Asia Luxury Residential MarketView Q1 2013 CBRE Global Research and Consulting Q1 APAC GDP 4.5% y-o-y PRICES 1.5% q-o-q RENTS 0.2% q-o-q EMPLOYMENT OUTLOOK LUXURY HOME PRICES CONTINUE TO RISE BUT RATE OF GROWTH EASES AS COOLING MEASURES TAKE HOLD 1 Hot topics Economic growth in Asia Pacific gathers pace in Q1 2013 to its historical trend rate of around 4.5% y-o-y, up from 4.3% y-o-y recorded in Q4 2012, due mainly to slight improvements in growth in China and Japan The lending environment remains constrained in China, India and Vietnam during the quarter, forcing developers to seek alternative sources of funding Concern remains over the high cost of residential property in many markets and the period saw authorities in several countries introduce new cooling measures in an attempt to rein in surging prices Price growth was led by New Delhi and Mumbai which saw gains of between 2% and 4% q- o-q due to the lack of supply. Other strong performers included Manila and Kuala Lumpur where buying demand remained firm. Price growth was also recorded in Beijing, Shanghai, Guangzhou and Shenzhen Sales volume declined in Beijing, Shanghai, Guangzhou and Shenzhen mainly due to new tightening measures implemented by the government. Deal flow also slowed in Hong Kong and Singapore after stamp duty was increased on all property transactions Luxury home prices in Asia posted further gains in Q1 2013 with the CBRE Asia Luxury Residential Price Index rising by 1.5% q-o-q. Whilst prices have continued to increase, the rate of growth has moderated over the past two quarters as cooling measures implemented in a number of markets in recent months gradually take hold. Among the 13 major markets tracked, nine cities recorded modest price rises ranging from 0.7% to 3.0% q-o-q. The CBRE Luxury Residential Rental Index rose marginally by 0.2% q-o-q in Q1 2013 compared to a decline of 0.7% q-o-q in Q4 2012. Rents increased in the range of 0.5% and 1.8% q-o-q in Beijing, Shenzhen, Bangkok and Kuala Lumpur, but were flat in Singapore and New Delhi. The minor rental increase reflected a slight uptick in leasing demand from potential buyers who have turned more cautious about the outlook in the residential sales market.. Demand from end-users and long-term investors is expected to remain firm in the coming months but the cooling measures currently in place in many markets are already gradually dampening buyer sentiment. Overall prices look set to hold steady or ease slightly over the next few quarters. The risk of rising inflation means authorities are likely to keep cooling policies in place or introduce additional controls should prices continue to surge. Buyers will take longer to negotiate and conclude deals and are likely to become more selective in terms of the assets they acquire. The luxury residential leasing market is expected to remain subdued. Multinationals remain cost sensitive and weaker leasing demand from expatriates will put downward pressure on rents over the remainder of the year, despite the fact that there may be an uptick in demand from potential buyers priced out of the sales market. Table 1: Selected Asia Luxury Residential Prices and Rents Region/ country Greater China City * Local currency measure (LCM) Average Prices LCM US$/ sq.ft. q-o-q (%) LCM pm Average Rents US$/ sq.ft.pm q-o-q (%) Beijing RMB / sq.m. 59,028 882 2.9 127.1 1.9 1.8 Shanghai RMB / sq.m. 87,580 1,309 2.6 149.7 2.2-0.3 Guangzhou RMB / sq.m. 35,912 537 0.7 84.9 1.3-0.4 Hong Kong HK$ / sq.ft. 22,700 2,924 0.9 - - - Singapore Singapore S$ / sq.ft. 2,850 2,297 1.8 5.1 4.1 0.0 Thailand Bangkok THB / sq.m. 148,219 471-0.5 390.0 1.2 1.6 Vietnam Ho Chi Minh City US$ / sq.m. 3,838 357-2.2 15.0 1.4-0.7 Malaysia Kuala Lumpur RM / sq.ft. 769 249 1.9 3.3 1.1 0.5 India Delhi - NCR INR / sq.ft. 60,833 1,120 1.3 133.7 2.5 0.0 Mumbai INR / sq.ft. 69,500 1,280 3.0 155.0 2.9-8.8 Source: CBRE Research (*) Notes: Refers to luxury residential apartment/condominium units. The following markets are quoted on a gross floor area basis: Beijing, Shanghai, Guangzhou, Hong Kong, Kuala Lumpur, Delhi and Mumbai. Others are quoted on a net floor area basis. The minimum price threshold for Shanghai luxury residential basket was adjusted to RMB 60,000 psm in Q4 2012. Average rents series for Hong Kong discontinued in Q1 2013.
