Global Property Guide - Investment Research

    Vietnamese housing market’s amazing slump

    Vietnam is facing a housing catastrophe. A disastrous slump has overtaken its housing market. The government is embarrassed, the banks are bankrupt, and the economy is in a mess. Just consider the sheer scale of it all - during the year to end-Q1 2012:

    The average selling price of luxury apartments has plunged 40% Mid-end apartments' average selling prices fell 30% The average selling price of low-end apartments dropped 27%, according to Colliers International.

    This follows almost three years of house price falls in Vietnam.

    Apartment prices in all segments in Vietnam continued the rush to find the bottom during the first quarter of 2012, with demand low, and economic growth weakening. Average house prices dropped 6% during the first quarter. In Indochina Plaza Hanoi or Star City, prices fell by an average of 11% q-o-q.

    Colliers' estimates, though made in the absence of official house price statistics, are supported by Savills Vietnam, which estimates that in the first quarter of 2012 prices of mid-segment apartments plunged 9% q-o-q. Other property experts like CB Richard Ellis Vietnam and DTZ Research confirm that property prices are in freefall in Vietnam, especially in Hanoi and Ho Chi Minh City.

    In Q1 2012, the average asking price of apartments was VND26 million (US$1,230) per square metre, according to Colliers International. On the other hand, the average selling prices ranged from VND14.6 million (US$690) to VND42.4 million (US$2,000) per sq. m.
    According to DTZ Research:

    Asking prices for affordable condominiums ranged from VND10.6 million (US$500) to VND20 million (US$950) per sq. m. in Q2 2012 For middle segment condominiums asking prices ranged from VND20 million (US$950) to VND35.9 million (US$1,700) per sq. m. For high-end condominiums, asking prices were above VND35.9 million (US$1,700) per sq. m.

    Recent statistics show a staggering number of unsold housing units in Vietnam's two biggest cities. In Hanoi, the number of unsold apartments is about 40,000 units, and it has reached 20,000 units in Ho Chi Minh City.

    During the year ending in Q1 2012, the supply of apartments increased by 37% to 119,000 units, according to Colliers International. New apartment supply increased by 32% y-o-y, while the supply of existing apartments rose by 44% y-o-y in Q1 2012.

    Vietnam has a substantial number of bad loans. One out of every ten loans in the banking system has stopped paying, according to the central bank. Fitch Ratings believe the percentage of bad loans might be much higher. The total value of outstanding real estate loans in Vietnam is VND180 trillion (US$8.5 billion), though down from peak levels of VND280 trillion (US$13.2 billion).

    Many residential projects have stalled in mid-construction (an example being the Saigon Residence, a high-end residential building in Ho Chi Minh's centre). Many property developers have delayed launching projects.

    In an effort to bolster demand:

    A VND5 trillion credit package was given to homebuyers by the Vietnam Bank for Industry and Trade (Vietinbank). An exemption of about 10% of the value added tax (VAT) for home buyers is being proposed by the Housing and Real Estate Market Department. The local government in Ho Chi Minh City has proposed opening the property market to overseas Vietnamese. The State Bank of Vietnam (SBV), the country's central bank, slashed the refinance rate was lowered from 11% to 10% in July 1, 2012, the fifth consecutive monthly fall this year, as inflation cools. The discount rate was also lowered from 9% to 8% and the overnight inter-bank rate from 12% to 11%.

    House price falls are expected to continue in coming quarters, according to Colliers International.

    "The condominium market outlook remains bleak for the rest of the year, as purchasers continue to wait for both finance rates and prices to fall further," says KP Singh, General Director of DTZ Vietnam.

    The Vietnamese economy grew by 4.38% in the first half of 2012, its most sluggish rate for three years. Real GDP growth is expected to slow to 5.1% in 2012, from 5.9% in the previous year, according to the IMF.

    Decree 71

    The second issue was last August’s implementation of Decree 71/2001/ND-CP (Decree 71), providing guidance on the November 2005 Law on Residential Housing. Decree 71 aims to discourage speculative real estate investment. Intended to minimise risks for buyers, Decree 71 requires clearance from the Prime Minister for large-scale developments.

    Uncertainty over the implementation of Decree 71 caused developers to accelerate construction of some projects and the purchase of lands, lead to huge price spikes in some areas, while flooding other areas with new supply.

    In HCMC, Vietnam’s economic center, residential resale prices in all segments have been steady for the past two years, according to CB Richard Ellis Vietnam.

    In the low-end market, the average asking price was US$726 per sq.m. in Q3 2010 In the high-end segment, the average asking price was US$1,898 per sq. m. in Q3 2010

    On the other hand, Hanoi residential resale prices were up 9% on average during the year to Q3 2010, at US$1,837 per sq. m.

    In the low-end segment, average asking prices jumped 24% y-o-y to Q3 2010, but were up a mere 2.2% from the previous quarter. Prices in the luxury and high-end segment fell 1% during the quarter to Q3 2010.
    Hanoi Secondary Market US$ per sq. m. q-o-q change (%) y-o-y change (%)
    Luxury segment 3,009 -0.16 2.33
    High-end segment 1,924 -0.61 9.75
    Mid-end segment 1,349 1.37 15.1
    Low-end segment 977 2.21 24.09
    Total 1,837 0.29 9.02
    Source:CB Richard Ellis Vietnam

    In the third quarter of 2010, the average price of villas located in posh residential areas in Vietnam range from US$1.5 million to US$2 million while villas in new neighbourhoods are priced at US$250,000, according to local real estate analysts.

