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Saturday, February 27, 2010

The Chinese love for properties

China, Hong Kong and Singapore's buoyant property markets.

AS US gaming giant Las Vegas Sands goes hither and thither in preparation for what it describes as the “most expensive stand-alone integrated resort-property ever built” scheduled in late April this year, all eyes are on the effect on the city state property sector.

The opening of the US$5.5bil (RM18.7bil) Marina Bay Sands casino resort complex will come two months after the start of gaming operations at Resorts World Sentosa, a development owned by Malaysia’s Genting Group.

Las Vegas Sands says the 963-room hotel, part of the shopping mall and convention centre will also open together with the casino.

The second phase of the opening slated for June 23 will include a massive sky garden on top of the development’s three hotels as well as more retailers, it said.

Its chairman and chief executive Sheldon Adelson says their dedication to complete the project never wavered despite the challenging economic climate.

Construction of the complex – the US gaming firm’s first development in Southeast Asia – had been delayed by materials shortages and financial difficulties faced by subcontractors due to the recent global economic slump.

As Asia climbs out of the economic quagmire which has engulfed the world, the property radar in this part of the world have been far more rosy than that of the West.

Singapore’s property sector, as with Hong Kong’s and China’s, have piqued quite a bit of interest among Asians themselves and watched with envy in the West.

Known as the exotic Far East by the West, property prices in this part of the world have remained excitingly buoyant by contrast, so much so that the Singapore government has recently imposed a levy on people selling residential properties within a year from the date of purchase.

The city-state also lowered the loan-to-value limit to 80% from 90% for all housing loans provided by financial institutions.

The measures are “aimed at pre-empting the formation of a property bubble,” Adrian Chua, an analyst at DBS Group Holdings Ltd writes in a note.

“The earlier-than-expected introduction of measures signals that more could come should prices and volumes not revert back to sustainable levels.”

Singapore’s steps come after the island’s private home sales last year were just shy of the 2007 record, helped by the nation’s economic recovery. A total of 14,688 homes were sold last year, compared with the record 14,811 transacted in 2007, according to government data.

Private residential prices rose 7.3% in the fourth quarter from the previous three months, extending the biggest rally in 28 years, based on data from the Urban Redevelopment Authority. The government’s property price index surged 15.8% in the third quarter.

China’s property market is no less exciting. Having grown by leaps and bounds, it will probably go through a “more meaningful correction” this year because the price gains in 2009 aren’t sustainable, Christopher Lee, corporate ratings director at Standard & Poor’s, says.

The outlook for the Chinese market is “neutral” for this year, Bei Fu, an associate director of corporate ratings at S&P, says on a conference call with Lee this week.

“The middle of 2010 could be a potential turning point for many developers,” Fu says. “A combination of slower demand, higher supply and various government initiatives will dampen market sentiment.”

China’s property prices has surged 9.5% in January, the most in 21 months, as total new loans have surged to 1.39 trillion yuan (US$204bil), more than in the previous three months combined.

The China Banking Regulatory Commission told banks last month to “strictly” follow property lending policies.

Investors tend to “sit on the sideline” in anticipation of more tightening measures to curb property price gains this year, Lee says.

Gradual and cautious

Beijing will scrap some home-purchase incentives after the jump in prices, reducing the scope of a housing sales-tax exemption and enforcing a 40% down-payment requirement for second homes, the capital’s Municipal Commission of Housing and Urban-Rural Development says in a statement this week.

The People’s Bank of China raised the reserve requirement by 50 basis points for the second time this year just before Chinese New Year to slow bank lending. The change came into effect this week.

The central bank says it wants to gradually normalise monetary conditions from a “crisis mode” after gross domestic product grew 10.7% in the fourth quarter, the fastest pace in two years.

“Policy introduction this year will be in a gradual and cautious manner,” Fu says. “Stability will be the focus.”

The Chinese government will increase supply of subsidised public housing this year to provide affordable accommodation for people with lower incomes, and there will be a “surprise” in the number of available luxury homes by the middle of this year, when projects started one year ago are completed, leading to stronger competition among developers, she says.

Industry consolidation

“Bigger and stronger property players will do even better as they have the scale and financial resources to grow, and smaller companies will find the market condition more challenging,” Hong Kong-based Fu says. “We expect to see more merger and acquisition activities in the sector.”

Over in Hong Kong, developers are optimistic the city’s government will maintain its “benign” stance toward the industry, and that borrowing costs will remain low, sustaining real estate demand.

“The government has kept a rather benign stance towards the Hong Kong property sector,” Macquarie Group Ltd analysts led by Chris Cheng says in a research report.

“Nothing significantly new was introduced in relation to property” in financial secretary John Tsang’s budget speech earlier in the week.

The city has announced that it will raise the stamp duty on homes selling for more than HK$20mil (US$2.57mil) to 4.25 % from 3.75%.

This is in response to US Federal Reserve chairman Ben S. Bernanke’s remark that a slack labour market and low inflation will allow the Federal Open Market Committee to keep the benchmark lending rate low “for an extended period.”

The Hong Kong Monetary Authority typically tracks the Fed’s interest rate movements because the city’s currency is pegged to the dollar. The lowest mortgage rates in at least two decades and an influx of overseas capital equivalent to more than a third of Hong Kong’s annual gross domestic product helped fuel a 29% gain in property prices last year.

The raised transaction tax on luxury homes, the first increase since 1999, will only affect about 2% of the property market. Of 110,000 Hong Kong residential sales in 2009, about 2,000 sold for more than HK$20mil, according to realty company Midland Holdings Ltd.

By the way, all three countries are predominantly Chinese. – Agencies

By The Star

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