Q1 2013 Asia Luxury Residential MarketView ECONOMIC UPDATE AND LENDING ENVIRONMENT ASIA PACIFIC GROWTH BOOSTED BY GRADUAL RECOVERY IN CHINA AND JAPAN Economic growth in Asia Pacific gathered pace in Q1 2013 to its historical trend rate of around 4.5% y-o-y, up from 4.3% y-o-y recorded in Q4 2012, due mainly to slight improvements in growth in China and Japan. Although China s GDP figures during the quarter were weaker than expected at 7.7% y-o-y, investment in infrastructure and the housing market continued to support growth. Japan exhibited signs of recovery with industrial output, exports and retail sales all showing an uptick, and business confidence surging amid the on-going depreciation of the Yen and a new monetary easing policy intended to double the monetary base and attain annual inflation of 2.0%. In India new economic reforms brought about an improvement in sentiment whilst growth remained strong in Southeast Asia where steadily rising domestic demand continued to provide a cushion against weak global exports. Chart 1: GDP Growth (%, Y-o-Y) 20 10 0-10 2001 Q1 2002 Q1 World China Japan Asia Pacific South-East Asia 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 Source: Oxford Economics 2 The employment outlook for Asia Pacific improved slightly on a quarterly basis and appears to augur well for the region in the short-term. Surveys of employers in Taiwan, India, Japan, China, Singapore and New Zealand showed they had a reasonably strong intention to add new headcount during 2013. Australia once again was the least optimistic market, a position it has now held for four consecutive quarters, although confidence among employers did improve slightly on a quarterly basis. The relatively subdued mood was mainly due to the recent slowdown in the mining and construction sector where the pace of hiring has slowed following the fall in commodity prices and cancellation of some major projects. The lending environment remained constrained in China, India and Vietnam during Q1 2013, forcing developers to seek alternative sources of funding. During the quarter several Chinese developers attempted to raise capital in the debt markets, a trend last witnessed in early 2011. Developers in India continued to obtain financing from private equity funds and high-net-worth investors by selling off stakes in development projects. During the period India reduced repo rates twice by a total of 50 basis points although banks did not cut lending rates for investors. Inflation in Vietnam remained a major issue, prompting the Central bank to slash its refinancing rate by a further 100 basis points to 8.0%. Economic growth in Asia Pacific is expected to gather pace over the course of 2013 and reach around 4.8% y-o-y for the year as a whole. However, concern over the global economic situation will continue to weigh on sentiment, with the sovereign debt crisis in the Eurozone and a potential slowdown in China posing the biggest downside risk. Southeast Asia will continue to outperform, backed by strong domestic consumption and foreign investment. Chart 2: Asia Pacific Net Employment Outlook 35 30 25 20 15 10 5 0 2013 Q1 2013 Q2 Taiwan India Japan New Zealand Table 2: Typical Mortgage Rate (%) Market Mar 2013 Dec 2012 Q-o-Q (bps) China 6.6 6.6 0 Hong Kong 2.9 2.8 10 Singapore 1.53 1.52 1 Kuala Lumpur 4.2 4.2 0 Bangkok 5.16 5.16 0 HCMC 15 15 0 South Korea 4.06 4.19-13 India 14.45 14.5-5 Source: Local lenders Note: The mortgage rate quoted above is indicative only and varies from bank to bank China Singapore Hong Kong Australia Source: Manpower Employment Outlook Survey Note: The net employment outlook is derived by subtracting % of employers anticipating total employment to increase from % expecting to see a decrease in the next quarter