    Under the Ordinance on Foreign Exchange Management, all transactions done in Vietnam must be in VND. However, most real estate projects, especially luxury villas and apartments, are quoted in US dollars. These include projects like:

    Keangnam Landmark Tower, at US$2,800 to US$3,300 per sq. m. Indochina Plaza Hanoi, at US$2,800 per sq. m. Sky City Tower, at US$2,300 per sq. m. Mulbery Lane, at US$1,800 per sq. m. Parkcity, at US$3,000 per sq. m. Usilk urban area project, at US$1,000 to US$2,000 per sq. m. Mipec Tower, at US$1,000 to US$2,000 per sq. m. Thanh Cong Tower, at US$1,000 to US$2,000 per sq. m. 302 Cau Giay street project, at US$1,000 to US$2,000 per sq. m. Viet Kieus can now buy unlimited property, just like resident Vietnamese

    Decree 71 also contains revisions to the Housing Law allowing Viet Kieu (overseas Vietnamese) to possess as unlimited property just like Vietnamese citizens. The new regulations are expected to create more demand in the housing market. About 70% of the 4 million Viet Kieu retain their Vietnamese nationality, according to the Ministry of Construction.
    In addition, even if a Viet Kieu has given up his Vietnamese nationality, he is still given the same homeownership right, provided that:

    He has invested under the Law of Investment He is married to a Vietnamese citizen living in the country He is working in Vietnam as a cultural activist, scientist or has special skills and he has made contributions to the country

    Before the new decree took effect, Decree 81, already in force, allowed certain Viet Kieu to buy property. However after 9 years of implementation, only 140 Viet Kieu had bought houses in their own names, due to red tape.

    It is however unclear if the new decree will address the problems of corruption and red tape. In addition, many overseas Vietnamese prefer to purchase property under the names of relatives to avoid tax liabilities and other obligations.

    Decree 71 also mandates that residential housing projects with a total of 2,500 housing units (incl. villas, detached houses, apartment buildings, new urban zones and mixed use projects) must be approved by the Prime Minister. Any amendments to the project must also be approved by the Prime Minister. This can potentially lead to delays and more red tape.

    Perpetual Lease

    In theory, freehold land does not exist in Vietnam. Land can only be leased, even by Vietnamese; though in reality many leases seem to be for indefinite terms. “Buying” land is technically a transfer of leasing rights. The creation of a perpetually renewable lease means that Vietnam now has one of the most open property markets in Asia.

    However, the 70 years lease period allowed to foreign investors was reduced to 50 years in 2009.

    Under-served low-end market

    Demand for affordable housing has risen in recent years, given a rising population, rapid migration from rural to urban areas, and rapidly improving living standards. The demand for affordable houses is now outstripping supply, as residential development has largely focused on high-end customers.

    According to RNCOS, a global market research company, many Vietnamese do not have their own houses and more than 70% of households live in temporary wooden houses. RNCOS estimates that Vietnam is deficient of about 20 million permanent housing units.

    In Ho Chi Minh City, the country’s largest city, only 14% of the total supply of luxury apartments was sold in the first eight months of 2010, according to a survey conducted by Cushman and Wakefield Vietnam.

    On the other hand, about 670 units of newly-built apartments in Hanoi were sold in the 2nd quarter of 2010, or about 48% of the supply in the primary market in the capital, according to Savills Vietnam, a UK-based research firm.

    vietnamese and overseas Vietnamese account for about 70% of homebuyers in the country, while the rest are foreigners, according to Nguyen Kim Son of BTA Development Investment.

    Supply increases

    In the 3rd quarter of 2010, the total supply of condominium units in Hanoi was 75,235 units, up 4.5% from the previous quarter, according to CB Richard Ellis Vietnam. In addition, about 3,000 additional units are expected to be completed in Hanoi in the last quarter of 2010.

    Q2 2010 Q3 2010 Q-O-Q CHANGE (%)
    Luxury segment 2,186 2,186 -
    High-end segment 12,709 14,005 10.2
    Mid-end segment 44,403 46,392 4.5
    Low-end segment 12,671 12,652 -
    Total 71,969 75,235 4.5
    Source:CB Richard Ellis Vietnam

    Just like in the capital, other areas in Vietnam are also experiencing an increase in supply. There were around 11,200 newly-built apartments available for sale in the southern city in the 2nd quarter of 2010, up 24% from the previous quarter, according to Savills Vietnam.

    In addition, about 28,500 apartments currently under construction are expected to be completed in the next two years. The government also constructed low-income apartments which will be available for sale by the end of 2010.

    Underdeveloped mortgage market

    The Vietnamese mortgage market is still relatively underdeveloped, with majority of homebuyers paying in cash. In an effort to boost the housing market, developers are now starting to work with banks to offer mortgages to buyers.

    However, high interest rates and strict loan procedures are still hindering the local mortgage market from flourishing. The loan-to-value (LTV) ratio rarely exceeds 50% of the appraised value of the property. The term period is usually 15 years.

    In the first 9 months of 2010, the average lending rate was 13.5%, up from 12% in 2009. To curb inflationary pressures, the base interest rate was raised by 100 basis points to 9% in November 2010, from 8% since December 2009, based from figures released by the central bank, The State Bank of Vietnam.

    Rents up, yields high

    In September 2010, the average rent for high to mid-end condominium units in Vietnam was US$10 per sq. m. However, the local rental market is very diverse, with rents differing in each city.

    Hanoi has the most expensive housing in the country, with average asking rent at US$30.31 (VND587,311) per sq. m. per month in Q3 2010, up 5.9% from a year earlier, according to CB Richard Ellis Vietnam.

    In Hanoi, a 170-sq m. apartment has an expected rental yields of 7%, according to local real estate developers. On the other hand, a same sized apartment located in Ho Chi Minh City has higher rental yields of about 9%.

    In Ho Chi Minh City, the overall rental vacancy rate was 16.5% in the 3rd quarter of 2010, slightly up from 16% in 2009, according to the latest report from CB Richard Ellis Vietnam.

    The country's average economic growth was 7.2% from 2000 to 2010, according to the IMF. In 2011, GDP growth slightly slowed to 5.9%.

    Slowing economic growth

    The country's economic growth slowed to 4.38% in the first half of 2012, its most sluggish rate in three years, according to the GSO. This was in sharp contrast with the average annual GDP growth rate of 7.1% from 2000 to 2011, according to the IMF.

    Real GDP growth is expected to slow to 5.1% in 2012, from 5.9% in the previous year, according to the IMF.

