Property Market On Robust Revival

Residential property powering sales in Asia

PETALING JAYA: Asia’s property market is making a strong comeback with renewed buying interest for residential property powering sales on expectation that the economic downtrend is bottoming out.

However, the commercial property market, including office and retail space, is still quite soft as easing demand has resulted in rental and occupancy rates sliding.

Bouncing back from the dampened sentiment brought on by the global financial crisis, the regional property market has shown more resilience this time around compared with the 1997 Asian financial crisis which took a heavier toll on the market.

There is increasing evidence that the US recession is bottoming out and this will stabilise the region’s economy and spur its recovery during the second half of the year.

The recovery is expected to provide a favourable basis for both residential sales and leasing markets in Asia, including Kuala Lumpur, Singapore, Hong Kong and Jakarta.

Industry observers are expecting a more robust revival in the region’s property market towards the end of the year, in tandem with a further pick-up in the global economy.

Home prices are forecast to see further upside, driven by huge liquidity in the economy as well as further rebounds in residential rents.

UOB Kay Hian in a recent regional market update said residential sales made a strong comeback in the second quarter of this year on expectations of an economic recovery and relative stability of the job market, despite a steep fall in gross domestic product growth rates, low mortgage rates and a lack of alternative high-yield investments.

“Price levels rebounded by 5% to 10% quarter-on-quarter in the second quarter after a 30% to 50% fall from the end of 2007 peak levels. As the economic recovery gains ground in the coming quarters, we expect sales momentum to pick up and price levels to firm up further on the back of improving liquidity conditions and easy financing options,” the research house added.

UOB Kay Hian said structural transformation had lent a high degree of sustainability to the current recovery.

Across the region, interest rates are drastically low and currencies are fairly stable in comparison to the situation during the Asian financial crisis.

“Household affordability levels are relatively high this time around due to the higher income levels, record low mortgage rates and stronger net household wealth. Corporate balance sheets are also a lot stronger. Furthermore, favourable migratory patterns to Asia due to its attractive long-term growth potential help support a sustainable recovery in the residential sector,” the research house explained in its report.

Market stabilisers

In the office property sector, stabilising economic conditions since June provided support to the prime office market and rentals in Asia for the rest of the year are unlikely to fall as drastically as in the first quarter 2009.

Knight Frank said on the flip side, a continued downward adjustment in occupancy costs could raise the competitiveness of doing business in most Asian cities, and provide more business opportunities for international firms and investors.

Although Kuala Lumpur still lags behind some regional cities like Singapore and Hong Kong, residential property sales have improved.

ECM Libra senior analyst Bernard Ching said the local residential market was more resilient than other regional cities and prices had not been much impacted. This compared with a price drop of about 30% to 40% in Singapore and Hong Kong, he added.

The affordable interest rate environment and lower entry cost for buyers supported property buying and investment activities during the period.

With the average mortgage base lending rate (at 5.5%) minus 2% at an all-time low, Ching said property investment was making a comeback as the preferred hedging tool against inflation.

According to Reapfield Properties Sdn Bhd president David Ong, clearer economic direction in both the global and local arenas had pushed property to regain its position as one of the leading investment instruments among Malaysians.

“Coupled with the more liberalising environment, the property market is in for stronger growth and sales performance going forward,” he noted.

Recent policy liberalisation measures to attract foreign direct investments to Malaysia’s real estate market and relaxation of rules on property purchases by foreigners have also resulted in positive effects on the property sector.

Source : The Star, 31 August 2009