MARKET FUNDAMENTALS PRICES RECORD FURTHER GAINS AND RENTS RECOVER SLIGHTLY PRICES Luxury home prices in Asia posted further gains in Q1 2013 with the CBRE Asia Luxury Residential Price Index rising by 1.5% q-o-q. Whilst prices have continued to increase, the rate of growth has moderated over the past two quarters as cooling measures implemented in a number of markets in recent months gradually take hold. Among the 13 major markets tracked, nine cities recorded modest price rises ranging from 0.7% to 3% q-o-q. Gains were led by New Delhi and Mumbai where prices rose by between 2% and 3% q-o-q, mainly due to the lack of supply. Other strong performers included Manila and Kuala Lumpur where buyer demand remained firm. Price gains were also recorded in Beijing, Guangzhou, Shanghai and Shenzhen despite the introduction in March of new cooling measures. Luxury home prices decreased slightly in Bangkok by 0.5% q-o-q after steady growth in recent quarters but this was only due to a number of isolated transactions. There were still price increases in the most sought-after projects that were in limited supply. Prices also declined in Ho Chi Minh City. RENTS The CBRE Luxury Residential Rental Index rose marginally by 0.2% q-o-q in Q1 2013 compared to a decline of 0.7% q- o-q in Q4 2012. Rents increased in the range of 0.5% and 1.8% q-o-q in Beijing, Shenzhen, Bangkok and Kuala Lumpur but were flat in New Delhi. Mumbai was the only market to see significant fall in rents. This was mainly due to a shift among expatriates to the western suburbs of Bandra near the Bandra Kurla Complex. The minor rental increase reflected a slight uptick in leasing demand from potential buyers who have turned more cautious about the outlook in the residential sales market. MARKET OUTLOOK Chart 3: Asia Luxury Residential Price Index (Quarter-on-Quarter %) Chart 4: Asia Luxury Residential Rental Index (Quarter-on-Quarter %) 15% 10% 5% 0% -5% -10% -15% 8% 4% 0% -4% -8% -12% 2003 Q1 2003 Q1 2004 Q1 2004 Q1 2005 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 Table 3: Selected Completions Q1 2013 240 210 180 150 120 90 60 City District Property No. of units Kuala Lumpur Kg. Baru Setia Sky Residence (A & B) 422 Bangkok Pathumwan The Pyne 298 Beijing Chaoyang Ocean Crown 200 2009 Q1 2010 Q1 2011 Q1 2012 Q1 % change in quarter Index (RHS) 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 % change in quarter Index (RHS) 2013 Q1 2013 Q1 140 120 100 80 60 (Q1 2001 = 100) (Q1 2001 = 100) Q1 2013 Asia Luxury Residential MarketView 3 Demand from end-users and long-term investors is expected to remain firm but the cooling measures currently in place in many markets are already gradually dampening buyer sentiment. Overall prices look set to hold steady or ease slightly. The risk of overheating housing markets means authorities are likely to keep cooling policies in place or introduce additional controls should prices continue to surge. Further policies are likely to be very measured in their scope and severity as any marked correction in prices would have a significant economic impact. Investors in luxury residential property have turned more cautious towards making new purchases in the face of the high costs associated with each transaction. Buyers will take longer to negotiate and conclude deals and are likely to become more selective in terms of the assets they acquire. The luxury residential leasing market is expected to remain subdued. Weaker leasing demand from expatriates will put downward pressure on rents over the remainder of the year, despite the fact that there may be an uptick in demand from potential buyers priced out of the sales market. Table 4: Selected Development Pipeline City District Property No. of units Guangzhou Tianhe The Riviera 519 Kuala Lumpur Mont Kiara 28 Mont Kiara 460 Shenzhen Overseas Chinese Town Noble Hill 365 Singapore District 4 Cape Royal 302 Beijing Haidian Sinobo - Wanliu 250 3
