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EconomicsReal estate, Asian style
View of Hong Kong harbour
Ever wonder what real estate markets are like in the rest of the world?
Last month I had the privilege of visiting three of the most exciting real estate markets in the world. Three of the four “Little Tigers” (Taiwan being the fourth), South Korea, Hong Kong and Singapore provide an enormous feast for Western eyes. Though capitalism has been in vogue for a generation in these countries, it sometimes takes different forms from the American version we’re used to.
For example, Singapore is one of the most dynamic city states in the region, yet its government is involved in virtually every decision (certainly all real estate decisions) on the island. Democratic principles sometimes give way to government mandates and many controversies remain close to the surface. Hong Kong is a Special Administrative Region of mainland China and has a delicate relationship with Beijing. South Korea remains dynamic and considerably different from its closed and very poor neighbor to the north.
There are also similarities among real estate markets in each of these three countries. For the most part, the decision to develop land is strictly a government affair; state agencies maintain tight control over the supply of land. Given the high population densities, especially in Hong Kong and Singapore, most housing units are apartments or condominiums. In Singapore, home ownership rates are among the highest in the world (over 90 percent) since the Singaporean government has long had a policy of privatization of flats to sitting tenants at deep discounts, using the state’s pension fund for financing. Given Singapore’s continuing economic growth, trading up from “HDB flats” (public housing projects) to higher quality condominiums (generally privately developed and managed) is a national obsession.
It’s said in Hong Kong that real estate is the only business in town. Indeed, I heard about the new record price of a condo sale in Hong Kong: HK$92,000 (or almost US $12,000) per square foot! The talk of the real estate community for several months, this vast sum is thought to be even too high by local standards.
In Singapore, prices continue to rise and construction continues around the site where one of two casinos is being developed. Once considered offensive to Singaporean sensibilities, the casinos are scheduled to open next year — with entrance fees of more than US $100! In Seoul, real estate values are escalating, along with bumper-to-bumper traffic.
Mortgage finance has always been important in East Asia. Both Singapore and Hong Kong are vying for the slot of primary financial capital of Asia (the Chinese government is doing everything it can to enter Shanghai into this race). Financial liberalization in South Korea has moved away from the Chnse system of finance, in which tenants are required to make a significant lump-sum payment to landlords at the beginning of the lease. The landlord’s return comes from earnings on this sum rather than periodic rental payments. At the conclusion of the lease, the sum is returned to the former tenant intact.
The current fears throughout much of Asia, including China, are the low interest-rate policies in the West, especially in the U.S., accompanied by large deficit spending, resulting in a weak dollar (and weak Euro). For Asian currencies, this means higher returns are readily available. For real estate markets, it represents the threat of housing bubbles throughout the region.
It’s expected that the average growth rate throughout Asia will be 3.4 percent this coming year. This is down from twice-as-high rates in most countries in recent years and in the case of China, from double-digit growth rates. Yes, the new Asia is different. Real estate is leading the charge.
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Austin Jaffe, Ph.D. is PAR's Consulting Economist from the Smeal College of Business at Penn State University. |
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But do we expect a pull back during this year before getting into a real recovery or there’s just going to be a slow recovery?
[...] year. Smeal’s Austin Jaffe recently visited these two areas (along with South Korea), and wrote about their real estate economies on Just Listed, the blog of the Pennsylvania Association of Realtors: [...]
I understand realtors work on a salary basis and they work regular day hours. Anyone know the facts?