Luxury expert: Asia’s unstoppable real estate

So, what has changed since the Singapore government slapped the market with new cooling measures? In general, not much when it comes to the high end and luxury real estate sectors. As predicted here just a few months ago, the highest end of the market will continue to rise, if slowly, because the highest end never really fully recovered. Also, more people in Singapore have more money, and they will buy more luxury properties. That’s evident by the fact that prices of good class bungalows are 20 per cent up during the past year, and with 24 out of the 75 sold so far this year achieving prices of more than S$20 million (US$14.93 million). On the other hand, development charges are up, foreign labour numbers down while their licensing prices are up. All this means properties will cost more.

For signs of things to come, we need to look at some macro and micro data.

To summarise Singapore’s situation, the government is acting to protect the mass market from overheating, sending a clear signal ahead of next year’s elections that the mass market won’t be left to boil over. But not all is rosy on the real estate horizon. Singapore reported more than 5 million residents last month, a handsome growth of population which is very much behind the demand for the property and rise in prices. Should the government limit inflows of foreign talent and tighten PR numbers, there will be softening of demand for property across the board. Hence, these inflow numbers should be watched.

Now we will look at a few recent macro economic factors.

The Singapore dollar is strong versus many currencies, and is considered a safe heaven currency by many investors. At the time of writing JP Morgan Asset Management announced it is establishing a regional headquarters in Singapore. JPMAM chose Singapore because of its close links with India and Australia, and its membership of ASEAN which is seeking to form an economic community with free movement of capital by 2015. This means Singapore is further strengthening its position as a regional hub.

China could become the world’s biggest economy within a matter of years, and its real estate will soar no matter what cooling measure are introduced. Chinese will invest vigorously overseas, and Singapore is one of the potential hotspots on their radars.

Just three years ago Asia was just a major emerging market, one that supplied and manufactured goods for the West. But after the economic meltdown the picture has changed. The West is still in the grip of recession and everybody is expecting more bad news from Europe and the U.S. At the same time Asia is booming, leading many to realise the world’s economic centre of gravity is shifting from West to East. This also means a bigger flow of money from the West to Asian financial markets and properties, with Singapore likely to take a good share of higher end real estate money.

In Hong Kong, despite the cooling measures by the government, Li Ka-shing’s Cheung Kong Holdings paid a combined US$976 million for land plots, which was well above market expectations. A plot in Ho Man Tin covering 78,857 sq ft sold for US$526 million, way above analysts’ estimates of $479 million. Another site in Hong Hom, some 81,279 sq ft, went for $451 million, significantly above estimates of $312 million.

Throughout the region’s major markets, developers, investors and regular folk aren’t buying into the ‘cooling measures’ of their governments. Real estate in Asia retains its attractiveness for Asians themselves, and especially for Mainland Chinese. A few months ago I wrote in my article ‘China: A long term buy’ that the real estate market there is still performing strongly, simply because people there are in love with real estate and do not trust financial markets any more. And in fact, the Chinese real estate market is still performing strongly despite the aggressive cooling measures introduced by the government.

Governments in the region will probably have to intervene further and more aggressively, especially in China, so strong is the desire of people to buy more real estate. And on the back of that, rich Chinese will definitely continue buying property outside their home country, still prioritising Hong Kong and, to a lesser extent, the Singapore market.

Source Selected From :
Alex Shlaen an economist and holds an Executive MBA from Kellogg School of Management and HKUST. He is the founder of Panache Management Pte Ltd and represents ultra luxury branded products, furnishings and interiors by Tonino Lamborghini and Formitalia in South East Asia. He is also a serial real estate investor.