Saturday 25 May 2019

Malta beats out Hong Kong for world's top home-price gains

Island living: Home prices in Malta recorded a 17pc year-on-year increase in the three-month period to the end of June, according to Knight Frank’s Global House Price Index
Island living: Home prices in Malta recorded a 17pc year-on-year increase in the three-month period to the end of June, according to Knight Frank’s Global House Price Index

Pooja Thakur and Shawna Kwan

Malta has edged out Hong Kong to take the prize for territory or country with the highest residential price gains in the June quarter, according to a Knight Frank LLP Global House Price Index published last Friday.

Home prices in the tiny Mediterranean island rose 17pc in the three months to June from a year earlier, Knight Frank said, citing data from the nation's central bank. A dearth of supply combined with a robust economy that grew 66pc last year and a buoyant tech industry is pushing up demand.

Hong Kong, the world's least-affordable housing market, came in second, with price increases of 16pc. It's led the index's rankings on 10 occasions since 2009 but is expected to cool in coming months as a result of rising interest rates, Knight Frank said.

Along with Singapore and New Zealand, the former British colony has seen fresh property market cooling measures introduced over the past three months.

"Uncertainties resulting from the trade war and potential mortgage-rate hikes are adding downward pressure on prices," in Hong Kong, Alva To, vice president for greater China at Cushman & Wakefield Plc, said at a media briefing.

Cushman & Wakefield expects a correction in Hong Kong's property market in 2019, adding to comments from private-equity firm Gaw Capital Partners to CLSA Ltd that prices may drop as much as 15pc.

Such a correction is possible in the first half of 2019 as interest rates rise and the tide of money flowing in from mainland China recedes, according to the firm's president, Kenneth Gaw.

That could present a buying opportunity for the Hong Kong-based private-equity firm, which recently purchased a portfolio of shopping malls in the city and which is in the process of raising its sixth Asian fund, Gaw said on the sidelines of the recent Milken Institute Asia Summit in Singapore. "The Hong Kong market has been going up for the last 10, 15 years," Gaw said.

"With interest rates going up, less money coming in from China, I think, very possible, there is a correction."

Signs that one of the world's hottest property markets may finally be cooling are emerging almost daily, with developers offering free perks to shift apartments ahead of an impending vacancy tax and other real estate firms offering buyers discount rates. Gaw isn't alone in sounding the alarm bell; earlier this month, Nomura International (HK) Ltd. said residential prices will fall 13pc next year, wiping out all of 2018's gain.

Gaw Capital last year led a consortium that bought a portfolio of shopping malls in Hong Kong for HK$23bn ($2.9bn) from Link Real Estate Investment Trust.

"We will wait a see a little, but it is our home market, and we still like those kind of niche purchases where we can add value," Gaw said.

In China's residential market, Gaw sees mounting pressures, considering land auctions are failing in some cities.

Longer term, growth drivers such as a rising middle class, urbanisation and domestic consumption will be a positive force, he said.

Gaw also said Vietnam is "probably the best opportunity as a country," after a lot of manufacturing from China migrated to the Southeast Asian nation.

Singapore, meanwhile, as one of the only major Asian property markets to decline in value, has plenty of buyers on the sidelines ready to jump back in. Local news reports last January said the private-equity firm was interested in buying Singapore office and residential property assets.

Since its inception in 2005, Gaw has raised five funds targeting Greater China and the Asia Pacific. It had assets under management of $17bn as of the first quarter, according to its website.

Rounding out the top five spots are Latvia, Slovenia and Hungary, which all registered double-digit price growth.

At the other end of the spectrum are Ukraine, Peru and Saudi Arabia, where residential prices in the June quarter dropped 4.5pc, 1.6pc and 1.3pc respectively.

Knight Frank's Global House Price Index tracks mainstream residential prices across 57 countries and territories.

Riskiest housing markets

Housing market dangers meanwhile are "especially acute" in Australia, Hong Kong, Canada and Sweden, Oxford Economics said, noting this has historically posed a threat to economic activity.

"In all four, valuations are very elevated, there has been a lengthy housing boom, debt levels are high and there is a significant share of floating rate debt," Adam Slater, lead economist at Oxford, said in a research note.

On the positive side, it notes risks are relatively limited in key markets like the US, Germany, France, China and Japan. In addition, across most economies there has been no significant recent rise in mortgage rates, which have even fallen in some cases.

"So, the classic 'trigger' for house price declines is largely absent," Slater said. "However, rising rates are not strictly necessary for prices to start falling."

House prices are falling in Australia, down almost 3pc in the year through August in major cities, and 5.6pc in the Sydney market.

Meanwhile, three of the nation's four major banks raised mortgage rates in recent weeks, blaming higher funding costs. The increases came even as the central bank leaves official rates at a record low.

Oxford said it compared markets across OECD countries from 1970 to 2013 and found a clear negative relationship. Where valuations had risen 35pc or more above the long-term average over that period, real house prices fell 75pc of the time over the following five years, it said.

"This points to many OECD countries seeing stagnant or negative real house price growth in the next few years: the scope for a further house price 'melt-up' in highly valued markets looks extremely limited," Slater said.

Stretched valuations also matter because house price changes can have a significant impact on economic activity, Oxford said, citing a sample of 83 house price booms. It also found house prices tended to fall after booms, and often substantially.

"For the G7 countries, we find a positive relationship between consumer spending and real house prices from 1997, albeit possibly weakening in recent years," Slater said.


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