India‘s declining currency and less than regulated business environment has finally caught up with its speculative real estate sector, with international investors rattled by the Indian Government’s increasing focus on offshore structures and threat to apply tax rules retroactively to purchases and sales of India domestic entities through offshore entities, as well as seemingly un-addressed lack of regulation and anti-corruption laws. According to Jones Lang LaSalle, rates in India’s top seven cities dropped 35% in the first half of 2012, compared with the first half of 2011 – as India’s formerly booming real-estate market grinds down to a halt. The country’s general economic outlook is also far from bright, as Morgan Stanley revises downwards India’s expected GDP growth rate for 2012 to 7.4%. Interest rates, despite low inflation rates, remain very high, pushing down real estate affordability. The Reserve Bank of India, as well, did not help to curb the grim outlook, as it is not expected to cut rates at its next meeting.
China, facing a wholly different set of problems, seems to have stepped on the property market brakes a bit too hard, as fears of yet another round of RE purchase curbs, enforced by stricter policies and regulations, hit the country’s stock exchange and general economic outlook – Shanghai shares on Aug. 20 tumbled to a more than three-year low in weak trade, dragged down by Chinese property counters, over worries that an upturn in housing prices may lead to a fresh set of curbs on the sector. New home prices rose 0.1% in July from June, the second month of gains – a price hike that seems to have been helped by interest rate cuts, as well as buyers looking to upgrade their homes. A newspaper run by the Chinese central bank also helped stoke investors fears, suggesting that it had no intention of cutting the reserve requirements in the short term. A Japanese buyers’ agent recently interviewed, likened China’s curbs and enforced regulations to a child’s impatience when conducting a chemistry experiment – “They just haven’t waited long enough for the first few interventions to have the desired effect, hastening to introduce, or threatening to introduce, the next interventions way too soon – the first agent hasn’t yet reacted with the environment, and if you add more of the same agent too early in the process, you’re bound to create a cascading effect, which may threaten to engulf the entire economy. This is, I believe, what’s happening now in China”.
And while analysts seem to suggest that no further curbs are in store, considering the state of the world economy and China’s deccelerating economy, reports from around the country seem to suggest otherwise – detailed rules for the upcoming expansion of China’s property tax are in the making, a local government official said earlier this week, soon after airing media reports claiming that China will expand its property tax policy, which has only been pursued in the bustling Shanghai and Chongqing markets, to Central China’s Hunan and Hubei provinces as well. Media reports said that second homes and further property bought in Hunan and Hubei provinces will be subject to a tax, though the tax rate won’t be high.
This weakness in mainland markets weighed on Hong Kong as well, with both markets underperforming Asian peers. The Hang Seng Index (Hong-Kong’s stock exchange index) dipped below the 20,000 mark for the second time in less than three weeks. This drop signifies more than mainland China market issues, however – Hong-Kong Chief Executive, Leung Chun-ying, said he will take measures to curb property speculation, amid concerns that a bubble is forming – with home prices gaining more than 10% this year, and an astounding 80% (!!!) since 2009. Hong-Kong government will seek to prevent “over-expansion” of bank credit to “ensure the healthy development of the residential market,” according to the government’s website.
China’s Developers Turn to Amusement Parks
Almost a third of China’s 2,500-plus theme parks, forecasted to soon surpass the USA’s numbers, have opened within the past two years – with at least 70% of these attractions actually losing money. That fact doesn’t worry investors, however, an industry source reveals, since the sales of tickets and food only make up a small percentage of profits – the major part comes from the adjacent commercial and residential developments, including apartments, villas and hotels. These are the real money-makers for the developers, and turn a far bigger – and faster – profit. And so, developers buy land at low prices, the majority of them in official industrial and rural development zones, where prices are even cheaper, to build a theme park and then erect adjoining apartments and hotels. Unlike residential developments, restrictions imposed by local government to cool down the property market do not apply to projects classified as cultural or designated for entertainment purposes. This scheme means that theme parks have become attractive investments to major real estate companies, particularly in the uncertain climate surrounding China’s property market.
* A new global fund index, designed to measure the real estate investment performance of global private real estate investment vehicles is expected to be launched this fall, a joint venture of the USA’s National Council of Real Estate Investment Fiduciaries, Asian Association for Investors in Non-listed Real Estate Vehicles and the European Association for Investors in Non-listed Real Estate Vehicles. The combined global index could include as many as 670 funds with a total estimated gross asset value of 640 billion USD, according to a news release recently issued.
* Pakistan (pictured below), one of the least developed economies in South Asia, is rife with corruption and facing an energy crisis. Inspite of this, several head figures of Pakistani and Singapore business claimed in a conference last week, it is one the world’s most promising emerging markets, with rates of returns in its stock market highest in the world in US dollar terms over the past 10 years. There are 800 Multinational companies in Pakistan, more than 100 of these having entered the country since 2008 – as a large number of Singaporean and other international-savvy companies begin to consider Pakistan as “potentially the next Star Economy of Asia”. From a risk perspective, however, the country is still very far from being recommendable for foreign investment.
* In large part due to China’s woes, Japan continues to cement its position as Asia’s safest and most stable property environment – the country saw the biggest y-o-y growth – a remarkable 290% – as it recovered from the Tohoku earthquake last March, this according to the latest market analysis published by Jones Lang LaSalle, in their Q2 2012 Asia Pacific Property Digest (APPD).
(Partial list of Sources – “Market Watch“, “Asia One News“, “Pensions & Investments“, “World Property Channel“, “Pakistan Today“, “CNBC“, “Asahi Shimbun“,”Property Report“, “China Daily“, “Bloomberg“, “FXStreet)