    In an effort to boost the economy, the State Bank of Vietnam (SBV) slashed its key interest rates in July 1, 2012 for the fifth consecutive month this year. The refinance rate was lowered from 11% to 10%, the discount rate from 9% to 8% and the overnight inter-bank lending rate from 12% to 11%.

    In June 2012, consumer prices rose by just 6.9% from a year earlier, the lowest rate in three years, according to the General Statistics Office (GSO).

    Rating agency downgrade

    In December, rating agencies downgraded Vietnam’s foreign currency bond ratings. Moody’s lowered its rating from Ba3 to B1 (four steps below investment grade), while S&P rated Vietnam at BB- (three steps below investment grade). They both kept the outlook as negative, implying the future downgrades can be expected.

    In their report, Moody’s pointed to the increased risk of a balance of payment (BOP) crisis in Vietnam because imports are outpacing exports. Foreign reserves are being depleted because of capital flight and the effort to defend an overvalued currency. Other factors leading to the downgrade were high inflation, excessive bank lending and the near-collapse of the state-owned Vinashin.

    Originally a shipbuilding company, Vinashin expanded to a wide array of industries including tourism and animal feeds. As of June 2010, its total debt reached US$4.5billio, roughly 4.5% of Vietnam’s GDP. The government said that it will not bail out the company but provided zero-interest loans for the salary of its employees.

    India’s house prices are now falling!

    India house pricesAfter more than three years of spectacular house price rises, India’s property market continues its downward trend, mainly due to high interest rates on home loans and slower economic growth. 

    Residential property prices are now falling in most cities in real terms (given India’s high inflation, it is important to distinguish nominal price rises from real price rises).

    Nominal house prices rose in 13 cities (out of the 26 cities covered by National Housing Bank (NHB) Residex figures) during the year to Q1 2014, while the remaining 13 cities have seen their nominal house prices fall. But when adjusted for inflation, house prices actually fell in 21 cities, whereas only 5 cities experienced price increases.

    In New Delhi, house prices fell by 1.49% during the year to end-Q1 2014. When adjusted for inflation, house prices in the capital city actually dropped 7.82% over the same period. During the latest quarter, house prices increased 1.53% (2.81% in real terms).

    The highest annual house price increase was in Surat at around 17.86% (10.28% in real terms) y-o-y to Q1 2014. It was followed by Chennai, which had a 12.58% price increase (5.34% in real terms), and Nagpur, which had a 10.43% price rise (3.33% in real terms).

    Meerut registered the largest price drop in Q1 2014, plunging by 13.61% (-19.17% in real terms). It was closely followed by Ludhiana with a 13.17% drop (-18.76% in real terms) and Vijayawada with a 13.04% drop (-18.63% in real terms). Other struggling Indian cities include Jaipur (-9.82% nominal, or -15.62% in real terms), Coimbatore (-7.61% nominal, or -13.55% in real terms), Indore (-7.18% nominal, or -13.15% in real terms), Chandigarh (-5.67% nominal, or -11.74% in real terms) and Kochi (-4.49% nominal, or -10.64% in real terms).

    Despite this, the Indian property market is expected to experience a post-election boost. Newly-elected Indian Prime Minister Narendra Modi is expected to revive the slowing economy and the struggling property market.

    Local real estate experts are optimistic on the future of the Indian property market:

    'We have a huge expectation from the new government as Modiji has demonstrated good governance in Gujarat. We expect efficiency in approval process and easier bank funding which are the two major concerns for the industry,' said Lalit Jain of realtors apex body CREDAI. 'The formation of a stable government not dependent on coalition partners will hopefully mean faster decision making and economic reforms. If GDP growth picks up, one of the early beneficiaries would be the real estate industry,' said Anshuman Magazine of CBRE South Asia. 'We are optimistic about the reform and changes this government will bring in to boost the economy. For the real estate in particular, we firmly believe that the sector will be given industry status this time which will ease all fund inflow,' said Parsvnath Chairman Pradeep Jain.

    India’s economic growth was 4.6% in the first quarter of 2014, after 4.6% in Q4 2013, 5.2% in Q3 and 4.7% in Q2, according to the Ministry of Statistics and Programme Implementation.

    The economy is expected to expand by 5.4% in 2014.

    Previous annual GDP growth rates were 4.4% in 2013, 4.7% in 2012, 6.6% in 2011, and 10.3% in 2010, based on figures from the International Monetary Fund (IMF).  Real estate prices in India (as elsewhere) tend to be strongly boosted by high GDP growth, which puts money in buyers’ pockets.  Along with interest rates, GDP growth is more important than any other factor for property prices. 

    India’s housing boom era

    From 2002 to 2007, house prices in India rose rapidly. Strong economic growth and urbanization supported house prices, as did inadequate infrastructure in city centres, lack of planning and antiquated land laws. From 2005 to 2007, the economy grew at 8.9% per annum, making it one of the world’s fastest growing, following on from 7.6% per annum growth from 2003 to 2004.

    The price increases were accompanied by interest rates which fell to as low as 7.5% from early 2004 until 2005. By 2006 mini speculative boom had been set off, and residential properties in Mumbai cost 100 times the average annual income. Developers’ capital rapidly grew as their stock prices increased, and they used it to bid high prices for huge plots of land, making it relatively easy to sell properties at very high prices.

    During the world economic downturn in 2008 demand for luxury housing fell 50%. House prices in Delhi fell by as much as 13.08% during the year to H2 2009. Developers refocused on building low-income homes. But India’s economy quickly rebounded, and house prices soon started rising again – supported by the accommodative central bank.

    India’s rupee and inflation crisis

    The dramatic appointment as RBI governor of Raghuram Rajan, former chief economist for the International Monetary Fund, came in a situation of near-crisis.

