Asia Times: Asia's property markets: Laggards bottoming out


	December 22, 2000	atimes.com

Special Reports

Asia's property markets: Laggards bottoming out

This Special Report was prepared by the Regional Economic Monitoring Unit of the Asian Development Bank (ADB) and does not necessarily reflect the views of ADB. The article is reproduced with the kind permission of the ADB adb.org.

For quite some time, they stood as symbols of the economic downturn in Asia. The bursting of the speculative bubble in the financial and real estate markets left a string of unfinished buildings and luxurious land development projects in its wake. From Jakarta to Manila to Bangkok, vacant towers serving high-end buyers bore witness to the mania that led to one of history's biggest property booms and busts.

Real estate markets in the region have been depressed, dragging local construction industries along with them. Property values in some countries have almost halved since the start of the crisis. Because of the economic uncertainties, consumers have kept their hands in their pockets, reluctant to commit to long-term purchases. During the initial stages of the Asian recovery, the property sector remained the laggard, falling into a slump even as the ratio of non performing loans (NPLs) inched down and social recovery began.

But three years on, there are signs that the worst may finally be over. Companies are slowly filling up empty offices while demand for retail space is rising. Contrary to earlier predictions, foreign buyers are starting to return to the region, plunking their money into big real estate purchases and perking up sales.

Governments of affected Asian countries saddled by NPLs acquired from insolvent banks are thus meeting with some success in disposing of real estate assets backing these loans. This is especially so in the Republic of Korea, but the process is also slowly being seen in other countries.

Banks, having written off much of their bad property lending, are now returning to the mortgage market, giving individuals the cash to buy houses. The faster than expected recovery of the region has prompted a resurgence, with new economy firms and an increase in consumer confidence believed to be behind this second wind.

The growth of information and communication technology industries and e-commerce-related businesses has helped bolster demand for office space this year, highlighting new trends for the real estate industry. One notable feature is the rising preference for space outside core business districts of major cities or in secondary cities. Following this trend, new economy businesses now also opt for business parks and campus-style developments over traditional office projects.

Office vacancy rates have declined in many Asian countries over the first half of the year, although performance has been mixed. According to a report by research firm Jones Lang LaSalle, office vacancies in Bangkok stood at 34 percent in the second quarter, from a peak of 42.2 percent a year earlier. In Jakarta and Kuala Lumpur, vacancy rates stabilized during the same period. The exception appears to be Manila (Makati) where vacancies rose to nearly 16 percent in the first quarter of this year. But even here, vacancy rates fell slightly during the second quarter.

Office rents, which are now on a more stable path, tell a similar story. While rates have not changed in Kuala Lumpur, improved demand raised average rents slightly in Bangkok during the second quarter of 2000 (by 3.2 percent annually measured in dollar terms). Prices are still falling in Manila (Makati) and Jakarta, but the slide is much less steep than before. Given the effect of continued exchange rate depreciations in the region, the impact, as expected, is much more pronounced if changes in average rents are computed using local currency equivalents. In Bangkok, office rents rose by 9.7 percent in July compared to year-ago levels, while the corresponding figure was 5.5 percent for Jakarta.

Strong growth fueled private spending in a number of Asian countries, spurring demand for retail space as consumer sales mounted over the past year. Thailand, which recorded the highest growth rate of retail sales in Southeast Asia as of last count, saw retail rents rising by 28.9 percent annually (in domestic currency terms) in June due to a rapid expansion of international cash and carry, and discount store chains. In Indonesia, retail vacancy levels during the same period fell below 10 percent, even though recovery remains slow and patchy, fueling rental growth of 79.9 percent over levels of a year ago.

Another telling development has been in the housing sector, particularly the surge in construction of low-to-medium-priced dwellings, which were the least affected by the crisis. Sentiment has visibly improved with the number of homebuyers increasing and developers planning to raise price tags on residential projects.

There has been some recovery in Malaysia's residential sector, especially with the economy back on track, strong government support through the home ownership campaign, and low interest rates. Houses in prime locations and some affordable condominiums and apartments have since been snapped up, spurring double-digit growth in the prices of various types of dwellings during the first half of the year.

Indonesia, the Philippines and Thailand have exhibited similar trends. In Thailand, private building construction increased by more than 8 percent year-on-year in the first quarter of 2000. The amount, in baht, of land transactions outside Bangkok during the same period was up by as much as 35 percent, according to government statistics. While the number of new apartments and condominiums built in and around Bangkok fell by 57.2 percent during the first seven months of the year, the number of housing projects grew by 61.2 percent.

In the Philippines, the middle-income market has shown signs of strength as evidenced by buoyant sales of houses and lots since last year, thanks to the huge latent demand, a possible supply gap, low interest rates, and increased affordability. Based on latest national income estimates, private construction grew by 2.5 percent in the second quarter compared with an 18.7 percent drop in public construction. This pushed up the implicit price index of the subsector by 10 percent year-on-year. Gross value-added in ownership of dwellings rose by 2.2 percent and that for real estate by 0.9 percent.

While Indonesia is experiencing difficulties in disposing of its more upscale property developments, it has seen a boom in housing, with an 80 percent rise in sales projected for 2000. Demand for rented apartments has also improved slightly, though rentals are likely to decline further given competition posed by individually owned units.

In the Republic of Korea, where the real estate sector was not a main source of the country's economic troubles, the figures have lately been quite positive. Office vacancy rates in Seoul have been declining consistently despite relative tightness in the financial market. Meanwhile, prices in the housing market have been showing an upward trend, with housing construction performance increasing sharply in July. The number of houses constructed rose by 132.4 percent compared with the level one year ago.

The pattern that is clearly emerging involves a restructuring and transformation of property markets in the region. Before the crisis, much of the impetus came from speculative demand for high-end real estate projects funded by short-term capital flows-basically a financial mismatch. Development in the sector is now much more broadly based and spurred by economic growth and its consequent effect on demand of the ordinary consumer. While the precrisis situation implied a hollow and quite narrow base, the revival connotes a wider and more reality-based market.

In sum, Asia's office property markets appear to have bottomed out. Recovery in low-income and middle-income housing is also strong. These are welcome developments as they help the region's recovery by generating higher demand not only for construction services and materials but also for consumer durables. Asia's recovery is, therefore, becoming more broad based.

back to the top

©2000 Asia Times Online Co., Ltd.

Asia Times Online is designed and produced by Multimedia Asia Co., Ltd.