Friday Asia Digest: China’s Mega-Rich Lose Billions, Asia Bubble Potential Intensifies

4

China‘s property billionaires are far from happy this year, as government measures intended to curb speculation in China’s huge and virginal private ownership property market have been put into place. 8 of the country’s richest property moguls, all of whom are on Forbes’ “top Asian 100″ rich list, have lost a combined 3.87 billion USD, or 16% of their wealth, in the last year. Hui Ka Yan, Chairman of Evergrande Real Estate Group, took the biggest hit, as his estimated net worth has shrunk 21% to $4.9 billion in 2012. The company’s profit, excluding the revaluation of investment properties, also declined 21% to $598 million in the first half of 2012, as home prices were hit the most in inland cities where the company focused its expansion last year. The Shanghai Stock Exchange Property Index, similarly, has fallen 10% since early September last year. SOHO China, owned by Zhang Xin, one of the country’s top self-made women billionaires, also saw a sharp drop in net worth – SOHO, Beijing’s largest real estate developer, reported a 65% decline in first half net profits, as it completed fewer projects than expected.

Over the last two years, Beijing has raised downpayment and mortgage requirements, imposed a property tax for the first time in Shanghai and Chongqing, increased construction of low-cost housing and enacted home-purchase restrictions in about 40 cities. Analysts have been quoted saying that a soft landing for the property market would help China, whose economy is already predicted to display its weakest expansion in 22 years.

Indonesia & Thailand May be Bubbling – Hong-Kong Due to Burst

Asking prices for condos in Jakarta, Indonesia, have shot up nearly 12% since the second half of 2011 and by more than 50% since late 2008. “A” class office buildings are reporting occupancy levels of 98.1%, compared to 92% in Singapore and 85% in Kuala Lumpur. Developers are rolling out some extremely ambitious projects, not the least of which is Signature Tower, a 111-story building developed by PT Grahamas Adisentosa, with an estimated building cost of 2 billion USD – that is, if it’s ever completed. In the Indonesian island of Bali, as well, land prices have jumped 50% during the past year in the bustling Seminyak area, where many of the island’s new bars, hotels and malls are located. PT Lippo Karawaci also recently announced it was building 13 new shopping malls in the country.

All of the above signifies a major turnaround from a decade ago, when construction in Jakarta came to a standstill, with offices in the capital were only about 70% occupied, as Southeast Asia’s largest economy struggled to recover from an emerging-markets meltdown – a scenario that many fear may be re-visited upon Indonesia, particularly if China’s growth continues to decelerate, as anticipated. For now, however, developers are planning to charge ahead with plans to almost double the building work of the years leading up the 1997-98 crisis.

Thailand, meanwhile, is suffering from similar symptoms, albeit at a more advanced stage in the bubble process, which has now seen construction slowly grinding to a halt – few new property developments are being launched in Bangkok, as rising land prices mean that new developments are priced at levels that are only affordable for a small percentage of buyers. Most of the new downtown project launches in the city in the first six months of 2012 have been one bedroom developments, but it is becoming increasingly difficult for developers to acquire land at prices which make the units affordable. Four projects were launched in the second quarter of 2012 in the downtown area. The number of newly launched units decreased from 2,679 units in the previous quarter to 808 units in this quarter. In what analysts are labeling a rash and panicky move, the bank of Thailand has just made a 25 basis-point cut to interest rates, most likely made as a pre-emptive measure against global downturn, assumably believing that an early rate cut would also serve as an insurance to protect economic growth and employment – an opinion not shared by many, as the move came under intense criticism in the nation’s media channels.

And, while both Thailand and Indonesia, previously hailed as “Leading Asian Supremacy” seem to be poised for a necessary cool-down – the winner of the “World’s Biggest Bubble Just About to Bust” award is, unquestionably, Hong-Kong, the world’s most expensive real-estate market, where, adding to the city-state’s already prominent luxury housing bubble – yields on industrial properties are now also slowing, after prices of factories and warehouses doubled since early 2009. Increased demand for commercial space in Hong Kong has prompted factory and warehouse owners to convert properties to accommodate tenants seeking space for marketing showrooms and retail outlets. The average price of factory space has more than doubled since early 2009 to 2,708 HKD (349 USD) per square foot at the end of the first half. Home prices have gained more than 90% since early 2009. Rents for industrial space have risen about 50% since early 2009.

Global Gossip

* Foreign property investors, the majority of whom hail from Singapore, Hong-Kong and mainland China, are continuously taking advantage of Australia’s prime location slump, ignoring doomsayers’ predictions of an imminent crash, as the continent’s current mining cycle appears to be approaching its end. Off-shore firms have been flagged as responsible for two thirds of the commercial property deals in the country in the last quarter, adding to the already astounding 90% of hotel deals in the first half of the year, also purchased by foreign investors.

* All in all, however, and in spite of the afore-mentioned bubbles, would-be bubbles and imminent pessimistic crash assumptions, the Asia-Pacific region as a whole seems to be showing impressive resilience – particularly in light of conditions in Europe and the USA, reports Jones Lang LaSalle. Strong direct commercial property investment market in the second quarter was reflected by a 26% year-on-year rise in volumes to around 26.2 billion USD. Capital values also increased across most major markets. Office leasing activity fell by app. 10% in the second quarter of the year, compared to the same period last year, mainly due to “corporate caution and the flow-on effects of on-going economic uncertainty”, JLL officials were quoted as saying.

hotel* The increase in cross-border business and trade in Asia has given rise to the budget hotel segment, as was recently evident in the “Branded select service hotels” panel held at the InterContinental Hong-Kong. Among other industry revelations, attendees heard that in China, for instance, the top 10 budget chains represent 60% of the market. More sophisticated developers have been reported as getting into this segment, panelists claimed, as approximately 44% of the 436,740 guestrooms in the active pipeline in Asia fall into the upper-midscale, midscale and economy segments. The segment is supposedly more recession resistant as well, due to its affordability and necessity, compared to the luxury or upper market segments of the hotel industry – segments which are normally the first to suffer as global economy fluctuates. (Pictured right – Japan‘s “capsule hotel” suites – the ultimate in budget accommodation).

(Partial list of sources – “Hotel News Now“, “Forbes“, “The Wall Street Journal“, “Property Wire“, “The Nation, Thailand“, “Bloomberg“, “IPIN Global“, “The Australian“)

(Pic 1 – Chinese Flag and Child / Dave Watts, Pic 2 – Japanese “Capsule Hotel” / Adam Fletcher)

Subscribe to our mailing list

* indicates required Email Address * First Name Last Name

About Author

Ziv Magen (G+) is an Australian, and has been living alternately in Japan and Australia for the past decade. "Born and bred" an IT project manager, he has made the transition to full-time real-estate investing several years ago, and subsequently opened a buyers' and proxy agency - assisting others in remotely capitalising on Asia's booming property market.

4 Comments

  1. We have our problems here at home, but when you read about the problems in other nations, you appreciate things a little more at home. Real estate climbed for too many years so has to adjust itelf to normals before starting another up cycle everyone is hoping to see come back.

    Dale.

  2. Agree, the market correcting itself isn’t necessarily a bad thing. It’s certainly provided an opportunity for a lot of people who were locked out of the property ownership dream for far too long.

  3. Thanks, Joe. Unfortunately there doesn’t seem to be much interest in these digests in the US, so I won’t be publishing them here anymore. If you’re still interested in them, I’d recommend you sign up for our mailing list (link above).

Leave A Reply

css.php