    On August 28, 2013, the Indian rupee had crashed to a record low of around 68.825 per US$. The depreciation made India’s economic confidence drop sharply by 7 points to 53% in August 2013, according to research firm Ipsos. Causes included:

    The strong USD, aggravated by the Fed’s decision to reduce Quantitative Easing; Slowing economic growth in India, rising inflation, volatility in the equity market, causing massive withdrawals of international investment A large current account deficit and fiscal deficit The price of crude oil
    India exchange rate

    In defending the country’s currency, the RBI had spent around US$ 17.23 billion worth of foreign exchange reserves during the year to September 6, 2013, leaving the reserves at around US$274.81 billion. Planning Commission Deputy Chairperson Montek Singh Ahluwalia assures public that India has adequate amount of foreign exchange reserves to defend its currency.

    Given two years of rupee depreciation, it was expected that exports would be boosted. But though there was an 11.6% y-o-y increase in exports in July 2013, the effect was limited, with rising import prices having a severe effect on Indian industry.

    India GDP inflation

    “Exports are unlikely to get any significant boost,” according to Indranil Pan, chief economist at Kotak Mahindra Bank. “Any benefit [from the weak rupee] will be offset by the fact that there is a huge inflation problem in India, and the cost of manufacturing is very high for local companies.”

    Inflation was allowed to rise significantly during 2007-1010, and more recently has risen worryingly again. India’s huge fiscal and current account deficits do not help. The current account deficit in 2012/2013 soared to a record high of US$ 88.2 billion or around 4.8% of GDP. The government aims to reduce it to US$ 70 billion this year. The fiscal deficit was 4.9% of GDP in fiscal year 2012/2013.

    The Reserve Bank of India (RBI) has in recent years tended to accommodate inflation, phased by the perplexing combination of high inflation and weak economic growth. The RBI’s stance has been extraordinarily lax, leading the prestigious Indian Financial Express to talk of The rudderless Bank of India.

    India prime lending rate

    For example, the RBI reduced its key (repo) interest rate by 0.25 percentage points to 7.25% in May 2013, the third consecutive rate cut implemented this year. Amazingly, the pressure from business has been for even lower rates. Agencies such as the Federation of Indian Chambers of Commerce and Industry (Ficci), Confederation of Indian Industry (CII), Associated Chambers of Commerce and Industry of India (Assocham), and India Inc, all urged the RBI to announce a rate cut in the upcoming monetary policy review on September 20, 2013.

    Rajan took office on 4 September 2013. A day after he took office, the rupee reversed its decline and on 19 September hit a one-month high of 61.77.

    On 20 September the RBI released its first quarterly review on Rajan’s watch, announcing an unexpectedly hawkish 25% increase in the key (repo) rate to 7.5%. Measures taken by the RBI on 20 September included:

    An increase in the key (repo) interest rate of 0.25% to 7.5%. The local market was shocked and stocks fell – but what is surprising is how moderate Rajan’s ‘hawkishness’is, given that: The RBI also eased liquidity through a reduction in the marginal standing facility (MSF) rate, at which banks borrow from the central bank, by 0.75% to 9.5%. The RBI reduced the minimum daily maintenance of Cash Reserve Ratio (CRR) from 99% of the requirement to 95%, a move aimed at inducing liquidity into the system.

    The message was simple: (a) controlling inflation is top priority; (b) it must not be pursued at the cost of killing the banking system.

    Small mortgage market in India India housing loans

    Indian buyers usually pay for apartments before construction has been completed. Many buyers do not take out mortgage loans. As a result, the ratio of housing loans to GDP is very low. In 2012, housing loans in India were only around 4.14% of GDP. The leading mortgage lender is the Housing Development Finance Corporation (HDFC) followed by the State Bank of India (SBI). Total housing loans in India were around INR 4,033.78 billion (US$ 63.36 billion) in 2012, up by 12.3% from INR 3,590.67 billion (US$ 56.40 billion) a year earlier.

    Interest rates at major banks and financial institutions range from 9.95% to around 11.10%, while fixed-rate mortgages are at 11.50% to around 13%.

    The loan to value (LTV) ratio of most Indian homes should not exceed 80%, according the RBI. However, according to RBI’s Master Circular dated July 1, 2013, as of June 21, the following LTV ratios are now maintained by banks:

    (a) Individual Housing Loans
    Upto ` 20 lakh 90
    Above ` 20 lakh & upto ` 75 lakh 80
    Above ` 75 lakh 75
    (b) CRE – RH NA

    Despite reforms since 1991, India’s mortgage market is held back by problems:

    Banks prefer to lend to middle and high-income sectors, leaving limited financing options for low-income individuals. The government has a huge influence on major domestic banks, discouraging initiative. There’s no proper legal framework for foreclosures Titling problems are rampant.
    Low rental yields

    Rental yields are relatively low in India. Smaller apartments have higher yields than their bigger counterparts, based on the Global Property Guide research of April 2013.

    South Mumbai has higher rents than in New Delhi and Bangalore. Monthly rents range from €21.95 to €27.05 per sq. m. Rental yields range from 2.28% to 2.44%, lower than the 2.64% average recorded last year.

    In New Delhi, apartments can be rented at around €7.13 to €8.94 per sq. m. Yields are also low at around 1.92% to 2.75%. However, the average New Delhi yield for this year (2.38%) was actually an improvement from last year’s average of 1.93%.

    Bangalore has higher rental yields as compared to South Mumbai and New Delhi. Gross rental yields range from 3.75% to 3.97%. Apartment rents in Bangalore are cheaper, at €3.32 to €3.44 per sq. m.

    From Q4 2012 to Q1 2013, according to Colliers:

    Rents in Mumbai fell in almost all micro-markets by 1% to 4%, except in Bandra, Colaba, Cuffe Parade, Juhu, and Santacruz. In Delhi, rents for premium residential properties were stable, with a marginal downward pressure in some micro-markets. Bangalore had an increase of around 1% to 9% of rental values in almost all micro-markets, while rents remained stable in areas such as Airport Road, Cooke Town and Indiranagar. Rents in Chennai rose by 4% to 5% in most micro-markets. Increases in rents were also observed in Gurgaon (3% to 6%) and Kolkata (2% to 5%). Rents in Noida and in Pune remained unchanged in almost all micro-markets.

