How quickly things change. In January Japan was the rising property star of Asia and Thailand was the go-to holiday location. And Hong Kong? Hong Kong was on a hideous downward spiral, getting set for a rocky 2014. But property prospects can change as fast as the news cycle, which just may be the case for all three locations.
Quantity Over Quality
Since the implementation of extra stamp duties last February, Hong Kong’s residential property market in particular has taken a hit. In 2013, the overall number of residential sales transactions hit a near 15-year low at just over 50,000, with luxury transactions at under 700. Perhaps not at all strange, the ultra high end — purchases over $100 million — remained largely unchanged between 2012 and ’13 (38 versus 36).
So it’s with cautious enthusiasm that Colliers International’s latest figures show an uptake in transaction volumes even as prices continue to fall. Colliers still expects rents and prices to fall in both mass and luxury sectors in 2014 (up to 8 percent on rents; up to 20 on prices), and end-users will be driving the bus, but Joanne Lee, Colliers’ manager of research and advisory, sees developers juicing the drab sales climate. “A number of recent primary project launches are offering attractive incentives to stimulate sales, including cash rebates on [stamp duties].” Ricky Poon, executive director for residential sales, also points out first hand sales discounts are likely to stimulate second hand vendors that were previously holding out for better. “Seeing the aggressive pricing of primary project launches and the closing price gap between the primary and secondary sectors, some owners of second-hand properties are now likely to be more willing to offer discounts in order to get nearer to the price expectations of potential buyers and ultimately succeed in closing their sales,” said Poon. It all adds up to more transactions all around, something nearly unimaginable six months ago.
But Hong Kong isn’t the only market in immediate flux. Since November, Thailand has been embroiled in yet another political brouhaha that took a turn for the deadly when, according to the BBC, four people were killed when violence erupted in the process of police clearing occupied streets. Prime Minister Yingluck Shinawatra’s refusal to resign, the rift between urban and rural Thais and perceived bureaucratic corruption are among the issues, but things seem fiercer than in past uprisings. Will this pass like the others?
“Obviously the news is not good,” begins James Pitchon, executive director and head of CBRE research and consulting in Thailand. “But the physical disruption to downtown Bangkok has actually been less so far than the red shirts in 2010. Property markets tend to move like oil tankers. They don’t react instantly like currency or equity markets.” 2013 saw Bangkok’s best office take-up since 2005 with limited new supply in the pipeline, and a vacancy rate below 10 percent. While commercial investors with plans already underway haven’t abandoned Thailand, there has been an impact. Decisions are coming slower, particularly from overseas start-ups, and consumer confidence is down. Pitchon also notes that multi-nationals already operating in Thailand are used to the ebbs and flows of Thai politics and they plan for the long term.
But could the constant unrest inspire investors to throw their hands up and give up? Pitchon doesn’t think so as regional rivals — Burma, Vietnam, Indonesia — lack the infrastructure that appeals to investors. In the residential sector, the bigger issue is the volume of mid-market product coming online and how many of those purchases were speculative. “Banks and equity investors will be looking carefully at the ability of developers to translate their recorded backlog of sales into completed transactions when these buildings are completed this year and next,” finishes Pitchon.
But Thailand isn’t alone in experiencing unforeseen challenges. In mid-February, Japan reported anaemic economic growth in the fourth quarter of 2013, leading pundits to wonder if Abenomics is really working, and more importantly whether the country is in any position to weather the forthcoming increase in sales tax to 10 percent. “GDP growth for 2013 Q4 was 0.3 percent, well below expectations, however, domestic private demand shows robust rise for the fourth consecutive quarter with strong improvement in corporate capital investment,” notes Jones Lang LaSalle Japan’s Head of Research, Takeshi Akagi. Consumption did rise in the same period, but speculation is that it was a pre-emptive response to that tax.
“The third arrow of Abenomics growth strategy involves various reforms/deregulation of Japan’s traditionally regulated areas such as agriculture, health care, employment system, and it was expected since its announcement [to] require more time than the first two arrows,” explains Akihiko Mizuno, head of capital markets at JLL. Corporate Japan, Mizuno notes, is seeing their earnings increase, which is resulting in increased employment opportunities for new graduates among others. “Corporations are considering increasing wages so the total tax income to the government is expected to grow. Combined with the increase in consumption tax in April, the government should be able to start solving the huge deficit issue.”
Despite some economic hiccups, Mizuno expects to see a positive CPI movement that will positively impact property as the real economy improves, and research by IP Global in Hong Kong notes the combination of mitigating tax breaks on home purchases, low borrowing costs, the low US Dollar to Yen rate and housing starting 18 percent below average for limited supply keep Japan attractive and JLL estimates overseas investment will jump from 13 to 20 percent of all transactions this year. No need to panic just yet, and besides. Things are likely to look a lot different in June.