This article by OPP Connect editor Adrian Bishop was originally posted on OPP Connect.
Asian property investors are still mainly looking to Australia, Singapore and the United Kingdom, but most are in no hurry to buy, a new survey reveals.
Despite that, most respondents to the iProperty.com 2014 semiannual Asia Property Market Sentiment survey, which centers on Malaysia, Indonesia, Hong Kong and Singapore, are more likely to purchase in the medium term, rather than the long term, suggested in the previous iProperty.com survey.
“For overseas property, all countries surveyed are consistent with their top choices,” says the report. “Most respondents are in no hurry to purchase when it comes to investing overseas, though they are more likely to purchase in the medium term, as compared to the long term in the previous survey. Those who find overseas property attractive are looking to purchase for investment, financial and/or migratory purposes.”
There is increasing interest in overseas property by Hong Kong buyers, with demand steady among Singapore buyers and falling in Malaysia.
In all countries surveyed, affordability continues to remain a major concern and market cooling measures mean a tough year ahead, says Shaun Di Gregorio, chief executive officer of the iProperty Group.
“All these countries have introduced multiple new measures to cool the property market and/or are looking into providing more affordable housing to the low- and middle-income group via various schemes.
“These measures have shown its bite especially in Singapore, while the Malaysian market is expected to digest and react to the latest cooling measures soon, and Indonesia seems to be the healthiest market among the three. A tough 2014 awaits, and slower sales are expected for these markets.”
The comprehensive 122-page report features online responses from around 20,000 from across Southeast Asia.
In Malaysia, there is a large increase from 40 to 51 percent saying they are not considering investing in overseas properties.
“This could possibly be due to all the recent price hikes and reduction of subsidies for consumer goods. Respondents are being more cautious about spending and investing,” according to the survey.
“Respondents have been very consistent in their preferred overseas property destinations. Australia, Singapore and the United Kingdom are still the top three choices — and have been for three consecutive surveys.
“The weaker ringgit might have contributed to the reasons that overseas properties are seen as good investment by respondents. The second reason that respondents are considering overseas properties is migration or retirement purposes,” says the survey.
Most international searchers look for properties online, with “newspapers and magazines” and “talking to real estate professionals” both at 27 percent.
The most popular destination, outside Selangor, is Iskandar, where prices are expected to stabilize following the cooling measures announced in October 2013.
“With growth averaging 8 percent a year, Iskandar has attracted over $40 billion (U.S.) of investment since 2006. Property and manufacturing account for 80 percent of the total investment. Buoyed by foreign buying, especially by Singaporeans, property prices in some areas have quadrupled. With cooling measures, the state authorities expect prices to level off.”
In Malaysia, with the banning of Developer Interest Bearing Scheme (DIBS), developers will have to work much harder to gain more sales in 2014, the reports suggests. “They would need to provide higher-quality products and more modern developments to entice buyers, and buyers can hopefully enjoy greater value for their money.
“The market is likely to take a breather as new supply and launches might be delayed in the first few months of the year as developers tread cautiously to test the impact of the cooling measures. Branded residences with good amenities, such as nearby [mass rapid transit] stations and fully fitted/furnished units, might appeal more to buyers. The market can expect more projects that cater to the family and for owner-occupation.”
Almost half of the respondents (46 percent) feel that DIBS will help to curb speculation in the market. The removal of DIBS, which enables buyers to pay a 5 or 10 percent down payment with mortgage payments kicking in until the property is completed, would also stamp out bulk-buying by foreigners.
Additionally, the ringgit, which dropped to a 3 1/2-year low against the U.S. dollar at the end of January 2014, will continue to be under pressure in 2014 amid a volatile global market. This might have influenced 47 percent of respondents to think that the increase of minimum price for foreign property purchasers, from RM500,000 to RM1 million, will not deter potential foreign investors.
Other factors that might affect the property market include the increase of the foreign ownership threshold from RM500,000 to RM1 million across the board and the implementation of a goods and services tax (GST) in April 2015. “With slightly more than a year before the implementation of GST, it will give sufficient time for the industry to work with the Ministry of Finance in fine-tuning the implementation details of the taxation.”
The substantial leap in real property gains tax (RPGT) rates from Jan. 1 — from 15 percent for two years to 30 percent for three years — is expected to slow down the property market, and there is likely to be delays in the disposal of properties. “This will affect property supply in the market, which in turn will increase its costs. Property ‘flippers’ are the ones who are expected to feel the pinch most.”
According to industry officials, the Malaysia property market might need at least two years to digest and recover from the various cooling measures that came into effect, but expect it to surge again in 2016, says the report.
Since October 2009, the Hong Kong government has taken a series of steps to curb prices, one of the world’s most expensive real estate markets, including imposing a 15 percent property tax on foreign buyers, introducing mortgage restrictions and taxes on quick resale. However, home price pressures have continued to pose policy challenges for officials.
To further curb the continued concern about potential overheating in the property market, in February 2013, the Hong Kong government introduced a new set of cooling measures, which included the imposing of higher stamp duties for both individual and corporate buyers, not applicable to first-time homebuyers who are Hong Kong residents.
