Friday Digest Special – Asia Real-Estate in 2012 – Established Markets

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It’s been a very exciting year for Asian economies generally, as well as for the property market specifically, no doubt about it. As 2012 draws to a close, it’s time to take a step or two back from the nitty gritty details of particular deals, companies, cities or projects, as well as the plethora of reports released by rating agencies, global property experts and analysts, produced on a weekly, almost daily really, basis – and to try and view the larger, global picture.

To try and achieve this in the most efficient and accurate manner, I thought I’d take a top-down approach this time, and try to track the prominent trends repeatedly evident in this year’s biggest news items, on a continental/regional scale, then cover the region’s more prominent and stable countries – while next week, in the spirit of “the future”, we’ll cover Asia’s more significant emerging economies, their promises and potential perils – then try to also briefly touch upon the more prominent views of what 2013 may hold in store for the region as a whole.

Hang in there, this might be a bit of a long ride ;)

The Great West-East Shift

The Real-Estate industry is one of the most significant indications of general economic climates, and is closely tied to the general economy’s performance at any given time and region. With this in mind, it’s quite easy to see that, property-wise as well as economy-wise, 2012, perhaps more than anything, is now seen around the world as “the year in which the scales tipped” – that is to say, the year in which the balance of wealth and, subsequently, of power, has finally passed beyond that gigantic equalising threshold of income, growth, equity and capital, and firmly cemented Asia’s position as “where it’s at”- most likely for the next decade or three at least, if the number of millionaires, sources of deals funding, GDP growth ratios and development projects are anything to go by.

And while bastions of fortitude such as Germany, France, and to some degree the UK, still remain semi-firm in Europe, while the hotbed of growth that is Brazil continues to astound (and occasionally alarm) the financial powers that be in the Americas – these are far from enough to compensate for the huge losses, financial catastrophes and national bankruptcies that have plagued Europe and the USA, who have been running the show for the last century or so – “the higher they rise, the harder they fall” rings as true in this regard as in any other aspect of life, and world economies are no different – Asia’s wealthy, of which there are a record number this year as well, have noticed this shift and taken action to capitalise on it, purchasing property in New-York, London, Paris, and other prime locations around the Western world, now greatly reduced from their once high perches.

The main reasons for this shift lie, of course, in the global financial crisis and its impact. The USA is still deeply mired in the worst recession its economy has experienced since the 1930’s, and any significant recovery to previous standards is destined to take 7-10 years at the very least, even under the most optimistic of conditions – and with Greek and Spanish economies in tatters, Italy tottering on the brink, and little to no prospects of support from Chinese import needs, as the new world economic powerhouse focuses on internal fortification and regional scuffles for power – things aren’t likely to change anytime soon.

And with that global picture in mind, let’s examine Asia, which is where the world’s bigger and median players seem to be turning their attention now, in more detail –

Established Asian Markets

1. China – Outlook : Stabilising and Promising
The “biggest and strongest” economy in the region, and second-biggest in the world, China’s property market, as covered in our country guides in the past, used to be a contradiction in terms, displaying behaviours far more characteristic of a small, emerging economy somewhere in the pacific islands nations. Virginal as far as private ownership is concerned, unpredictable and stormy in nature right up until 2010, when prices began to soar out of reach of the average wages earner as a result of corruption and massive speculative moves by foreign investors, resulting in some highly unpleasant and often violent uprisings – the ruling communist party finally began to then introduce the first of several strict rounds of control measures, attempting to reign in property prices and putting purchasing power back in local citizens’ hands, as opposed to previous years, which bore the trade-mark of rampant local government land grabs and subsequent sales to foreign and domestic developers at outrageous profits, on the backs of rural farmers and growers and their livelihoods

These measures have finally began taking their toll, with reports in recent weeks suggesting that unsustainable price hikes have fallen back and now began to resemble reasonable growth rates, smart and stable, almost predictable centralised government policies with no about-turns evident, and even the dreaded change in leadership at the top of the ruling party seeming to be level-headed and reliable in nature, in spite of fears to the contrary.

All of the above, and in particular the ownership and purchasing limitations, as well as property taxes imposed for the first time, and slowly being rolled out to more and more cities across the huge nation, seem to have worked well for China, although they’ve taken their toll on the country’s millionaires and billionaires, many of whom have been heavily banking on high capital growth rates continuing for several more years at least. Many of these developers, purchasers and asset managers have been forced to “get creative” with their investments, redirecting their funds to anything and everything, from theme parks and their related hotels and resort villages, through water resource rich areas in Japan, casinos and hotels in Australia, Macau and the Philippines, and even to parking spots and industrial/retail spaces around Hong-Kong and Singapore. Speaking of which –

2. Hong-Kong – Outlook : Volatile & Un-sustainable
Extremely volatile in the best of times, the toll China’s reforms have placed on its wealthy have also been felt in Hong-Kong, one of the first places Chinese money tends to flee to when it’s being hard-pressed at home. This year has been no different, actually an all-time-high for the sprawling city-state, Asia’s official financial hub – which has recently been highlighted as not only one of the priciest property markets in the world (as it always is), but also as one of the least affordable by its own people. With over a million of its citizens living below the poverty line, in “shoebox” rooms and crumbling slums, while the city’s millionaires have lost none of their appetite for luxury pads, it seems that the poor-rich gap is becoming too wide to bridge, and Hong-Kong is now viewed officially by all analysts, including recently the IMF, as a severe property bubble just waiting to burst.

