WITH residential prices continuing to rise and and currently standing at 61%, 52% and 108% above the post Lehman troughs in China, Singapore and Hong Kong respectively, do interventions really help? And what are their effects on Malaysia?
In the April issue of Asia Pacific Residential Review, Knight Frank brought into focus how these markets have tried to cool property prices.
Singapore instituted seven rounds of cooling measures, ranging from increasing downpayment, rising stamp duty to property tax. The recent budget has also set out an increase in property tax for high-end residential real estate, set to be phased in over 2014-2015.
Cooling measures were also introduced to the non-residential sphere for the first time, with an exit stamp duty introduced on industrial property sold within four years from the date of purchase.
In Hong Kong, the stamp duty for property over HK$2mil was doubled to 8.5%, putting the brakes on volumes transacted in the local market. China, too, sent out strong signals, which include a capital gains tax of 20%. Buyers are looking to exit before these measures are enforced, most notably in Shanghai, which saw an increase in volumes transacted in March.
Bloomberg reported on April 24 that Beijing and Shenzhen have submitted tax plans to their central government.
The aims of the interventions are broadly the same across all of the key markets; control price inflation, reduce the role of speculators and help support first time buyers. The tools vary. It could be a mixture of fiscal policy, supply side intervention, home buyers regulations and financing restrictions, the Knight Frank report says.
Government intervention in the property markets is not a sudden new phenomenon. Policy-makers, to varying extents, have always found it necessary to intervene by exercising some element of control over market participants, along with two key factors of production; land and finance.
They do so because they desire “stable and sustainable growth”. Property consultants contacted say they prefer a gradual increase in prices rather than a steep hike.
While the recent increase in prices are fueled by high liquidity, urban migration, and economic growth, especially in China, questions on sustainability have arisen.
Their conclusion is that, interest rates – at their lowest today – coupled with speculative activities are fuelling prices beyond this “sustainable” barrier.
The various measures taken so far were a result of significant price rises that have brought into focus issues of affordability and the risk of potential asset bubbles.
Effects of cooling measures
The Knight Frank report says as a result of these measures, Singapore saw a reduction in annual price growth, but not perhaps the reduction policy makers expected. China saw prices drop in 2011, but they rebounded in 2012.
Hong Kong continues to see very strong price inflation, buoyed by low interest rates (the HK dollar is pegged to the US dollar) and tight supply.
Knight Frank is of the view that prices will soften in Singapore by an average of 5% and Hong Kong by 10% over the next 12 months. In China, prices will likely continue to appreciate in Tier-1 cities, while there may be drops in some of the Tier-2 and 3 cities.
The protectionist measures introduced into Singapore and Hong Kong have led to a reduction of purchases by foreign buyers. Singapore saw a drop of 23.5% in 2012 from 2011 (for permanent residents and non-permanent residents). Hong Kong also saw the proportion of mainland Chinese buyers drop from around 30% in October 2012 to only 9.4% in January 2013 (in the Hong Kong luxury market).
What is the impact of these various measures on Malaysia?
Knight Frank Malaysia’s head of project marketing Herbert Leong expects the additional cooling measures in competing Asian markets to lead to further interest in the Kuala Lumpur, Penang and Iskandar Malaysia property markets.
Leong also says that overseas investors have viewed Malaysia as an attractive alternative investment destination for some time and expects further activity in 2013, particularly post-election.
While prices in Hong Kong, China and Singapore have risen considerably, annual price growth in the major markets in Malaysia has flattened considerably over the last 12 months. Perhaps, this may be due to the “wait and see” attitude in light of the general election (GE). Malaysia is likely to see a rebound in activity following the GE.
Says Leong in an email: “Malaysia has always been favoured by investors from Singapore, HK/China, Indonesia and Middle East, though not as much as the countries (Singapore, Hong Kong and China) mentioned. The cooling measures will encourage investors from these countries to buy Malaysian properties as our prices are much cheaper and the returns (capital appreciation/rental returns) are reasonable.”