Friday Asia Digest – Japan’s Stability VS Hong-Kong’s Luxury Bubble


As the economic freefall continues in Europe, more and more of the continent’s largest funds, banking groups and investment companies send their cash to Japan – seen as one of Asia’s (and indeed the world’s) more stable, safe and regulated financial environments – and in recent months seemingly at the end of its two-decade long property slump. As the strongest economies in Europe are North European, it’s hardly a surprise that, with Spain, Italy, Portugal, Ireland and other European economies on what seems to be a dominoe-toppling chain reaction, following in the wake of Greece – the Nordic investment giants find comfort in the risk-averse, stable and calculated Japanese financial mentality.

This week alone, various media outlets report that SEB asset management, the Germany investment group of one of Sweden’s largest banks, is acquiring partial ownership in one of Osaka’s biggest commercial buildings, at app. 72 million Euros – the firm’s seventh investment in the Japanese real estate market since 2007, when SEB first entered it. Norges Bank Investment Management (NBIM), Norway’s 600 billion USD (490 billion Euro) sovereign wealth fund, similarly, has declared that it shall further reduce its exposure to Europe, favouring instead US, Japanese and emerging markets bonds – a surprising statement from one of Europe’s most notoriously conservative funds. And as if that wasn’t enough, Germany’s central bank has followed suit, this week reporting that it was in the final stages of negotiation with Japan, to establish a trading hub in Tokyo, as the central bank wants to manage some foreign currency reserves in Asian financial markets. Germany’s central bank has foreign reserves worth about 190 billion euros (233.97 billion USD) – how much of that will be moved to Asia remains to be seen, but trading is expected to begin this September, as Germany attempts to capitalize on Japan’s property market revival, as well as on Australia’s real-estate market’s decline (more on that below).

Thailand, quickly becoming cash-richer in recent years, has also started entering the Japanese property market, with Property Perfect Plc set to develop the first phase of villas and condominiums at a ski resort in Hokkaido worth 3 billion baht (95.6 million USD). The company invested in the takeover of the ski resort from Mitsui Fudosan, Japan’s top real estate developer. “We view Japan as a suitable target due to the size and stability of its economy and the cordial ties that have always existed with the Japanese due to their large investments in Thailand,” said chief executive officer Chainid Sirimanee, adding that the takeover price was “inexpensive”.

In sharp contrast, the bubble property market of Hong-Kong continues to soar to un-attainable heights – an illustration of this was found in the price of a Hong-Kong apartment that has just sold for 430 million HKD (55.4 million USD), a record price for a flat in Asia. The apartment fetched 8,000 USD per square foot – the second-highest price per square foot in the world, with the record still held by Rinat Akhmetov, Ukraine’s richest man, who paid 136 million pounds (215 million USD) for the penthouse at One Hyde Park, in the luxury London neighbourhood of Knightsbridge, plus 60 million pounds to decorate – a total of 9,000 USD per square foot.

This isn’t surprising, since according to The Wealth Report 2012, compiled by Knight Frank, Hong Kong houses came in at fourth place in the luxury category, with an astounding average price of 47,500 USD per sqm – while its apartments were ranked 10th, with an average price of 28,300 USD per sqm. And while Monaco still heads the luxury list, with an average of 58,300 USD per sqm for luxury properties, Hong-Kong has long since cemented its place as the world’s most expensive property market overall – a dangerous trend that had Hong Kong’s leader announce measures this week, aimed to prioritise the property market for locals, after years of price rises attributed to an influx of wealthy buyers from mainland China.

Chief executive Leung Chun-ying said he had instructed officials to draft laws to restrict sales of certain properties to HK residents only, in order to “give priority to the housing need of the local residents,” said Leung, who took office in July after winning an election on a platform that included pledges to boost public housing supply. “We will continue to monitor the property market closely and introduce more measures if necessary,” he added – measures that will most likely be neccessary, if the sharp gap between the island-state’s rich and poor, as well as its highly speculative property market, is to be amended.

Asia Real EstateAustralian Hotel Dash Continues

Australia’s belated (albeit modest at this point) decline in property prices in response to the global financial crisis, continues to draw foreign investors to its shores, and in particular to its flourishing hotel market – Asian companies are having a field day in the country’s east coast hubs of Sydney, Melbourne, Brisbane and Gold-Coast – in August, Hong Kong-based Shangri-La Hotels & Resorts and Langham Hospitality Group acquired several hotels, while in June, Malaysia’s Starhill Real Estate Investment Trust purchased three Marriott hotels for 415 million Australian dollars (411 million USD). According to Jones Lang LaSalle, overseas buyers accounted for a decade-high $1 billion of Australian hotel sales—90% of the total—in the first half of the 2012 financial year. Chinese investors, some of them showing interest in the Hilton Surfers Paradise (pictured on right), were taken around the city by the Gold Coast City Council, visiting potential development sites, following a council-led trade mission to China in April, which lured the investors away from a planned trip to Europe.

Global Gossip

* Reports of China’s property and economic slowdown may have been premature, with buyoant news emerging from Asia’s largest economy this week –  SouFun Holdings, the leading real estate and home furnishing Internet portal in China, announced that its board declared a cash dividend of 1.00 USD per share on the Company’s ordinary shares, which will be paid by September. Taubman Asia also confirmed a joint venture between Taubman TCBL and Beijing Wangfujing Department Store (Group) Co., Ltd (Wangfujing), one of China’s largest department store chains (Shanghai Stock Exchange: 600859). The joint venture will own a controlling interest in and manage a shopping center to be located at Xi’an Saigao City Plaza, a large-scale mixed-use development in Xi’an, China. RE/MAX, the world’s leading local property franchise network, has also expanded into China this week, selling its franchise rights including the Mainland, Hong-Kong and Macau, and raising its overall country count to more than 85, a larger global footprint than any other national franchise real estate company.

* Malaysia, another of Asia’s top rising stars, is set to be fourth most liquid REIT markets in Asia, after Japan, Singapore and Hong Kong, with market capitalisation  reaching a new height of 24 billion RM (7.7 billion USD), if IGB REIT makes its way to the Main Board of companies as expected in September. At a market capitalisation of 4.6 billion RM, IGB REIT will be the largest  REIT in market capitalisation on Bursa Malaysia. The Kuala Lumpur Convetion Centre, supposedly listing its assets shortly as well, would create an even larger vehicle, of 6 billion RM. Local property and government leaders strongly emphasize the country is NOT experiencing a property bubble, in conjunction with these news, as prices on average are far below unsustainable limits as dictated by global standards.

(Partial list of Sources – “Herald Online“, “The Sacramento Bee“, “Daily Markets“, “Borneo Post“, “Reuters India“, “AsiaOne Business“, “Hotel News Now“,”Property Magazine“, “The Star “, “Bangkok Post“, “Channel News Asia“, “Herald Sun“)

(Picture 1 – Private Castle, Fukui, Japan / Ziv Magen, Picture 2 – Hilton Surfers Paradise, Australia / Thien Zie Yung)

About Author

Ziv Magen

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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