And while Hong-Kong authorities, in similar fashion to China and Singapore (below) have also began to implement some cooling measures, these are generally viewed as “too little, too late“, with accusations rife of collation between local developers, high-ranking officials owning high-end property, local industry leaders and rich mainland Chinese business-folk – all of whom allegedly aim to keep demand and prices high and prevent the market from stabilising, in order to keep lining their pockets, that have been so used to getting lined with cash for so many years – while Hong-Kong’s poor become poorer, and their youngest and brightest minds escape the stifling economic climate of “the rich and richer” for more docile and liveable pastures.

3. Singapore – Outlook : Flying High, but Stable
Similar in many ways to Hong-Kong, as far as its minuscule size and highly regulated environment is concerned, Singapore is nevertheless different in one major aspect – its property market is generally considered to be far more stable, correctly managed and most significantly – not as reliant upon mainland China as Hong-Kong is. This year has been no different, with rising prices quickly countered by more comprehensive and severe cooling measures, far more diverse international exposure, including to the US, Europe and Australia, and far less volatile ups and downs as far as prices are concerned. Singapore’s real-estate market, under less than 20% of which is available for non-residents to deal in, while also extremely expensive and luxurious, is therefore considered far safer to delve into than Hong-Kong for the foreign investor, and its economic atmosphere far more liveable – a fact which probably had some bearing on its accomplishments this year, as it snatched the title of “mobile millionaire’s favourite home away from home” from its rival.

Industrial, retail and office spaces, in particular, seem to be drawing high interest in Singapore this year, as local and foreign investors alike attempt to circumvent stricter government policies, re-directing their funds from the highly limited residential market to these relatively loose sectors.

4. Japan – Outlook : Bottomed Out(?), Supreme Cash-flowJapan
The land of the rising sun, the world’s third-largest and Asia’s second largest economy, has this year been the target of increasingly high numbers of global power-houses, with names such as Goldman Sachs, TPG, Deutsche Bank Group and a great many others “re-discovering” the country, as the first signs of its emergence from a two-decade long property bubble burst and deflationary cycle have been spotted, with rent prices rising and vacancies dropping in Tokyo, normally signs of an impending property price rise trend. Coupled with the country’s reputation as one of the world’s most docile and profitable tenancy markets, even this remote and slim chance for (finally) adding on some icing to the cash-flow cake, in the form of potential capital growth, has done wonders for Japan‘s incoming foreign investment profile.

Headwinds in the shape of an impending fiscal cliff, senate impasse (only recently overcome by a change in government and return to the Conservative party after a short stint by the democrats), and the world’s largest public debt – funded mostly by its citizens, as the government borrows from its pension funds with no end in sight – are still a concern, however. Most experts claim, however, that if twenty years of deflation that would, in most countries around the world, shatter the economy altogether, didn’t make Japan flinch, nor did the devastating natural disaster last year, that left more than 20,000 dead and kicked off the worst nuclear accident since Chernobyl – it’ll take a lot more than ballooning public debt or a spat over a few tiny islands to do so.

5. Australia – Outlook : Strong & Getting Stronger (as Long as China Does)
Australia, in spite of former regulations prohibiting the purchase of anything but new developments, has been Asia-Pacific’s preferred investment destination for 2012. Everyone and their dog, from Singapore to mainland China, Hong-Kong, Macau, and even Indonesia and Malaysia, have been purchasing within its borders, all attempting to capitalise on the ever so slight decrease the country has experienced in prices (hardly even felt, to be honest)- most likely because, until that point, prices have been rising in Australia steadily and consistently for the last decade or two. The nation continent’s remoteness is seen as a shielding boon from global turmoil, and its self-reliance and regional position as one of the world’s biggest minerals exporters is generally perceived as a sort of “immunity from harm” – an immunity that seems to enable foreign investors to live comfortably with its close to zero cash-flow profile, attempting to sidestep the issue by investing heavily in its hotel and temporary lodging sector, particularly in and around mining towns, of which it has plenty.

Various warning voices, though, have been calling out, however weakly, including within Australia’s borders itself, pointing to its high personal debt ratio, its almost complete reliance on Asia’s, and China’s in particular, demand for mineral exports, and the rapid rise of its currency. Mentions of un-sustainable property prices and an impending bubble burst, as well, have been heard more than once, although nowhere near the severity of the situation in Hong-Kong and other potentially volatile property markets.

Next week, as mentioned above, we’ll delve into the significant merging economies in the region, of which there are a fair few, with surprising strengths, and also try to cover some of the more common and well-informed speculations and predictions regarding the coming year.

Would love to hear from all of you, particularly those among you who already have, or are considering, investing out of city, state or country, about your own experience and plans for 2013 – anyone out there capitalising, or planning to capitalise, on “The Asian Century”, as it’s known around these parts? If so, where, when and how – and if not, why not?

Looking forward to your feedback!

To read Part two of this year end roundup, please visit Friday Digest Special – Asia Real-Estate in 2012 (2) – Emerging Markets

(Pic 1 – Asia on Globe / “Blatant World“, Pic 2 – Cherry Blossoms in Fukuoka, Japan / Ziv Magen)

(The information presented herein is taken from the author’s previous publications on this platform, many of which are linked to in the body of this article. View the complete list here)

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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.

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