http://www.businesstimes.com.sg/real...a-soft-landing

Best that property investors in Asia can hope for is a soft landing

Australia may yet be able to prevent a housing collapse but Hong Kong has failed to contain speculative fervour

By Andy Mukherjee

Jan 5, 2016


REAL estate in Singapore just finished a second ho-hum year, with home prices down 3.7 per cent from 2014. But investors only need to look at the gravity-defying markets to their north and south - Hong Kong and Sydney - to better appreciate the risk that they may have been spared. At least until now.

Property prices in all three urban centres saw a massive surge as Western central banks printed cheap money and Chinese home buyers embarked on a global hunt for assets. Singapore, however, effectively warded off the threat of a crash by aggressively taxing home purchases by foreigners and squeezing the supply of mortgage loans.

It took several rounds of increasingly harsher policy tightening between September 2009 and December 2013, but the city-state did eventually manage to tame the speculative fervour - a feat that Hong Kong, pursuing a largely similar strategy, failed to achieve.

Now that US interest rates are rising, Hong Kong - which pegs its currency to the greenback - is staring down the barrel at tighter financial conditions and the possibility of abrupt drops in the city's bloated home prices. That is also the risk in Sydney, as the 1.2 per cent slide in December - a second straight month of declines - amply demonstrates.

Australia may yet be able to prevent a housing collapse, even though the median home value in Sydney has almost doubled since 2008.

That is because slumping prices of Australia's coal and iron ore exports have opened up the space for investors to speculate on a further easing in the central bank's 2 per cent benchmark interest rate, which might keep financing costs low for property owners.

Hong Kong, though, may have no choice except to at least partly relive the grinding late 1990s-style deflation in asset prices: home values in the city slumped by 58 per cent between 1997 and 2002 as the US dollar surged.

Meanwhile, in Singapore, the bigger risk is that authorities delay lifting property curbs, worsening the glut of unsold homes and sparking panic sales by smaller developers.

That could bring back the risk of sharper price declines, something that the city-state has assiduously avoided so far, given that 46 per cent of total household assets, or S$828 billion, are tied up in property.

The top five markets with the best potential for price appreciation this year are the US, Brazil, Spain, Ireland and the UK, according to a survey by the Association of Foreign Investors in Real Estate.

When it comes to Asia, investors' best hope is for a soft landing, though if the wobbly home prices from Hong Kong to Sydney is any guide, it is not clear if even that modest wish will come true. BLOOMBERG