On-Going Property Price Corrections in the Far East

On-Going Property Price Corrections in the Far East

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Property prices in Hong Kong and Singapore are suffering the most as the ripples from the global financial crisis spread to the Far East.

Following on the heels of the US, UK and Europe, banks have shut off lending as governments strive to tackle falling output and rising unemployment.

Predictions are that the HK and Singapore property markets won’t show any signs of revival for at least a year or even longer.

“All markets have corrected to varying degrees. Singapore and Hong Kong corrected significantly, with both falling 25 to 30 per cent,” said Piers Brunner, chief operating officer of Colliers International’s Asia office.

“The Singapore and Hong Kong economies have a similar base – finance, tourism, shipping and re-exports – all of which have been affected by the global financial crisis,” said Brunner.

Luxury residential property prices in Indonesia have remained steady mainly due to few sales and low loan-to-value borrowing.

Seoul, Kuala Lumpur and Jakarta have been less affected since property supply in these markets matched demand more than other cities when the crisis struck.

HK and Singapore both have high prices per square metre for residential property in comparison to many other Far East cities.

Hong Kong heads the league at $12,599 per square metre, followed by Singapore at $11,800. For other major cities, you have to drop several thousand dollars with Seoul at $4,000, Kuala Lumpur at $1,400 and Indonesia propping up the table at $993.

One of the problems for HK and Singapore has been that with such high prices, developers have all wanted a slice of the pie and have moved in where they can creating an oversupply of accommodation – both in the residential and commercial sectors.

Other cities with a more modest property pricing and tighter government planning controls have less of a problem. For instance Kuala Lumpur banned office development a few years back to let demand catch up with supply, and is having a much better time of riding out the global recession than HK or Singapore.

The rule-of-thumb that seems to run through this recession is countries with lax banking controls and oversupply of residential and commercial accommodation are the countries taking the big hits, while the more risk adverse governments and economies are still feeling the pinch, it’s not leaving such a bruise.

Perhaps the lesson everyone should take from the financial downturn is that the economy is global and all governments have to act responsibly or the whole world catches a cold if they don’t.

Photo credits: Christopher Chan via flickr