Asia’s prime residential market beset by weaker price performance, concerted efforts made

Thomas Lam Ho Man

KUCHING: While capital market flight from emerging economies to safe havens has been integral to the performance of the world’s luxury housing markets, the story that grabbed the media’s attention in 2011 was the potential for a Chinese property crash.

According to Knight Frank and Citi Public Bank’s Wealth Report 2012, A Global Perspective on Prime Property and Wealth, this concern was hardly surprising. China’s housing market arguably formed the single most important sector in the entire global economy.

In 2011, China’s construction sector accounted for 13 per cent of its gross domestic product (GDP), 20 per cent of global steel production, and was the dominant consumer of the world’s iron, copper and cement. Thus, the performance of China’s housing market mattered very much.

While mainstream prices had been falling across the ‘tier-one’ Chinese cities, the prime markets had fared slightly better, although growth was slowing.

Prices in Beijing’s luxury sector, for example, rose by a healthy eight per cent in 2011, but this was largely due to a strong performance in the first half of the year.

“Shanghai prime prices may have fallen 3.4 per cent in 2011, but they are still 37.5 per cent higher than they were in early 2009,” said Thomas Lam Ho Man, Knight Frank’s head of Research for Greater China.

In addition, the Chinese government had made a concerted effort to halt runaway price growth.

This objective confirmed two key issues that would become more and more important for future performance in the prime residential market.

Unsurprisingly, the attempt to control prices in China have seen investors switch their focus to commercial property markets and also to the prime residential market in Hong Kong. Mainland

Chinese buyers now make up 25 per cent of prime market purchases in Hong Kong, where prime apartment prices rose by a further 4.6 per cent in 2011, compounding the 60 per cent growth seen since the beginning of 2009.

In India, meanwhile, the government had not had to resort to specific cooling measures to check the growth of the country’s burgeoning prime residential markets; weaker economic conditions and high inflation, with a concomitant decision by the Bank of India to raise interest rates 13 separate times in 2011, that contributed to prices in Mumbai falling by more than 18 per cent last year.

But weaker price performance was not the whole story of Asia’s prime residential market. Knight Frank

Indonesia’s Fakky Hidayat pointed out that Jakarta’s strong performance in 2011, up by over 14 per cent, resulted from the steady growth of Indonesia’s domestic economy.

However, a lack of clarity over new anti-money laundering regulations being introduced in March this year could cause uncertainty in 2012, he cautioned.

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