In the third of our series of property predictions for 2019, we look at Australasia and Asia.
The big story is that it finally happened: the much predicted downturn in Sydney’s property market finally came about after years of rampant price growth. Prices in Australia’s biggest city are down about 7 per cent in a year and falling. Largely, that is down to changes to banking regulations that make it harder for people to get mortgages, but also a result of reduced investment from China in the wake of tighter capital controls.
As for 2019, what China does next might be the single most important factor to prime property markets, not just in this region, but across the globe.
But here is what the experts think:
Sophie Chick, director, Savills world research:
Across Australia, residential values peaked in autumn 2017 and prices are now falling or flat in all major cities. Sydney and Melbourne, Australia’s most expensive property markets, have seen the largest falls over the past year. Tighter lending conditions, especially for investors, increased supply and, in the prime markets, additional stamp duty and constraints for international buyers are suppressing values.
In the short term, this trend looks set to continue and we expect marginal price falls of up to 5 per cent in 2019. But, as Australia’s population continues to rise and infrastructure projects are completed, the long-term prospects for the prime residential markets remain sound.
International buyers are also under the spotlight in New Zealand. In October, new legislation was passed restricting their buying to the new-build market, contributing to an already slowing market, especially in Auckland. We expect 2019 to be a relatively flat year with potential for falls in the prime second-hand markets as international buyers leave the market.
Sarah Vaulkhard, adviser on the overseas desk at Property Vision:
Although China is never far from the headlines, we are unlikely to see the big overseas real estate acquisitions of recent years. The rising trade war with the US, and its impact on the renminbi, is forcing China to be more inward-looking and is leading to strict capital controls.
Singapore’s real estate market was pretty buoyant in the first half of 2018, with levels of transactions up, backed by high demand and good economic growth. However, as always, the government is quick to intervene and manipulate the market when prices start to climb, and in July it increased the additional buyers’ stamp duty and tightened the loan-to-value ratio.
Singapore will also feel the effects of the trade war between China and the US, as its economy relies heavily on the health of global trade. Interest rates are also likely to go up due to the fall in the Singapore dollar against the US dollar. For 2018, I warned of high levels of supply and this continues to be a real concern. The bounceback in Singapore’s real estate was short-lived and is likely to remain pretty stagnant into 2019.
As I predicted, the Hong Kong market finally slowed down and this correction will continue into 2019 as monetary policy tightens and Chinese liquidity into Hong Kong recedes.
Thailand continues to show steady growth, with the market appearing to be built on real rather than speculative demand, so it is slightly less risky. The number of foreigners living in Thailand is increasing and Bangkok is a relatively cheap place to buy, compared with cities in China, Hong Kong or Singapore, so Bangkok may be the city in south-east Asia to watch, although location will be key.
Prices have softened in Sydney and Melbourne, led by tighter lending requirements, slow wage growth and affordability constraints. Levels of supply are still high and investors are retreating, especially those from China and south-east Asia. However, a crash looks unlikely due to record-low interest rates, a relatively stable but subdued economic environment and an increasing population, all of which are underpinning the market.
Dan Conn, chief executive of Christie’s International Real Estate:
This autumn, Sydney achieved a historic benchmark with its first A$100m ($72m) property, Fairwater. Last year, we predicted that the rarest trophy homes would continue to sell for high sums. Looking to 2019, Australia will continue to attract international buyers, despite the government’s international buyer-cooling measures.
Hong Kong, as predicted, continues to outperform the overall market, despite cooling measures. Hong Kong remains one of the world’s premium markets for residential property due to a shortage of luxury inventory and land. Ultra-premium property continues to sell — including two residences that sold for more than $100m this year — despite years of government restrictions and taxes designed to curb speculation. Hong Kong’s prime property market is, however, set for a more challenging year in 2019, as rising interest rates, a slowing economy and a weakening Chinese currency may put pressure on demand.
Ahead of the 2020 Olympics, Tokyo is a market to watch in 2019. The city is witnessing rising construction activity, robust growth in sales prices and increased interest from foreign capital. Prime property prices and activity are likely to remain strong in 2019.
Liam Bailey, partner, global head of research, Knight Frank:
A strong economy, transparent government and taxes, low interest rates, an enviable lifestyle, world-class education facilities and great connectivity to the Asia-Pacific region continue to cement Australia’s position as a safe haven for investors and owner-occupiers. We expect prime prices in Sydney and Melbourne to rise by 2 per cent and 1 per cent respectively in 2019.
The market has largely absorbed the changes to the fees and taxes payable by foreign buyers as well as the impact of China’s capital controls. High demand and constrained supply explain the divergent performance of Australia’s luxury and mainstream residential markets. The net addition of 10,000 high-net-worth individuals in 2017 (the largest of any country), alongside the limited delivery of new prime stock, has supported prime prices.
Despite New Zealand’s restrictions on foreign buyers, we expect prices in Auckland’s prime districts to follow an upward trajectory, buoyed by a strong economy (the IMF forecasts 3 per cent GDP growth in 2019) and strong investment, particularly along the waterfront.
Arguably less draconian than it first appeared, New Zealand’s restrictions on foreign buyers prohibit the purchase of existing homes only; the acquisition of new-build properties is still permissible. Australian and Singaporean buyers are exempt from the ban due to the existence of separate trade agreements and we may see these nationalities take advantage of their preferential status.
Susan Wachter, professor of real estate and finance at The Wharton School of the University of Pennsylvania:
Prices in the Asia-Pacific region are likely to be particularly volatile. Coming off a period of extreme price rises, China represents the greatest downside risk in the region and, indeed, to the global economy. Price declines in China’s prime real estate markets in its tier one cities are likely, but slowing demand and capital limits are problematic for both Chinese house prices and housing demand in other markets in the region — in Australia, more than 20 per cent of newly constructed housing was purchased by foreign buyers in 2017.
In countries where foreign money drove price rises in 2018, cooling measures are being adopted. The year ahead will see the end of fiery price increases in markets such as Bangkok and Auckland, as government authorities are now contemplating how to contain the effect of foreign investment in residential properties on the stability of their domestic economies — just in time to combine with a cooling trend due to market forces.
Top photograph: Dreamstime