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SINGAPORE – Property prices have skyrocketed in all cities in the Asia-Pacific region this year, fueled by record-low interest rates amid the pandemic.
Optimism has also picked up pace as vaccination rates pick up and some countries move towards a post-Covid recovery.
As companies move to a hybrid work model – a mix of working from home at times and in the office at other times – demand for larger apartments has also increased, analysts say.
The overheating of real estate markets in some Asian cities has led to broad expectations that governments will intervene through housing restrictions or other measures such as fiscal or monetary policies.
South Korea, for example, raised interest rates in August for the first time in three years – analysts attributed this to rising property prices and rising debt.
Rising real estate prices
Here are the cities with the highest year-on-year price increases at the end of June, according to real estate consultancy Knight Frank.
Average annual growth in the Asia-Pacific region was 6.4% year-over-year – the highest increase in four years, according to Victoria Garrett, Head of Residential Asia-Pacific at Knight Frank.
There is a real estate market on steroids.
Kenneth Tan
Real Estate Agent, PropertyLimBrothers
Analysts and real estate agents say there has been intense competition among home buyers that has resulted in bidding wars and sky-high cash offers that go well beyond market valuations.
Sean Coghlan, JLL’s global director of capital market research and strategy, said, “There are more potential buyers than opportunities in the market, which is leading to more intense bidding processes,” said Coghlan, adding that this is in the residential and logistics real estate segments to be observed especially in the region.
“Increased competition and large pools of capital targeting real estate are coming together to drive prices up,” he said.
Housing market “on steroids”
A real estate agent in Singapore described the housing market in Asia as “on steroids”.
“Some buyers don’t even look at the homes, they submit the listings after seeing them from the outside, or they just watch the home tour videos,” said Kenneth Tan of PropertyLimBrothers, a real estate agency. He added that out of 10 buyers, three would skip the viewing.
The tenders have been so frantic that their bids have attracted cash offers which, according to Tan, are up to $ 800,000 Singapore dollars (about $ 595,000) above the official price of real estate priced at over $ 3 million Singapore dollars ($ 2.2 million) Million US dollars).
For those with ratings above $ 1 million, his agency has received additional cash offers of up to $ 80,000.
Cash offers are also on the rise – typically for properties between $ 4 million and $ 8 million, Tan said.
“It’s a real estate market on steroids,” he told CNBC.
Great demand for Singapore’s luxury bungalows
According to Mohamed Ismail Gafoor, CEO of Propnex, one of the largest real estate agencies in Singapore, developers have bought land and “outbid each other”.
That will drive prices even higher.
“What is driving the market here – people know that prices will be much higher next year based on the cost of the land, and construction costs will not come down either,” he told CNBC.
“So now people urgently need to commit,” said Gafoor, saying that if a property was opened recently, prices rose six times in one day due to the blazing demand.
He sees a heated bidding among the buyers vying for Singapore’s good class bungalows (GCB) – highly exclusive luxury bungalows with a price in the high double-digit million range.
This particular segment of housing recently came into the spotlight when high profile tech entrepreneurs bought these properties.
These include CEO of gaming giant Razer, Tan Min Liang, who bought a GCB for over $ 50 million Singapore dollars ($ 37 million) in July, according to local media reports, and CEO of gaming chair company Secretlab, Ian Ang who reportedly bought such a property for 36 million Singapore dollars.
Super App Grab CEO Anthony Tan and his family are also believed to have bought a GCB for $ 40 million Singapore.
Will real estate prices continue to rise?
The boom was due, among other things, to low interest rates, loose monetary policy and “unequal distribution of wealth” during the pandemic, says Regina Lim, head of capital market research at JLL Asia-Pacific.
“House prices are likely to continue to rise with income and wealth unless steps are taken to reduce its attractiveness as a store of value,” she told CNBC via email.
“There is anecdotal evidence that homeowners are looking for bigger homes to work from home an extra day or two a week, but we are seeing strong sales and prices across all units,” she added.
We assume that sales and prices of residential properties will remain positive in the short term.
Koichiro Obu
Head of Real Estate Research Asia Pacific, DWS
The heated prices could soon lead to government intervention, analysts suggested.
“We expect residential property sales and prices to remain positive in the short term,” said Koichiro Obu, director of real estate research for the Asia-Pacific region at DWS.
He noted, however, that “as several APAC countries increasingly enforce housing restrictions and fuel housing supply to prevent overheating due to affordability concerns, the level of government intervention as well as the shift in macroeconomic expectations are likely to be larger factors.” could affect property prices and sales. “
New Zealand was also expected to hike interest rates – but a Covid case sparked a growing buildup of infections, causing the central bank to keep rates constant instead. As in South Korea, analysts had expected interest rates to rise due to rising house prices in New Zealand.
In Singapore, analysts expect further containments as well, as city-state leaders warned last year that homebuyers should be cautious amid the risk of rising interest rates.
Piyush Gupta, the CEO of the country’s largest bank, DBS, said earlier this year that people are trying to “move forward” on expected cooling measures, according to a Reuters report.