The move is hoped to help narrow the supply-demand gap, contribute to the stable development of the property market and stability of Hong Kong’s financial system. However, according to real estate firm Knight Frank, the volume of residential property sales for the first half of 2013 fell by 32.1 percent year over year. Despite the measures taken, the volume of Hong Kong property sales fell 60 percent compared to last year.
Interest in overseas property investment has increased significantly in recent years. The survey showed that 25 percent of respondents want to purchase overseas properties compared to last survey (10 percent).
“It is surprising to note that [the] percentage of respondents interested in Southeast Asia (including Singapore, Malaysia, Thailand and Indonesia, etc.) properties has soared to 54 percent, a 15 percent point increase from the 39 percent in the last survey and a 19 percent point increase as compared to the 35 percent a year ago.”
The findings also reveal that nearly 40 percent of respondents expressed interest in mainland China property. The most popular mainland cities for property investments are Shanghai (38 percent), Shenzhen (35 percent), Zhuhai (28 percent), Guangzhou (25 percent) and Beijing (22 percent), respectively.
Due to the potential high investment return, 43 percent of respondents indicate they would consider overseas real estate investment with 23 percent of respondents aiming to migrate or retire overseas.
Southeast Asia’s financial center is home to one of the most expensive real estate markets in the world. Prices have soared over 60 percent since mid-2009, spurred by low interest rates. Now, the property sector in Singapore is facing property cooling measures that continue to bite, sizable new supply coming on stream, and looming higher interest rates following the start of the U.S. Federal Reserve’s tapering exercise.
According to the Urban Redevelopment Authority (URA), almost 95,000 private units are expected to come on stream over the next five years, alongside 25,000-27,000 public housing flats per year.
Record home prices amid low interest rates had raised concerns of a housing bubble and prompted the government to widen the campaign that started in 2009 to curb speculation in the property market. Since 2009, the Singapore government has introduced eight rounds of cooling measures intended to prevent a property bubble from forming.
Barclays Bank suggests that residential property prices in the wealthy island nation of Singapore could be headed for a sizable correction of up to 20 percent by 2015.
The risk of a residential property market correction in the next two years is rising, as expected higher interest rates look set to coincide with a large increase in housing supply over 2014 to 2015. “The private property market will soften further, making it a challenging time for developers, agents and sellers,” the report says.
Print media (newspapers, magazines, fliers, brochures, direct mailers) is still preferred over online search engines as the main source of getting property-related information. This might be due to the fact that almost half of the respondents are from the more matured group — 41 years old and above bracket, who are more comfortable with print. However, this doesn’t discount the fact that online is the single most popular source of information with 72 percent.
Interest and intent in purchasing overseas property is relatively the same as the previous survey. In total, 38 percent would consider investing in overseas property and more than one-third are 50 percent more likely to purchase now compared to six months ago.
Singaporeans surveyed have shown a steady decrease in interest in Malaysia as an investment option, with interest in Australia increasing. Interest in Malaysia fell 4 percent, to 35 percent; Australia rose 3 percent, to 22 percent; Thailand remained steady at 9 percent; and the U.K. rose 2 percent, to 9 percent.
“The reduced interest in Malaysia might be due to the recent changes which stipulate that foreigners in Malaysia will now only be able to purchase property priced at RM1 million or above, with higher real property gains tax (RPGT) imposed by the ruling government. For noncitizens and business firms, RPGT will be 30 percent within a five-year holding period, and 5 percent in any subsequent year. According to UEM Sunrise, the master developer of Nusajaya in Iskandar, Singaporeans account for 74 percent of foreign homebuyers in that township.
“Additionally, the Malaysian property market has yet to see the effects of the cooling measures that was tabled in [the 2014 budget] in October 2013. Many respondents are probably wary of the possible slowdown to come, just like how Singapore’s property market has been slowed down after several rounds of measures.”
Most Singaporeans (67 percent) prefer private condominium/serviced apartments, and 42 percent feel that buying overseas presents a good investment — and private condominiums/serviced apartments have proven to deliver good capital appreciation and rental income.
A quarter (25 percent) are looking to migrate or retire to the country in which they want to buy property, with 20 percent investing because of favourable exchange rates..
Most (43 percent) of respondents intend to buy an overseas property at least two years from now, while an increased number of respondents (31 percent, up from 26 percent) plan to do the same in the next two years.
When it comes to investing in overseas real estate investment, respondents are split, with 35 percent in support, 29 percent against it, and 35 percent unsure.
The majority of respondents (72 percent) believe that foreigners are driving up property prices in Singapore. Separate figures show that the number of foreign buyers of property fell to 330 in the third quarter of 2013 and comprised 7 percent of transactions. This is a sharp drop from the 1,400 per quarter — 17 percent of transactions — from foreign buyers in 2011.
