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Monday, 7 September 2009
Ignore the doomsayers - home prices will keep rising
“Bubble” may be the word on everyone’s lips when talking about spiralling housing prices on the mainland, Hong Kong and Singapore, but contrarians believe these fears are overblown and prices have yet to peak.
Ignore the doomsayers - home prices will keep rising
Kevin Lim 06 September 2009
“Bubble” may be the word on everyone’s lips when talking about spiralling housing prices on the mainland, Hong Kong and Singapore, but contrarians believe these fears are overblown and prices have yet to peak.
They point to savings-heavy Asia’s preference for bricks and mortar, low interest rates and a faster-than-expected recovery in Asian economies, led by China.
“We’re not near any bubble territory. Such rapid upward moves have simply illustrated the resilience of Asian households and companies,” says Frankie Lee, who manages around US$800 million as head of property equities for Asia at Henderson Global Investors.
Lee says property prices will continue to rise in the next one or two quarters, but less sharply, as the nascent economic recovery takes hold.
Bubble contrarians say housing, especially in Singapore and Hong Kong, remains affordable to the cash-rich locals, even after recent gains.
Tan Chin Keong, real estate analyst with UBS Wealth Management in Singapore, notes a typical Hong Kong homebuyer would have to set aside about 35 per cent of their monthly income to service a mortgage at current prices, down from 70 per cent a decade ago. In Singapore, household debt is around 15 per cent of total assets, while cash holdings alone exceed the total amount of borrowings, Tan says, citing central bank figures.
Mortgage rates in Hong Kong and Singapore have also been falling and are at or near all-time lows, due to loose monetary policies and fierce competition among banks.
Hong Kong’s residential prices have risen by more than a fifth this year. In Singapore, residential sales hit new record highs in June and July.
Mainland homebuyers are also flush with cash, analysts say. Lee Wee Liat, China property analyst at Nomura, says feedback from developers indicates that around 30 per cent of homebuyers paid for their property in cash, while those who borrowed typically took loans of 50-60 per cent of the property value.
Still, market bears continue to warn that the mainland’s housing prices may begin to ease and could reverse early next year as supply catches up and demand wanes.
Property consultancy DTZ cautions clients not to be caught up in the current euphoria over Asian residential property, saying market bulls are looking at just one to two months of data and calling it a trend.
The rally in home prices has helped property stocks outperform.
In Hong Kong, the HSI-Properties Index is up nearly 50 per cent this year, outperforming the 37 per cent advance on the main index. In Singapore, property stocks have gained 57 per cent, compared with a 50 per cent rise in the benchmark index.
Many developers in Hong Kong are trading below their estimated net asset value. Nomura and others have “buy” recommendations on Sun Hung Kai Properties, Cheung Kong (Holdings) and Sino Land.
Nomura expects Hong Kong home prices to gain 27 per cent this year and 12 per cent in 2010.
The outlook for mainland property stocks is mixed because of uncertainty about the sorts of measures authorities are likely to implement.
Paul Louie, Nomura’s regional head of property research, says that while there are signs of a potential bubble brewing in Hong Kong residential real estate, “affordability remains very healthy”.
“It’s too early to get out of the housing market,” he says.
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Ignore the doomsayers - home prices will keep rising
Kevin Lim
06 September 2009
“Bubble” may be the word on everyone’s lips when talking about spiralling housing prices on the mainland, Hong Kong and Singapore, but contrarians believe these fears are overblown and prices have yet to peak.
They point to savings-heavy Asia’s preference for bricks and mortar, low interest rates and a faster-than-expected recovery in Asian economies, led by China.
“We’re not near any bubble territory. Such rapid upward moves have simply illustrated the resilience of Asian households and companies,” says Frankie Lee, who manages around US$800 million as head of property equities for Asia at Henderson Global Investors.
Lee says property prices will continue to rise in the next one or two quarters, but less sharply, as the nascent economic recovery takes hold.
Bubble contrarians say housing, especially in Singapore and Hong Kong, remains affordable to the cash-rich locals, even after recent gains.
Tan Chin Keong, real estate analyst with UBS Wealth Management in Singapore, notes a typical Hong Kong homebuyer would have to set aside about 35 per cent of their monthly income to service a mortgage at current prices, down from 70 per cent a decade ago. In Singapore, household debt is around 15 per cent of total assets, while cash holdings alone exceed the total amount of borrowings, Tan says, citing central bank figures.
Mortgage rates in Hong Kong and Singapore have also been falling and are at or near all-time lows, due to loose monetary policies and fierce competition among banks.
Hong Kong’s residential prices have risen by more than a fifth this year. In Singapore, residential sales hit new record highs in June and July.
Mainland homebuyers are also flush with cash, analysts say. Lee Wee Liat, China property analyst at Nomura, says feedback from developers indicates that around 30 per cent of homebuyers paid for their property in cash, while those who borrowed typically took loans of 50-60 per cent of the property value.
Still, market bears continue to warn that the mainland’s housing prices may begin to ease and could reverse early next year as supply catches up and demand wanes.
Property consultancy DTZ cautions clients not to be caught up in the current euphoria over Asian residential property, saying market bulls are looking at just one to two months of data and calling it a trend.
The rally in home prices has helped property stocks outperform.
In Hong Kong, the HSI-Properties Index is up nearly 50 per cent this year, outperforming the 37 per cent advance on the main index. In Singapore, property stocks have gained 57 per cent, compared with a 50 per cent rise in the benchmark index.
Many developers in Hong Kong are trading below their estimated net asset value. Nomura and others have “buy” recommendations on Sun Hung Kai Properties, Cheung Kong (Holdings) and Sino Land.
Nomura expects Hong Kong home prices to gain 27 per cent this year and 12 per cent in 2010.
The outlook for mainland property stocks is mixed because of uncertainty about the sorts of measures authorities are likely to implement.
Paul Louie, Nomura’s regional head of property research, says that while there are signs of a potential bubble brewing in Hong Kong residential real estate, “affordability remains very healthy”.
“It’s too early to get out of the housing market,” he says.
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