Asia House Prices Lead the World

Shanghai, China (up 35.4%) was the world’s strongest residential property market during the past full year, according to a compilation of official and private-sector statistics by the Global Property Guide. Bulgaria (up 34.6%) was in second place, followed by Slovakia (up 32.5%) and Singapore (31.1%).

The worst performers were the United States (down 8.9% by Case-Shiller calculations), Ireland (down 7.3%), and Estonia (down 3.9%).

Asia-Pacific’s strong performance was led by China, Singapore (31.2%), Hong Kong (25%), the Philippines (15.2%), and Japan (8.4%). In most cases, this was due to strong economic growth.

Price rises in Japan have now paused. Outside the US and Europe, Japan has been the hardest hit by the credit crunch. In March, Reicof, a listed property investor, failed with debts of Y42.6 billion (US$422 million). Deals are now being postponed, and the credit squeeze is hitting private real estate funds, which tend to be highly leveraged, and have borrowed mainly from foreign banks. These private funds are finding it hard to refinance and are being forced to unload property.

Hong Kong surged ahead this past year (up 25%), but transaction levels have now fallen sharply, despite declines in interest rates in line with the US.

Singapore’s residential market is still holding steady, but last year’s euphoria seems to be over.

In both Hong Kong and Singapore prices are high by most yardsticks and there are low rental returns, usually a harbinger of price weakness.

China’s housing market seems to be on the verge of significant weakness. It has a history of very strong cycles, and the authorities have discouraged the house price boom by prohibiting foreign acquisitions, by higher interest rates, and by credit controls.

South Africa’s market seems to be weakening, having experienced the first decline in 8 years.

The Baltics has been hard hit. Latvia, last year’s star performer (up 69%), was this year’s biggest disappointment with a price decline of 1.7%. Estonia followed Latvia down with a decline of 4%.

Eastern Europe shows sign of weakening, partly due to the end of inward money flows associated with buy-to-let boom, but more importantly due to past price rises. Yet there are many islands of strength. Slovakia has seen continued price rises. Land prices in Bratislava increased by an average of 50% in 2007. The price of residential apartments also rose strongly. Strong economic growth, continued foreign investment, a burgeoning mortgage market, and a shortage of new developments, are all contributing to Bratislava’s performance, which looks likely to continue at least next year.

In Bulgaria, Sofia prices are still rising strongly, while the coast and mountain resort booms are over.

Those looking for upcoming trends may want to consider Latin America. The increasing willingness of Americans to retire abroad and to look beyond the Caribbean has led to strong buying interest in both beachfront property and in colonial cities such as Guatemala’s Antigua, Nicaragua’s Leon, and Colombia’s Cartagena.

Latin America sadly lacks property price indices, the exception being Colombia whose economic prospects have been transformed by President Alvaro Uribe’s stern anti-rebel policies, causing property prices and the currency to surge.