Asian property bulls shrug off bubble talk

Fears of overheating in China, Hong Kong and Singapore markets have been fanned by media reports of huge crowds at property launches snapping up residential units

SINGAPORE: "Bubble" may be the word on everyone's lips when talking about spiralling housing prices in China, Hong Kong and Singapore, but contrarians believe these fears are overblown and prices have yet to peak.

They point to savings-heavy Asia, a preference for bricks and mortar, low interest rates and a faster-than-expected recovery in Asian economies, led by China.

"We're not near any bubble territory. Such rapid upward moves have simply illustrated the resilience of Asian households and companies," said Frankie Lee, who manages around US$800 million (US$1 = RM3.53) as head of property equities for Asia at Henderson Global Investors.

Fears of overheating in these markets have been fanned by media reports of huge crowds at property launches snapping up residential units the minute they are launched and the availability of easy credit in these centres.
"Act now to prevent a housing bubble", read one headline in Singapore's Straits Times newspaper yesterday, calling for banks to tighten lending terms.

Henderson's Lee said property prices would continue to rise in the next one or two quarters, but less sharply, as the nascent economic recovery takes hold and boosts employment in these cities.

Bubble contrarians say housing prices, especially in Singapore and Hong Kong, remain affordable to their cash-rich citizens, even after the recent sharp gains.

Tan Chin Keong, real estate analyst with UBS Wealth Management in Singapore, notes a typical Hong Kong homebuyer would have to set aside about 35 per cent of monthly income to service a mortgage at current prices, down from 70 per cent a decade ago.

In Singapore, household debt is around 15 per cent of total assets, while cash holdings alone exceed the total amount of borrowings, Tan said, citing central bank figures.

Mortgage rates in Hong Kong and Singapore have also been falling in recent months and are at or near all-time lows, due to loose monetary policies and fierce competition among banks.

Hong Kong's residential prices have risen by more than a fifth this year, helped by a lack of new supply and low mortgage rates.

In Singapore, residential sales hit new record highs in June and July, helped by low interest rates and increased confidence about the local economy.

Chinese homebuyers are also flush with cash, analysts say.

Lee Wee Liat, China property analyst at Nomura, says feedback from developers indicates that around 30 per cent of homebuyers paid for their property in cash, while those who borrowed typically took loans of 50 to 60 per cent of the property value.

Still, market bears continue to warn that China's housing prices may begin to ease and could reverse early next year as supply catches up and demand wanes.

The National Development and Reform Commission, China's top economic planning agency, noted in a report to the country's State Council, or Cabinet, that "housing prices in some cities are rising overly fast", a strong indication Beijing has grown uneasy about the increases and may step in to cool the market down.

Chinese residential property prices shot up in March and the month-on-month growth has been accelerating through July.

Property consultancy DTZ cautioned clients not to be caught up in the current euphoria over Asian residential property, saying market bulls were looking at just one to two months of data and calling it a trend.

"Prices may come off a bit until we see a more sustained economic recovery, both in the region and globally," said David Green-Morgan, Asia-Pacific research director at DTZ.

Market bulls noted that the rally in home prices has helped property stocks outperform their respective markets.

In Hong Kong, the HSI-Properties Index is up 49 per cent year-to-date, outperforming the 37 per cent advance on the main index. In Singapore, property stocks have gained 57 per cent, against a 50 per cent rise in the benchmark index.

The outlook on China property stocks is mixed due to uncertainty about the sort of measures authorities are likely to implement in a bid to cool the market as well as differing views about the quality of the firms' landbank.

By Reuters

Magna Prima unit to buy Ibsul for RM3.5m

PROPERTY developer Magna Prima Bhd said its wholly-owned unit will buy Ibsul Development Sdn Bhd for RM3.5 million.

It told Bursa Malaysia that its unit, Winicon (M) Sdn Bhd, has entered into a deal with Datuk Ahmad Shafee Sabaruddin and Mohd Sabki Razali to buy 250,002 shares.

Earlier this month, Ibsul Development bought a piece of land located in Bandar Shah Alam for RM18.5 million.

By Business Times

Tanjung Rhu Resort eyes niche market

LUXURY hotel Tanjung Rhu Resort Langkawi plans to build villas at the 8ha resort to capture a new and niche market segment.

A total of 20 villas with private swimming pool are scheduled to be built and completed by end-2011.

"We expect to open five or six of the four-bedroom pool villas in the fourth quarter of 2010 and the remaining in 2011," general manager IZ Melvin said.

"This concept is popular in resort islands like Bali, Phuket and Koh Samui ... but there are only two resorts in Langkawi offering luxury villa accommodation.
"We want to target a niche group especially those who want privacy," he said.

Tanjung Rhu is owned by Tanjung Rhu Land Sdn Bhd and operated by hospitality group Signforce Sdn Bhd.

The 136-rooms are set to undergo some changes, to keep the hotel fresh and more relevant for its market mix. Its last upgrade was in 2005.

The property, owned by Promet Bhd, was originally built as an apartment in 1991. In 1993, the current owners bought the property and converted into a hotel and brought in Radisson Hotels & Resorts Group to operate the property.

Then in June 1999, Signforce took over the management of the hotel. Melvin, who is also Signforce's chief operating officer said that since its entry the average room rate (ARR) at the resort has swelled.

"When Signforce came in the ARR was RM350. Since then, our rates have picked up at an average of 9 per cent to 12 per cent year-on-year," Melvin to Business Times during a recent visit to his resort.

The hotel last year filled 62 per cent of its rooms and enjoyed RM1,500 per occupied room for two which includes food and beverage. About 95 per cent of its guests eat at the hotel and contribute towards 34 per cent of food and beverage revenue.

Last year, Tanjung Rhu's gross operating profit (GOP) was 52 per cent. GOP is gross revenue (from rooms, food and beverage, laundry or business centre) minus cost of operations (wages, electricity and amenities).

This year, however, as a result of the global economic downturn and the H1N1 flu, the hotel is expected to see occupancy slip to 58 per cent and per occupied room spend to be RM1,450.

On a more positive note, business in July 2009, saw a sharp improvement with occupancy reaching 80 per cent.

The hotel predominantly caters to the leisure group from the UK, Japan, Australia, Holland and France.

Only 12 per cent of its business is the corporate crowd which is mostly during the Langkawi International Maritime and Aerospace Exhibition.

When asked on how Tanjung Rhu emerged as the top three on the island in terms of rates despite being a locally-owned hotel, carrying a local name and run by locals, Melvin said that it has to do with the hotel's guest experience.

"When it comes to leisure accommodation, people not necessarily look for a brandname but rather an experience. Our biggest selling point is, we sell experiences," he said.

And in support of this, he said, a quarter of its guests are repeat visitors.

By Business Times (by Vasantha Ganesan)