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Capitol Gains, Capital Losses
They can affect the rest of our lives but do politics really have any influence on property?
| Text : Elizabeth Kerr | Photo : www.thinkstockphotos.com |
The shadow of American mid-term elections still looms and after all is said and done only one thing was guaranteed: currencies would go into a bit of a tizzy. Elections of any sort are notorious for their (usually) short-term impact on money and stock markets, but to say politics comprises simply voting is way off target.
With Donald Tsang’s policy address still fresh in everyone’s minds (perhaps) and with those American midterms even fresher, you have to wonder how much any of this influences property and, by association, those of us that are in the market to buy.
There has been no shortage of significant political shifts in the last quarter century or so in every corner of the globe: the end of Thatcher-era conservatism in the UK, the end of apartheid rule in South Africa, and the handover right here in Hong Kong among countless others.
Property markets are sensitive beasts and even the smallest of shifts can have a trickle down effect that winds up having sway over what we buy and where. Well, that’s not necessarily so says Ricky Poon, Colliers International’s executive director of residential sales. “I don’t think so. It’s very minor … [Politics] only has an impact when policy directly relates to property,” he theorises. In October, Tsang lightly touched on the issue of a new version of the Home Ownership Scheme (HOS) and other solutions for Hong Kong’s housing crunch. “[Donald Tsang] was just trying to cool down property prices and get the message to the market that within the next two to five years the government would make sure there was enough supply for those who want to buy property. There’s no rush to enter the market at the moment and pay higher prices,” Poon reasons.
Some of the cooling measures the government has introduced are aimed at limiting enormous influxes of cash — largely from Mainland China — that are driving prices up, but beyond that there’s nothing in the address or in recent policy that could be considered truly controversial. It’s also possible that Hong Kong just isn’t that susceptible to potentially destabilising factors.
It’s theorised that investors like stability, and it’s one of the things that makes certain locations — the United States, the UK, Canada, Australia — traditionally popular investment choices. “Canada is in a unique fiscal position in the world with relatively low public debt and deficits and a quality of life that is second to none,” says Dan Scarrow, Vice President of Corporate Strategy for Vancouver’s Macdonald Realty Group. “This political and economic stability is attractive to a whole host of people from around the world who see troubling times ahead.”
The UK is a stable market too, but isn’t blessed with the wide-open spaces Canada is, and the country is staring at a supply shortage similar to Hong Kong’s. Household numbers are rising in London, and the combination of government policy and slow development cycles mean prices are bound to rise in the near future. In London’s case, citizen-friendly policy is having an effect. “The current coalition government is strengthening that neighbourhood control,” even though development is desperately needed says Jack Simmons, director of residential development and investment at Jones Lang LaSalle in London. On top of that, “We have a deficit of 156 billion sterling that needs to be paid down. Taxes will be going up and that will have an impact on disposable income. If disposable income is challenged the ability to move up the housing ladder is also challenged.”
But instability doesn’t always chase people away, as is the case in Thailand, where coup d’etat are frequent and the Thai population has no qualms about making itself heard. In spring of this year, Bangkok came to a near standstill when demonstrators took to the downtown streets demanding the ruling government step down. That had an immediate and direct impact on tourism and hotel reservations — occupancy was half what it was during the same period in 2009 — but like the time around the coup in 2006, buyers aren’t scaring that badly.
“People who know Thailand reasonably well take the politics in stride,” explains David Simister Chairman of CB Richard Ellis (Thailand). He disagrees with Poon on the influence political machinations have on property markets, but only so far as awareness goes. “I think it does have an impact. I think if people don’t know the place and aren’t here [they] probably need to be persuaded.”
Southeast Asia is dotted with spots that make it difficult to definitively state that politics plays a part in property. A burgeoning tourism hot zone is Vietnam, officially the Socialist Republic of Vietnam, and the Royal Group in Cambodia is readying the massive development of Koh Rong, something new for a country best known for its temples and so-called Killing Fields. But Cambodia is also one of the youngest countries in the world, and its entrepreneurs are guiding it more than its politics in some instances.
So Simister’s argument that economics have more of an effect than civil unrest is a valid one. “The Asian crisis had a profound effect on Thai bankers and on the era of lending incautiously, and that’s resulted in quite a low level of debt on real estate here. Foreigners have never been able to borrow and have always been cash buyers,” he remarks. The period between 2001 and 2005 was defined by rampant speculation in Bangkok, and post-crisis there was a buying frenzy for Phuket and Koh Samui resort properties at prices 40 percent lower than they had been.
Ultimately the politics of any given location remains on the periphery of day-to-day life. Of Thailand’s woes Simister believes it will sort itself out eventually. For all the drama in the country, prices are stable. Compared with Hong Kong or Singapore, “Prices climb at a much more modest rate and then hold during periods of uncertainty. There’s no visible evidence of the effect of May today,” says Simister. “If I was advising someone on buying I would say don’t be surprised if we go through similar events again before there’s a resolution. There’s almost a dichotomy between politics and the economy in Thailand. We know Thailand will still be here. We don’t know who’ll be running the show, but we’re confident the economy will continue and politics won’t drag it down. I think that’s a fairly commonly held local view. And I think foreign buyers know that too.” So the answer to the question? A resounding, “Sometimes.” Considering the nature of politics it couldn’t be more apropos.
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