    Bangalore’s rental market growth may be due to migration from other cities. This reflects to the 35,000 residential units launched in 2012 and 8,100 units in Q1 2013, according to the recent Knight Frank India Residential Research Report.

    On the other hand, Mumbai may be suffering from lack of demand. "Some transactions in Mumbai may be taking place at 5-10% lower than last year's rentals," according to executive director for residential business at Cushman & Wakefield India, Shveta Jain.

    India’s rental market is hindered by problematic laws protecting tenants. The laws are generally poorly conceived and ineffective, making implementation difficult. Although they are gradually being replaced by more market-oriented laws, the rental market’s full potential is yet to be realized.

    Cities with rent controls generate lower yields. Mumbai rents in houses with sitting tenants are frozen at their 1947 levels, due to the Maharashtra Rent Act of 1999, an extension of the Bombay Rent Control Act of 1947. Delhi also has rent controls.

    Stronger economic growth, rupee depreciation

    After two years of below 5% growth (4.4% in 2013 and 4.7% in 2012), the Indian economy is expected to grow more strongly for the remainder of 2014, with the International Monetary Fund (IMF) forecasting a full-year GDP growth rate of 5.4%.  India’s economy expanded by 4.6% in the first quarter of 2014, according to the Ministry of Statistics and Programme Implementation.

    High inflation is one of India’s major problems, standing at 8.28% in May 2014.  Inflation is expected to slow slightly to 8% this year, after average annual inflation of 10.3% from 2008 to 2013, according to the IMF. 

    In June 2014, the Reserve Bank of India (RBI) kept its key interest rate unchanged at 8%. The RBI is expected to keep the key rate on hold at the third consecutive meeting in August 2014, according to HSBC.

    The Indian rupee (INR) continues to slide, following two years of sharp depreciation. In July 31, 2014, the rupee depreciated to a three-month low of INR60.55 against the U.S. dollar, on capital outflows after the US Fed trimmed its monthly bond buying programme by another US$10 billion by end-July 2014. Moreover, high demand for the U.S. dollar from importers and the weakness in local equities also pulled the Indian rupee down against the U.S. dollar.

    In defending the country’s currency, the RBI spent around US$ 17.23 billion worth of foreign exchange reserves during 2013, leaving the reserves at around US$274.81 billion. Planning Commission Deputy Chairperson Montek Singh Ahluwalia assures public that India has adequate foreign exchange reserves.

    Modi brings hope

    Right after Narendra Modi’s election victory, there was widespread optimism about India’s economy and employment outlook. Modi has pledged to reduce inflation and eradicate corruption. The new PM also vowed to step up investment and clear regulatory hurdles for businesses.

    Modi also pledged to reduce India’s fiscal deficit to 4.1% of GDP this year, from 4.5% in 2013 and 4.9% in 2012.

    'After two consecutive years of sub-5% growth, the change in government is significant given the [Bharatiya Janata Party] BJP's economic emphasis, stability in composition and decisive governing structure,' said Rohini Malkani of Citigroup India.

    Jamaican housing market set fair

    'Basically, what we are seeing is that there is a lot more activity in the market,' says Deborah Cumming, managing director of Century 21 Jamaica.  Boosted by investors seeking for alternatives to existing low interest rates, about 9,286 property transactions worth J$80 billion (US$ 711 million) were recorded during the year ending March 2013.  Listings have increased, as developers have responded to demand for middle-income houses.  The preferred properties are priced between J$20 million (US$ 177,700) to J$25 million (US$ 222,124), and vendors get several offers for properties.

    However Jamaica is still far from a sellers’ market, and high-end properties have not done so well.

    Low mortgage rates combined with competition among leading mortgage providers have spurred real estate sector performance, according to Carlene Sinclair, President of the Realtors Association of Jamaica and a Property Solutions Limited broker. Sinclair also noted a trend of “downsizing” among buyers from larger homes to town houses, which allow communal living among consumers, for shared maintenance costs.

    Demand is strongest for apartments, with developers seeking to maximize land space and buyers’ affordability, according to Cumming.

    Big news for the economy - the Jamaican Logistics Hub

    A new a US$15 billion project, the Jamaican Logistics Hub (JLH), now aims to place Kingston as the forth node in the global logistics chain, along with Singapore, Dubai, and Rotterdam.  In April 2014, Jamaica entered an agreement with China for the first phase. In March 2014, a contract to develop a trans-shipment hub in Portland Bight with China Harbour Engineering Company (CHEC) was signed.

    The logistics hub has a 20-year master development plan proposed by the Jamaica Chamber of Commerce to the government and World Bank (WB) in January 2013, which the WB agreed upon and has granted funding. The Jamaica Observer reported that the plan includes developments in:

    Kingston Harbour shoreline — Port Royal to Kingston to Hellshire Transportation systems for Kingston and Montego Bay Caymanas logistics hubs Montego Bay and Falmouth
    Decline in cruise passengers

    In 2013 Jamaica's tourism arrivals reached more than 2 million (about 2,008,409 stop-over visitors), about 1% up over the previous year. In contrast to increased stop-over visitors, the number of cruise passengers was reduced by 2.42% to 1.3 million passengers in 2013. The decline caused the total number of visitors to drop by 0.29% to around 3.3 million, based on the figures from the Caribbean Tourism Organization.

    'We are coming from two years of record growth, so you are now seeing the stabilization of that activity,' said William Tatham, Port Authority of Jamaica vice-president of cruise shipping.  In 2012 and 2013 there was 23.7% and 17.3% growth, respectively. 

    One reason cruise ships are leaving Jamaica is due to poor state of the country’s port facilities. 'It has come to my attention that Carnival Breeze, one of the largest ships built for Carnival Cruises, as of May 2015, will no longer call on Ocho Rios,' said Janaican Member of Parliament Shahine Robinson. 'We are looking at a fall off of approximately 100,000 visitors per annum, and this is just for Ocho Rios alone.'