As private home acquisitions by foreigners last year dropped 35 percent, the Chinese emerged as the top non-Singaporean buyers of private homes in Singapore. “Buyers from China view Singapore as a favorable property investment destination despite the latest rounds of property cooling measures, such as the raising of the Additional Buyer’s Stamp Duty (ABSD). Under a new law introduced in December 2011, foreign buyers (excluding permanent residents) have to pay an ABSD of 10 percent, which was raised to 15 percent in January 2013.”
Indonesians formed the second-largest group of foreign condo buyers at 32 percent, while Malaysians were third at 13 percent. American buyers came in fourth at 7 percent, and Indian nationals were fifth at 2 percent.
Buyers from the United States do not have to pay the 15 percent ABSD due to clauses in the free trade deal that the country has with Singapore.
Analysts say the strength of the Chinese yuan relative to regional currencies mean mainland Chinese investors are continue to set make up the bulk of foreign property buyers in Singapore. “Additionally, the resilient demand from the Chinese could be attributed to the buying restrictions back home and the fact that Singapore remains their favorite investment destination.”
Slightly more than half of respondents have thought about investing in Iskandar, Malaysia, down from 59 percent to 51 percent. “This can be attributed to the hike in minimum purchase price of MYR1 million for foreigners, increase in RPGT, and an increase in the levy based on purchase price for properties in Johor. This might also explain the increased interest in Australia, while interest in Malaysia wanes a little.”
The Johor government this month plans to begin imposing a 2 percent levy on foreign buyers across all property segments including the secondary property market. The rate is lower than the 4 percent to 5 percent proposed earlier. The current flat rate is RM10,000 for all types of properties.
Knight Frank Research noted that the recent cooling measures announced in the 2014 budget to curb speculation in the local property market may have a slight impact on demand for the Johor property market.
“However, Singaporeans are expected to continue to buy properties within the state, as most of the existing high-end properties available in the market are already being priced above the RM1 million threshold level and there is still a huge disparity in property prices between Malaysia and their home countries,” says the report.
The strong Singapore dollar and growing interest from other foreign purchasers, particularly in Nusajaya and Medini, will continue to drive the growth of the residential market. Medini will continue to be the “hot spot” due to its special economic zone status whereby it is granted a substantial tax break and is exempted from the RM1 million minimum price threshold for foreign purchase.
Fitch Ratings expects Indonesian residential property developers to book lower presales in 2014 due to stricter mortgage regulations for second homes, higher average selling prices and limited new project launches.
Prices for Indonesian residential property rose sharply at about 30 percent annually over the past three years. It is not worrying, as property prices are coming off a lower base compared to its peers.
Indonesians have fallen behind the Chinese as the biggest nonpermanent resident buyers of residential property in Singapore in 2013, after being in the top spot in 2012. In Indonesia, foreigners are officially only allowed to lease properties.
Just like the previous iProperty Asia Sentiment survey, most respondents (88 percent) are not looking at overseas property in the short term.
Respondents continue to show consistent increased interest in Singapore (69 percent, up from 58 percent) in the second half of 2013, Australia (37 percent, up from 26 percent), the United Kingdom (27 percent) and Malaysia (24 percent, up from 17 percent). The demand in other overseas nations is America (17 percent), Hong Kong (14 percent), China (7 percent), Thailand (5 percent) and India (2 percent).
Most respondents (37 percent) say they want to buy abroad because the economic slowdown in their preferred country has lowered prices, with 34 percent saying they want to migrate and 28 percent saying the exchange rate has worked in their favor.
Those who do want to invest have a bigger budget than previously. There is a big drop in those who would spend less than IDR1 billion for overseas property (down from 68 percent, to 39 percent), but those who would spend above IDR3 billion are 33 percent (up from 14 percent). Twenty-eight percent (up from 18 percent) would spend between IDR 1 billion and IDR 3 billion.
Indonesian property buyers also favor online searches (53 percent), followed by newspapers and magazines at 36 percent and exhibitions at 31 percent.
Affordability and rising property prices are major concerns, followed by build quality and errant developers, and financial policies for homes and interest rates. Another major problem felt by 82 percent of respondents (82 percent) is the difficulties in purchasing property following the rise of the U.S. dollar against the euro in the last six months.
Southeast Asia’s property markets are poised to see a surge in investment in 2014, according to a survey of 250 regional real estate developers and investors conducted by the Urban Land Institute, the report points out.
The 2014 Emerging Trends in Real Estate: Asia-Pacific survey, released in December 2013 in Hong Kong, listed Manila as Asia’s top spot for residential property development in the 2014. Jakarta came in third, Bangkok fifth, Ho Chi Minh City 10th and Kuala Lumpur 15th.
Japan has re-emerged as the region’s top target for new investment, and the combination of shrinking capitalization rates, rising prices and looming taper-related interest rate hikes has investors looking toward emerging markets for the best returns, it suggests.
The fifth 2014 Asia Property Market Sentiment survey features 6,865 respondents in Malaysia from the iProperty.com.my website, 6,719 from Indonesia websites Rumah123.com and rumahdanproperti.com, 2,575 respondents from Hong Kong website GoHome.com.hk, and 2,853 from Singapore (iProperty.com.sg).