebounded, but the downward trend in property prices continues.

Between Oct. 25 and Nov. 25, the transaction volume of new residential properties was up by around 2.8 times month-on-month, reaching 678 transactions, according to Centaline.

Meanwhile, an index for private flats from the Rating and Valuation Department fell by 2.2% month-on-month in October, marking the sixth consecutive monthly decline.

While the uptick in new housing sales may be related to the policy changes, it could also be down to developers aggressively promoting the sale of new properties at low prices, analysts said.

Derek Chan, head of research at Ricacorp Properties, believes low-cost launches by primary developers will continue to put pressure on preowned home prices.

Chan predicts that with a significant inventory of new residential properties, developers will continue to adopt a “quantity before price” strategy with low-priced launches in December. As a result, homeowners seeking to resell will need to do so at lower prices. He expects Hong Kong property prices to decline by 7% for the full year.

Ken Yeung, head of property research at Citi in Hong Kong, predicted that an improvement in economic conditions and interest rate cuts next year could see Hong Kong property prices bottom out in the first half of 2025.

Source : NikkeiAsia

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S’Porean Buyers Lead Prime Property Sales as Foreign Demand Wanes Amid Stamp Duty Hike

Aaron Maxwell — Mon, 01 Jan 2024 01:18:53 +0000

SINGAPORE – The hike in the additional buyer’s stamp duty (ABSD) for property has resulted in a steep fall in demand from foreigners, with analysts expecting the dampening effect to persist for an extended period.

In January 2023, foreign buyers accounted for 5 per cent of non-landed private resale home transactions, before falling to 3.7 per cent in May after the ABSD for foreigners was increased from 30 per cent to 60 per cent on April 27, noted PropNex Research.

The figure fell further to 1.2 per cent in September, and, by October, had slipped to 1.1 per cent, or nine transactions.

PropNex head of research and content Wong Siew Ying said that of the nine transactions linked to foreigners, seven involved buyers from the United States, and one each from Switzerland and Oman.

Ms Wong expects Singaporean and Singapore permanent resident (PR) buyers to continue to dominate resale condo sales.

She said that according to Urban Redevelopment Authority (URA) Realis data, foreigners from non-exempted jurisdictions accounted for 104 out of 165 resale condo transactions by foreigners from January to April, compared with 42 transactions from May to Nov 24.

Under existing free trade agreements, buyers from the US, Iceland, Liechtenstein, Norway and Switzerland do not need to pay ABSD for their first residential home in Singapore.

They have to fork out the extra stamp duty for subsequent residential properties.

“Overall, we would expect the punitive ABSD rate for foreigners to weigh on the sales of high-end homes,” said Ms Wong.

However, she added that anecdotal feedback indicates that there will still be some big-ticket property purchases, “perhaps among foreigners holding a US passport”.

“Foreigners who are looking at long-term residency in Singapore may also consider buying for their own use,” she said.

The higher ABSD was introduced as part of cooling measures to promote a sustainable property market, the Government said in April.

Ms Wong said fewer resale units were sold to foreigners in the core central region (CCR) and outside central region after the ABSD hike.

The number of units sold to foreigners in the rest of central region ticked up slightly.

Ms Tricia Song, CBRE head of research for Singapore and South-east Asia, said: “The largest impact obviously was in the CCR segment, given that traditionally it has the highest foreigner ratio.”

The number of foreign buyers in the CCR fell from 162 units in the first three months of 2023, to 39 units from July to September.

Six luxury apartments with quantums of $10 million and above, from developments such as Nassim Park Residences and Ardmore Park, were transacted between July and September.

This compares with 19 luxury apartments sold in the previous three months, said Ms Song, who expects the dampening effect on the luxury residential sector to persist in the first half of 2024.

Sculptura Ardmore at 8 Ardmore Park. PHOTO: SC GLOBAL

She said that besides the impact of the property cooling measures, other factors like macroeconomic uncertainties and elevated interest rates could also impact sales in the luxury sector.

“Activity could pick up in the second half of 2024 when the economy picks up more confidently and interest rates stabilise.

“Prices are unlikely to fall significantly, with limited new supply. In the longer term, Singapore remains an attractive safe haven for most investors,” added Ms Song.

Market observers said Singaporean buyers are poised to take centre stage in prime markets, as seen in the preview sale of Watten House in Bukit Timah on Nov 18.

More than half of its 180 units were snapped up, at an average price of $3,230 per square foot.

Artist’s impression of Watten House. PHOTO: COURTESY OF WATTEN HOUSE

Based on transactions done by PropNex agents, the majority were Singaporean buyers and Singapore permanent resident buyers, with only one non-PR foreign buyer from the US, said Mr Dominic Lee, head of luxury team at PropNex.

Singapore citizens buying their second residential property currently have to pay 20 per cent ABSD, and 30 per cent for their third and subsequent property.

PRs pay 5 per cent ABSD for their first residential property, 30 per cent for their second, and 35 per cent ABSD for third and subsequent properties.

Mr Lee said the transacted prices at Watten House ranged from $3.06 million to about $14.5 million, according to URA Realis data.

The purchases at the development showed local buyers have the liquidity to pick up prime, luxury units, he added.

“In 2024, we expect Singaporean buyers and Singapore permanent residents to continue to account for the majority of home sales, across the different sub-markets,” said Mr Lee.

Impact of ABSD

Ms Wong said foreigners accounted for 22.9 per cent of purchases of new sales and resale non-landed properties in December 2011, but the figure fell sharply to 7.3 per cent in January 2012, after the ABSD was first introduced on Dec 8, 2011.

She added that for the rest of 2012, the proportion of foreign buyers stayed below 10 per cent.

PropNex’s Mr Lee said the ABSD has been effective in bringing down the number of homes sold to foreigners.

He noted that between October and December 2011, foreigners purchased 1,236 non-landed new and resale private homes.

The highest number of such sales to foreigners in a single quarter was 634 transactions, between April and June 2012.

Mr Lee said foreign buyers used to return to the market a few months after each ABSD revision.

But with the soaring property prices seen in recent years, many foreign buyers have been hesitant to pay the 60 per cent rate.

Still, sales and buying interest will depend on the specifics of a project and whether it is priced sensitively, Mr Lee said.

If the project is good and well located, and the pricing is right, then it should still do well, he added.

Source : TheStraitsTimes

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