Downturn in Asia property marts to accelerate in 2009

HONG KONG: Asia's property markets are about to be hit by the global economic downturn with apartment prices and office rents in Hong Kong and Singapore set to skid more than 20 per cent by the end of 2009, a Reuters poll on showed yesterday.

Tokyo residential prices are forecast to fall 10 per cent by the end of next year while Grade A office rents and capital values are seen slipping by up to five per cent, according to the poll of financial institutions and property consultants.

Hong Kong residential property prices, already down 15 per cent from a peak earlier this year, are set to drop 20 per cent.

"They are heading back to levels seen during the SARs outbreak in 2003," said Leland Sun, founder of Hong Kong-based Pan Asian Mortgage Co Ltd.
"Although mortgage rates are low, at around three per cent, banks are reluctant to give 70 per cent mortgages because of declining economic conditions."

In Singapore, home prices fell 2.4 per cent in the third quarter of 2008 - marking the end of a four-year housing boom - and will drop another 21 per cent by the end of 2009.

The downturn in Asian property lags the end of the property boom in the US and Europe but will be felt more keenly next year. In comparison, Reuters polls forecast a 6.4 per cent drop in US house prices in 2009.

Hong Kong, Singapore and Japan are all now officially in recession. In Japan, more than 400 small and medium-sized developers and real estate firms have gone out of business in the past year as the residential market has turned down and as tighter credit has made it harder to finance property deals.

Office supply in Tokyo is relatively tight but rents at new buildings have started falling for the first time in six years.

Hong Kong, Asia's biggest international financial centre, will probably be most exposed to retrenchment in the financial sector. HSBC said this week it would lay off 500 staff in the city although redundancies by banks in Asia will be less than in New York or London.

As finance companies are locked into long leases, falling demand will filter through slowly, meaning further downside for office rents and prices in 2010 and possibly 2011, analysts said.

Capital values of Grade A office space in Hong Kong are poised to slump 30 per cent between while office rents are expected to tumble 26 per cent, according to the poll.

Office rents in Singapore have quadrupled in the past five years as companies expanded amid limited supply. As supply now looks to overshoot just as companies are cutting back, Grade A rents are set to drop 21 per cent by the end of 2009 and prime office capital values will slide 25 per cent.

By Reuters