    Robinson also appealed to the Dr Wykeham McNeill, Minister of Tourism and Entertainment, for some action on the port:

    Boost cruise ship arrivals and berthing capacity Effectively balance cruise ship traffic spread Improve resort towns to be more attractive and tourist friendly.

    In April 2014, stop-over visitors rose by 1.24%, while cruise passenger arrivals went up by 3.6% as compared to previous year.
    Crime and violence Jamaica Visitors

    Petty theft and pick pocketing remain prevalent in some tourist areas, but visitors to the island are largely untouched by violent crime, since much of the criminality occurs in Kingston. Resort areas such as Montego Bay and Negril have been less affected.  Most criminal activity is still “Jamaican on Jamaican” violence involving gangs and organized criminal elements, with decline in serious violent crimes according to the Overseas Security Advisory Council’s Crime and Safety Report..

    Weak mortgage market growth Jamaica mortgage loans

    In 2013, there was a drop in household credit growth, with mortgage credit relatively flat, according to the Bank of Jamaica’s (BOJ) 2013 Financial Stability Report.  From around 2% of GDP in 1999, the ratio of mortgages to GDP rose to 4% in 2007. In 2009, it slid back to around 2% of GDP and has been in that level since then, consistent with the economy’s general weakness. 

    The central bank noted that the weak performance of mortgage loans was due to:

    Affordability challenges caused by weak real disposable income High unemployment levels

    The maximum loan-to-value (LTV) ratio for foreigners is about 70% of the appraised value of the property, with a term period of 20 years. A government-owned company, the National Housing Trust, leads the mortgage market with around 67.6% market share in 2012, based on the figures from the BOJ.

    Building societies owns 25.8% of the market. The National Housing Development Corporation’s market share is at 5.8%. Credit unions and insurance companies have the lowest market share at only 0.9%.

    In October 2013, the Jamaican Cabinet finally approved the proposed amendment to the Mortgage Insurance Act, proposed in 2012 to make home buying easier for average Jamaicans. The amendment will raise the percentage of the appraised value covered by Mortgage Indemnity Insurance to 97%, up from 90%.  According to Minister Morais Guy of the Ministry of Transport, Works and Housing, the proposed amendment could make home mortgages more accessible and reduce costs since home buyers will be required to deposit only 10% of a property's value, including stamp duty and cost for transfer tax, instead of the previous 15%.

    High rental yields

    Rental yields on apartments have been strong, ranging from 9.34% to 10.08%, according to the Global Property Guide research.

    But our understanding of yields in Jamaica is weak, because this data is now rather old, dating back to December 2011.   The same goes for data from the UN International Civil Service Commission which shows that in 2012, the rent for five-bedroom houses fell by 12.4% from the previous year, to J$ 318,511 (US$ 2,829), according to. Rent for three-bedroom apartments had an even sharper decline pf about 27.5%, to J$ 163,271 (US$ 1,450).  In contrast, the average rent for a small house with three bedrooms rose by 27.5% to J$ 223,214 (US$ 1,982).

    Continuous economic recovery in 2014 Jamaica gdp rate

    During IMF managing director Christine Lagarde’s official visit to the country earlier this year, she commented that Jamaica’s economic outlook “is improving”. Lagarde said that as compared to the previous year, ”growth has picked up, unemployment has declined, inflation has been brought under control, the current account deficit has shown an ongoing improvement, and reserves are starting to recover”.

    In reality, Jamaica’s economic recovery in 2013 was anaemic, and though unemployment dropped from 16.3% in April 2013 to 13.6% in April 2014, GDP growth was only 0.5%.   In June 2014, the annual inflation rate was still high at around 8%, slightly down on the previous year.  Jamaica’s debt-to-GDP ratio was reduced to around 139% in 2013 from 147% in 2012.

    But the high debt ratio continues to be a cause of concern to the government. The World Bank has tagged Jamaica as “one of the most indebted middle income nations in the world”.

    Jamaica has a very poor performance in recent years.  GDP rose by an average of only 1.5% from 1999 to 2007, followed by a GDP contraction by 0.8% in 2008, when it was the only Caribbean country aside from the Bahamas to experience recession. GDP fell further by 3.4% in 2009, followed by a 1.4% decline in 2010. After weak growth of 1.4% in 2011, the economy slipping again into recession in 2012, contracting by around 0.5%.

    Yet better times may be coming. During the first quarter of 2014, Jamaica’s GDP rose by 1.6% from the same quarter of the previous year, according to the Statistical Institute of Jamaica (STATIN). This year the IMF expects 1.3% growth.

    Jamaica inflation rate

    Jamaica’s improving economy was also reflected on the recent credit rating upgrades last February from Fitch: from ‘CCC’ to ‘B-‘ for long term issuer default rating for foreign and local currency; from ‘B-‘ to ‘B’ for country ceiling; from ‘CCC’ to ‘B-‘ for senior unsecured foreign and local currency bonds.

    Months before, Standard & Poor’s (S&P) also raised Jamaica’s foreign currency sovereign credit rating in September 2013 from ‘CCC+’ to ‘B-‘.
    In June 2014, the Executive Board of the IMF agreed to disburse US$ 70.9 million to Jamaica after passing its latest review. Through the extended agreement under the IMF’s Extended Fund Facility agreed in May 2013, the country has already received an amount of US$ 414 million since the agreement.

    “Jamaica’s programme implementation under the Extended Fund Facility has been commendable. The achievement of a primary surplus in a short time is impressive. Essential social spending has been safeguarded and steps are being taken to strengthen the social safety net. Continued support by the international community remains crucial as Jamaica is undertaking this difficult adjustment,” according to IMF deputy managing director and acting chair Naoyuki Shinohara.

    The 2010 agreement, heavily directed towards deficit reduction, allowed Jamaica to receive financial support as long as it met IMF conditions. But the US$1.27 billion standby agreement lapsed in May 2012, having stalled in early 2011 due to Jamaica’s inability to meet IMF performance targets.