Q1 2013 Asia Luxury Residential MarketView 4 MARKET SUMMARIES GREATER CHINA Luxury home prices in Beijing increased by 2.9% q-o-q although further restrictions on second home purchases impacted market sentiment and resulted in a substantial fall in transaction volume. During the period a number of developers slowed down their sales campaigns and in some cases suspended the release of new units as they waited for clarification of the new policies. Rents for serviced apartments continued to increase, rising by 0.9% q-o-q. In Shanghai luxury home prices rose by 2.6% q-o-q as upgrading demand continued to drive sales although Home Purchasing Restrictions remained in place. Trading activity showed signs of moderating as soaring prices and new cooling measures began to dampen buyer interest. The luxury residential sector is expected to be stable over the remainder of the year amid continued upgrading demand for reasonably-priced projects and limited new supply. The Guangzhou luxury residential market recorded another positive quarter as prices edged up by a further 0.7% q-o-q thanks to the launch of several new high-end projects and sustained upgrading demand. However, as new cooling measures came into force many buyers moved into waitand-see mode which resulted in a slight drop in transaction volume towards the end of the quarter. Price growth is expected to moderate as developers slow the pace of new launches and buyer demand weakens. Average rents fell slightly by 0.4% during what is a traditional low season for new leasing transactions.. In Shenzhen the luxury residential sales market witnessed steady activity and home prices increased by 1.3% q-o-q. The new tightening measures did not materially impact prices but transaction volume declined during March. Average rents for luxury apartments rose by 1.3% benefiting from demand from holidaymakers during the Spring Festival. 2013 will see a relatively large volume of new supply coming to the market. However, demand will hold firm and prices and rents will experience steady growth over the remainder of the year. In February Hong Kong doubled buyers stamp duty to a maximum of 8.5% and required it to be paid upfront rather than completion, with certain exemptions such as for first time buyers. The measures had an immediate impact and led to sales volume falling by 23% m-o-m in March as buyers turned more cautious. Despite the fall in sales volume prices of luxury homes continued to edge up by 0.9% q-o-q, although some owners and developers may revise their pricing in order to entice buyers back to the market. NORTH ASIA In Seoul the luxury home market showed some signs of improvement in Q1 2013 after two solid years of decline. Prices in Gangnam rose for the first time in 14 months as transaction volume picked up thanks to new stimulus measures. The period saw rising demand and rental levels for lump-sum deposit type housing known locally as jeonsei as an alternative to purchasing. Whilst there is no guarantee the recovery is a longterm one prices may record slight gains over the remainder of the year. SOUTH EAST ASIA Luxury residential prices held firm in Singapore but transaction volume declined on a quarterly basis as new market cooling measures curtailed buyer demand. Both prices and rents will come under pressure in the months ahead, especially for newly completed projects which have been selling slowly. In the rental market luxury units were taking longer to be leased out and there was also gradual rise in the number of tenants who broke their leases during the period. In Bangkok there were fewer new launches of luxury condominium projects in downtown Bangkok and the asking price continued to increase for new projects. Overall demand remained strong for new launches with the majority of purchasers continuing to be Thai although there was growing foreign interest. The sales prices of completed luxury condominiums varied significantly from building to building even in similar locations. Overall resale prices were largely flat and there were increases in the most sought-after projects where there was a limited supply of resale units. The Kuala Lumpur luxury residential market remained positive and price rose slightly by 1.0% q-o-q. Developers turned more selective about new launches in light of expected higher completions over the next 12 months, economic conditions and political uncertainty, a situation compounded by banks remaining cautious about home loan approvals. The rental market remained very competitive and anecdotal evidence suggests Malaysians are now accounting for some rental demand for apartments in traditional expatriate areas.
