Slowdown starts to impact AsiaTechnology | Shawna Kwan, Emma Dong and Pooja Thakur 10 Jan 2019
Asia is finally succumbing to the global property slowdown that's jolted homeowners and investors from Vancouver to London, with markets in Singapore, Hong Kong and Australia showing fresh signs of softening.
The economic ramifications could be serious.
Lower house prices and higher mortgage rates will not only dent consumer confidence, but also disposable incomes, S&P Global Ratings said in a report last month. A simultaneous decline in house prices globally could lead to "financial and macroeconomic instability," the IMF said in study released in April.
While each city in the region has its own distinct characteristics, there are a few common denominators: rising borrowing costs, increased government regulation and volatile stock markets. There's also dwindling demand from a force so powerful it pushed prices to a record in many places - Chinese buyers.
"As China's economy is affected by the trade war, capital outflows have become more difficult, thus weakening demand in markets including Sydney and Hong Kong," said Patrick Wong, a real estate analyst at Bloomberg Intelligence.
After an almost 15-year bull run that made Hong Kong notorious for having the world's least affordable property market, home prices have taken a battering.
Values in the city have fallen for 13 weeks straight since August, the longest losing streak since 2008, figures from Centaline Property Agency show. Concerns about higher borrowing costs and a looming vacancy tax have contributed to the slide.
The strike rate of mainland Chinese developers successfully bidding for residential sites is also waning, tumbling to 27 percent in 2018 from 70 percent in 2017, JLL's Residential Sales Market Monitor showed. Of the 11 residential sites tendered by authorities last year, only three were won by Chinese companies.
"The change in attitude can be explained by a slowing mainland economy," said Henry Mok, JLL's senior director of capital markets.
"Throw in a simmering trade war between China and the United States, the government has taken actions to restrict capital outflows, which in turn has increased difficulties for developers to invest overseas."
Home prices on the island, which regularly ranks among the world's most expensive places to live, posted their first drop in six quarters in the three months ended December. Luxury was hit the hardest, with values in prime areas sinking 1.5 percent.
Government policies are mainly to blame. Cooling measures implemented unexpectedly in July included higher stamp duties and tougher loan-to-value rules.
Extra constraints since then have included curbs on the number of "shoe-box" apartments and anti-money laundering rules that imposed an additional administrative burden on developers.
It's all worked to put the brakes on a home-price recovery that only lasted for five quarters, the shortest since data became available.
"Landed home prices, being bigger ticket items, have taken a greater beating as demand softened," said Ong Teck Hui, a senior director of research and consultancy at JLL. (In Singapore, most people live in high-rise apartments. Landed homes by contrast occupy their own ground space.)
Sydney-siders have begun to wonder - what sort of economic fallout will there be from the wealth destruction that comes with the worst slump in home values since the late 1980s?
Average home values in the harbor city have fallen 11.1 percent since their 2017 peak, according to CoreLogic data released yesterday - surpassing the 9.6 percent top-to-bottom decline when Australia was on the cusp of entering its last recession.
While prices are still about 60 percent higher than they were in 2012, meaning few existing homeowners are actually underwater, it's economist forecasts of a further 10 percent fall that's making nervous investors think twice about extraneous spending.
The central bank is also worried that a prolonged downturn will drag on consumption and with the main opposition Labor party pledging to curb tax perks for property investors if it wins an election expected in May, confidence is likely to be hit further.
A crackdown on overheating prices has hampered sales and left values in the nation's biggest cities around 5 percent below their peak. Rules on multiple home purchases, or how soon a property can be sold once it's bought, are starting to be relaxed, and there are giveaways galore as home builders try to lure buyers.
One developer in September was giving away a BMW Series 3 or X1 to anyone wishing to purchase a three-bedroom unit or townhouse at its project in Shanghai. Down-payments have also been slashed, with China Evergrande Group asking for just 5 percent compared with the usual 30 percent deposit required.
"It's not a surprise to see Beijing and Shanghai residential prices fall given the curbing policies currently on these two markets," said Henry Chin, head of research at CBRE Group.
An index that measures second-hand home prices in Beijing has been falling since September while one that tracks Shanghai has been on the decline now for almost 12 months, he said.