    Prior to the agreement, the Jamaican government had devised a plan to restructure its public debt known as the Jamaican Debt Exchange (JDX), encouraging residents holding certain debt instruments to exchange them for new longer-dated instruments. The JDX produced good results early on, providing remarkable decline in market interest rates as well as interest payments. The country even earned upgrades in credit ratings from Standard & Poor’s and Moody’s in early 2010.

    However, the successful debt exchange in 2010 was not accompanied by fiscal consolidation, according to the IMF.

    Prime Minister Portia Simpson Miller, who assumed office in January 5, 2012, has pledged job creation and growth, even while implementing austerity measures and tighter partnerships with its international partners, such as the IMF.

    House price rises continue in Australia

    Australia annual house pricesHouse prices rose by 6.8% in Australia's eight major cities in 2014 (3.34% inflation-adjusted), after a rise of 9.48% during 2013 (6.47% inflation-adjusted), based on figures from the Australian Bureau of Statistics (ABS). House prices increased 1.9% quarter-on-quarter in Q4 2014.

    Sydney saw the biggest increase, with house prices up by 12.2% in 2014, followed by Brisbane (5.3%), Melbourne (4.5%), and Adelaide (2.5%). House prices also rose in  Hobart (2.2%), Canberra (1.7%), Perth (1.2%), and Darwin (0.8%).

    New South Wales, especially Sydney, has the most expensive housing in the country, with the median house price at AU$ 760,000 (US$ 591,962), about 33% above the national median house price of AU$ 571,500 (US$ 448,313), according to ABS. 

    Some critics believe that Australia's housing market is severely overvalued.

    Yet demand is still rising. Seasonally-adjusted purchases of established dwellings increased 4.0% to 44,912 units in 2014, according to ABS.   Finance commitments for owner-occupied housing rose by 4.3% to 53,920, while their total value jumped 19.4%, to AU$ 18,043 billion (US$ 14,053 billion).

    These price-rises are somewhat surprising, since Australia's economy is estimated to have grown by a modest 2.7% in 2014, up from 2.5% in 2013, after GDP growth of 3.7% in 2012, 2.4% in 2011, 2.6% in 2010 and 1.4% in 2009, according to the IMF.   However two factors may partially explain it.  The Reserve Bank of Australia (RBA) has kept its cash rate at a record low of 2.25%, after cutting it by 25 basis points in February 2015. The other factor is increased purchases of residential real estate by foreign nationals, especially Chinese, who continue to find Australian property very attractive.  Australia's Foreign Investment Review Board (FIRB) grave permission for 11,668 residential property purchases by foreigners in 2012-13, to a value of AU$17 billion (US$15.21 billion), an increase of 19% on the previous financial year, according to the FIRB.

    Acquisition of residential real estate by foreign nationals and corporations is subject to Foreign Investment Review Board (FIRB) approval.

    Australia’s housing boom; crash avoided Australia annual change index

    The strength of Australia’s housing market through the recession surprised observers, who had predicted that Australia would suffer one of the worst housing market crashes, because of house price overvaluation.

    One reason a crash was avoided was that lending standards have been stricter than in the US.  In addition, the government helped first-time homebuyers, introducing a AU$10.4 billion (US$7.24 billion) stimulus package in October 14, 2008 - worth around 1% of GDP - which included the First Home Owner Boost Scheme (FHOB), which raised the First Home Owner Grant (FHOG) from AU$7,000 (US$6,419) to AU$14,000 (US$12,838) for existing dwellings, and to AU$21,000 (AU$19,257) for newly built homes (however, the FHOG reverted back to $7,000 in December 2009 in NSW, and reduced it in other states).

    There are also housing shortages due to a rapidly growing population, and in a context of shrinking Australian household sizes.  There was also strong immigration from 2004 to 2007.

    Housing remains “severely unaffordable”

    Among the seven developed nations covered by the 11th Annual Demographia International Housing Affordability Survey, Australia ranks third as most unaffordable major market.

    The survey uses the Median Multiple to assess housing affordability in 378 markets in Australia, Canada, China (Hong Kong), Japan, Singapore, Ireland, New Zealand, the United Kingdom, and the United States. The Median Multiple follows this formula: Median Multiple = median house prices / median household income.

    Of the 51 Australian markets surveyed in 2014, 33 were rated “severely unaffordable” (Median Multiple of 5.1 and above), 15 were “seriously unaffordable” (Median Multiple between 4.1 and 5.0), 1 was rated moderately affordable (3.1-4.0), and 2 markets evaluated as affordable (3.0 & under).

    Sydney continued to be one of the world's most unaffordable major markets next to Vancouver and Hong Kong, and is the least affordable market in Australia, with a Median Multiple of 9.8. Outside the major markets, the Tweed Heads (Queensland), is the most severely unaffordable market, with a Median Multiple of 9.1.

    Dr Andrew Wilson, senior economist of the Fairfax-owned Australia Property Monitors (APM), recently warned that Sydney house prices are in “hyperdrive'.

    Yet based on Commonwealth Bank of Australia’s recent Home Buyer Affordability Report in March 2014, housing affordability has recently improved.

    “Overall, the trend across the capital cities is one of continued improvement in affordability, with the capital city index increasing by 2.0 per cent in the March 2013 quarter. However the cities of Adelaide, Perth and Hobart each saw declines in affordability,” according to HIA Senior Economist Shane Garrett.

    Moderate yields, but rent hikes continue

    Rental yields in Australia are moderate. Gross rental yields for houses range from 4.08% in Melbourne, to 5.44% in Hobart, according to the December 2014 figures of Australian Property Monitors (APM). Gross rental yields for apartment units range from 4.60% in Melbourne to 5.68% in Darwin. Our own yields research for Australia is now rather old (Global Property Guide Research of October 2012). Back then, in Sydney, smaller apartment units of around 60 sq. m. had gross rental yields of 6.26%. 100 sq. m. and 150 sq. m. apartments had lower yields at around 4.94% and 3.93%, respectively.

