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Reining In Property Prices

| 3/7/2013 9:00 PM Thursday

Budgetary measures in Hong Kong and Singapore have been looking to quell rising real estate prices. However, the policy moves are in turn hitting related sectors like banking.

Vikas Gattani
CEO,
Progress Capital

The markets in Hong Kong, China and Singapore remained quite weak over the past two weeks, while the rest of the ASEAN markets continued with their bull run.

Budgets were presented, both in Singapore and Hong Kong during this period. As I have mentioned earlier too, the Singapore government has been struggling with rising discontentment among its local population with respect to spiralling property prices, skilled immigrants taking up jobs and general price inflation. With a view to addressing those concerns, the government unveiled a budget on February 25, raising taxes on high end residential property, automobiles and severely tightening immigration policies with respect to hiring, etc. This has increased the cost of doing business for SMEs.

Hong Kong too doubled the sales taxes on property costing more than HKD 2 million and targeted commercial real estate for the first time by raising stamp duties to as much as 8.5 per cent of the purchase price. This is in an attempt to cool the real estate market after home prices doubled in the past four years. The influx of mainland Chinese nationals and prevalent low mortgage rates have been mainly responsible for pushing up real estate prices in Hong Kong.

The author firmly believes that real estate markets in most of Asia, particularly in Hong Kong and Singapore, have peaked for the next five to seven years. This is primarily because governments across the region would continue to take measures to curb any price rise and interest rates are bound to rise in this region over the next few years. An unprecedented real estate boom globally, more so in Asia, has been a result of low interest rates and easy credit availability. However, this party is now coming to an end as governments take control measures.

IndexFeb 22 2013Mar 1 20132-wk Chg (%)YTD (%)USD vs Currency (YTD %)Foreign Flows (Equity) (USD Mn)
Shanghai 2314 2360 2 1.9 0.1 NA
Hong Kong 23445 22880 -2.4 -0.1 -0.1 NA
Singapore 3283 3270 -0.4 2.6 -1.8 NA
Korea 1981 2027 2.3 1.2 -2.4 31
Thailand 1522 1540 1.2 10.6 2.6 24
Indonesia 4610 4812 4.4 11.5 0.8 1,969
Philippines 6522 6642 1.9 14.1 0.6 818
NIFTY 5887 5720 -2.8 -3.1 0.2 8,238
Vietnam 478 477 -0.1 15.3 -0.6 138
Source: Bloomberg   * NA – Not available  

China’s manufacturing data indicated expansion at a slower rate for February 2013, with the PMI coming in at 50.2 compared to an estimate of 50.5. This highlights the need to sustain a rebound in growth without triggering resurgence in inflation and banks’ bad debts. However, data during the weeklong Chinese New Year holiday period might have been distorted as manufacturers adjust their production schedules ahead of the festival.

South Korea’s trade data, which is an important barometer of global economic growth, revived with the goods trade surplus at USD 2.6 billion for January 2013 compared to December’s reading of USD 2.03 billion. Producer prices fell the highest in over three years as gains in the Won made imported raw materials cheaper and commodity prices declined. Consumer prices tumbled 1.6 per cent in January from a year earlier, the biggest fall since October 2009, after having dropped by 1.2 per cent in December 2012.

While the ASEAN stock markets have continued their bull run in the wake of better economic growth, political stability and a surge in foreign fund inflows, the valuations in these markets have started to get stretched. As mentioned earlier, the property and banking sectors are being adversely affected by policy measures in Singapore. The upcoming general elections and the attendant political rhetoric is making investors cautious in Malaysia. The Thai market has seen foreigners pulling money out for most of the past two weeks on account of profit taking as valuations get stretched. The Indonesian stock market looks better placed in the region on account of market consolidation over the last 12 months.

 

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