Singapore: Asian property firms are beginning to see light at the end of the tunnel and several are positioning for an upturn even as the world economy struggles to recover from its worst recession in decades.
The mood among US and European executives at this week’s Reuters Global Real Estate Summit is glum, but Asian counterparts are more upbeat with some revealing plans for new projects in anticipation of an upturn later this year.
For instance, Chinese commercial property developer SOHO said it has built up a war chest of $1.9 billion to replenish its land bank and intends to start new projects in Shanghai and Beijing in coming months.
Indiabulls, India’s third-largest listed property developer, aims to launch six to seven residential projects in the financial year ending in March 2010 on the back of an expected recovery in demand.
“The general mood has been cautious, but there is also optimism. Asian companies in general are in much better shape compared to their peers in other regions,” said Ayala Land chief financial officer and Asian Public Real Estate Association president Jaime Ysmael.
Spurring the optimism in Asia is a recovery in residential markets, with price cuts drawing buyers in China, Hong Kong and Singapore, where saving rates are high and banks are prepared to lend.
The volume of transactions in these places are close to levels seen during the bull market of 2007 and residential property values have begun to edge upwards as developers such as Singapore’s City Developments raise prices.
Asian property values did not rise as much as in the US and parts of Europe this decade. In dollar terms, property in countries such as the Philippines are cheaper than before the onset of the Asian crisis in late 1997.
Interest rate cuts and government stimulus plans are also helping regional property markets recover.
Singapore residential prices were supported by mortgage rates that were below rental yields, a Bank of America Merrill Lynch report said this week.
“At the current mortgage rate of around 2.75%, our net cost of carry model implies that prices can rise by 30% before home buyers enter negative carry,” it said. The bank predicts Singapore home prices will rise 20% next year.
Singapore’s housing market has been hit hard by the downturn, with home prices plunging nearly 14% in the first quarter of this year, the steepest drop in over 30 years, according to government data.
Separately, Nomura said unemployment was stabilising in Hong Kong and forecasts home prices and rents in the Chinese territory will rise by 22% and 11%, respectively, this year.
A poll of 10 analysts conducted in conjunction with the Reuters Global Real Estate Summit showed China home prices are expected to gain an average of 10% between now and the end of 2010.
The outlook for Asia’s office market remained negative but most developers said rents have stabilised after falling sharply in the fourth quarter of 2008 and earlier this year.
Some investors said any pick-up may not be sustainable.
“There is a risk that this is a bear market rally and the situation could reverse when such liquidity leave the cities or country, or there is new shock to the economies,” said LaSalle Investment Management’s Asia-Pacific head of research and strategy Kenneth Tsang.