MARKET SUMMARIES Buyers remained unwilling to enter the market in Ho Chi Minh City due to prevailing high prices. Luxury home prices fell by a further 2.2% q-o-q during the period. The leasing market remained sluggish mainly due to the continued fall in the number of expatriates looking for accommodation. Rents in all submarkets continued to decline in Q1 2013 and are expected to weaken further in the coming months. Prices of luxury residential property in Manila continued to increase in Q1 2013 driven by strong investor demand. Sentiment around the economy improved further during the period with the country awarded its first ever investment grade rating from credit rating agencies. In the leasing market rents were stable thanks to steady demand from expatriates moving to the country. Capital values are seen to stabilise in the coming months and competition among investors for prime units will continue to increase. The continued growth of the outsourcing industry and inflow of expatriates will support further rental growth. SOUTH ASIA The lack of luxury home supply in Mumbai resulted in an increase in home prices by 3% q-o-q. Just one new project was launched. Demand for luxury homes is expected to remain firm and prices will continue to rise. The leasing market witnessed weaker demand as the subdued economic outlook prompted multinationals to turn even more conservative towards spending on expatriate housing. Rents fell by around 8% q-o-q mainly due to a shift in the pool of expatriates to the western suburbs of Bandra. Further declines are expected as landlords lower expectations in an attempt to attract tenants. New Delhi saw the launch of three new projects during the quarter. The market remained stable on account of subdued demand, with prices rising only slightly in selected submarkets. Rental values maintained stability across all submarkets, a trend that is likely to continue over the coming months. The market is expected to remain steady and is likely to witness an increase in capital values in the coming quarters. Q1 2013 Asia Luxury Residential MarketView Table 5: Property measures introduced during Q1 2013 China Market Measures Impact State Council announced the Five New Measures, to tighten the residential market. Most cities aim to ensure home price growth does not exceed the actual growth rate of urban disposable income per capita this year. However, only Beijing and Shanghai have explicitly provided the relevant details, such as: 20% capital gains tax, expansion of purchase restriction scope on second homes, and differentiated lending policies with increased down-payment rate and mortgage loan interest rate for home buyers purchasing a second unit. Transaction volume has dropped significantly in major cities but prices have stood firm. A fresh round of tightening policies could be implemented in the short term if prices continue to rise. Hong Kong A new double stamp duty raising the maximum rate from 4.25% to 8.5% for all property types was imposed at the end of February. In addition, the stress testing mortgage rate was raised from 200 to 300 bps. Local first-time home owners are exempt from the new measures. The immediate impact was significant with sales volumes dropping 23% in March compared to January and February. Many buyers have adopted a wait-and-see attitude and have exercised greater caution, particularly in the secondary market as primary market sales volume has remained relatively flat. 5 Singapore The loan-to-value (LTV) ratio for second housing loans was lowered to 50% from 60%, and to 40% for the third loan onwards. For foreign homebuyers the additional buyers stamp duty was raised from 10% to 15%. The impact is likely to be limited as underlying demand from genuine homebuyers is still strong. Buyers and developers will adopt a wait-and-see approach over the next two to three months until the market can digest the new measures 5 Seoul The government introduced another round of stimulus measures in April to support the sluggish home market. These include tax relief and mortgage support for low income groups, targeting for first time buyers and newlyweds; as well as easing LTV regulations from 60% to 70% for first time home buyers. Stimulating measures by the government have led to some improvement in home sales but the longer term impact remains to be seen.
Q1 2013 Asia Luxury Residential MarketView CONTACTS For more information about this regional MarketView, please contact: APAC Research Nick Axford Head of Research, Asia Pacific CBRE 4/F Three Exchange Square 8 Connaught Place Central, Hong Kong t: +852 2820 8198 e: nick.axford@cbre.com.hk Kim Mercado Director, Asia Pacific CBRE 4/F Three Exchange Square 8 Connaught Place Central, Hong Kong t: +852 2820 2876 e: kim.mercado@cbre.com.hk William Cheung Assistant Manager CBRE 4/F Three Exchange Square 8 Connaught Place Central, Hong Kong t: +852 2820 6557 e: william.cheung@cbre.com.hk + FOLLOW US GOOGLE+ FACEBOOK TWITTER 6 Global Research and Consulting This report was prepared by the CBRE APAC Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Disclaimer 2013, CBRE, Group Inc. CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. 6