    The average asking rent on houses, in the eight capital cities, fell (-1.4%) during the year to Q4 2014. During the same period, the average asking rent on ‘units’ decreased by (-0.6%). On a national level, asking rents for houses were up by only 0.6% q-o-q to Q4 2014, while ‘unit’ rents were down by 0.1% during the same quarter.

    “Sydney rents continue to rise despite record activity from investors over the past year and remain the highest of all the state capitals,” says APM's Dr. Wilson. 'The median asking rent for houses increased to a new peak of $520 per week for an overall increase of 4 per cent in 2014. Despite a surge in the supply of new apartments, Sydney unit rents increased over the quarter, regaining the previous high of $500 a week.'

    The highest median weekly asking rents can be found in Darwin, with houses at around AU$ 660 (US$ 517.74) and units at AU$550 (US$ 431.45), followed by Sydney with median rents at AU$ 520 (US$ 407.91) for houses and AU$ 500 (US$ 392.23) for units. Hobart has the lowest median weekly asking rents at AU$ 320 (US$ 251.02) for houses and AU$ 270 (U$ 211.80) for units.

    “Upward pressure on rents is set to continue through 2015, particularly in the robust Sydney market where underlying demand continues to outstrip supply. Increased supply of new units in Brisbane and Melbourne will, however, continue to provide more choice for tenants with lower rental growth a prospect,” says Dr. Wilson.

    Key interest rate on hold Australia interest rates

    The Reserve Bank of Australia (RBA) cut the official cash rate by 25 basis points, from 2.5% to a new record low of 2.25%, in February 2015. This is the first interest cut in 18 months.

    One possible driver for the surprise decision to cut could be the stubbornly high Aussie dollar. Even with the recent 18% plunge in the past 6 months, the Australian dollar still remained above its “fundamental value, particularly given the significant declines in key commodity prices,” the central bank noted.

    Mortgage market continues to grow. Australia mortgage loans

    In 2014, loans to both investors, and to owner occupiers for house building increased. During the last quarter of 2014 quarter, these loans increased to a level 7.1%, higher than 5.4% in the last quarter of 2013, according to Reserve Bank of Australia.

    The Australian mortgage market has grown from around 15% of GDP in the 1970s, to 87% of GDP in 2012.

    ‘Housing construction loans, in both the owner occupier and investor segments of the market, finished 2014 on a strong note. This provides a very positive signal for activity in the residential construction sector in 2015,’ said Housing Industry Association economist, Diwa Hopkins.

    Residential construction up

    Residential construction activity continues to rise. Dwelling unit approvals soared by 8.8% to 17,753 units in 2014, up from according to the ABS; new residential building consents rose by 0.6% to AU$ 5,400 billion (US$ 4,236 billion), both figures seasonally-adjusted. 

    Australia housing starts

    However, there remains a shortage of affordable housing, driving those at the bottom of the market to become renters instead of buying, and struggling with high rents.

    Australia’s affordability problem is partly attributed to insufficient construction of new houses. Australia has been under-building new residential dwellings in the past years, for several reasons.

    Stringent urban planning policies and land use restrictions (called ‘smart growth’, ‘urban containment’, etc.). “An increase in state government zoning regulations is a significant factor driving up the cost of housing”, said Reserve Bank of Australia Governor Glenn Stevens. Tax burdens on builders and developers. In New South Wales, government taxes and other charges are estimated to account for about 30% of the price of new houses. Due to the global credit crunch, developers continue to struggle to secure finance.

    In 2012, housing starts fell by 2.2%, after a 11.3% drop in 2011. Residential construction recovered in 2013 rose by 21.8%, driven by interest rate cuts, new home incentives in some states, and focus on policy reform in New South Wales.

    Australia’s much hyped housing bubble was attributed to the RBA’s decision to cut its Official Cash Rate to 2.25% on February 2015.

    Modest economic growth, high unemployment Australia gdp inflation

    In the fourth quarter of 2014, Australia’s economic growth accelerated to 2.7% from a year earlier, down from an annual growth rate of 2.8% the previous year, fuelled by increases in household spending and exports, according to the Reserve Bank of Australia (RBA), the country’s central bank. 

    The RBA expects that the economy will grow by 2.75% this year, pinning its hopes on lower interest rates and a falling dollar. The Australian dollar (AUD) appreciated by more than (-11%) from AUD 0.8763 = USD1 in January 2014 to AUD 0.7781 = USD1 in January 2015.

    Australia’s export industry is now improving. In Q3 2014, the country’s current account deficit narrowed to a record AU$ 12,525 million (US$ 9,825 million), down from a previous deficit of AU$ 13,742 (US$ 10,780). Despite this, demand from China remains unstable, according to the RBA.

    In December 2014, the nationwide unemployment rate rose to 6.1%, the highest level since July 2003, according to RBA.

    Consumer prices rose 1.7% in Q4 2014 from a year earlier, slightly up, but still consistent with the central bank‘s 2%-3% inflation target, according to the ABS. The increase in inflation rate is mainly attributed to rises in costs of domestic holiday travel and accommodation, tobacco, and new dwelling purchase by owner-occupiers.

    Japan’s property prices continue to rise

    Japan house prices graph

    Japanese house prices continue to rise in 2014, after the strong market recovery last year. Housing demand remains robust. Residential construction activity is at its strongest in more than a decade. This is due to the reflationary policies of Prime Minister Shinzo Abe, who came to power in December 2012. These policies, affectionately known as “Abenomics”, include increasing public infrastructure spending, devaluation of the yen and aggressive quantitative easing by the Bank of Japan (BOJ).

    In Tokyo Metropolitan Area:

    The average price of existing condominium units rose by 4.5% to JPY415,300 (US$4,072) per sq. m. during the year to January 2014, based on figures released by the Land Institute of Japan (LIJ). The average price of new condominium units dropped by 4.2% y-o-y to JPY660,000 (US$6,472) per square metre (sq. m.) in January 2014. The average price of existing detached houses was up by 2.4% to JPY32,050,000 (US$314,268) over the same period.

    In Osaka Metropolitan Area:

    The average price of existing condominium units increased by 3.7% to JPY253,000 (US$2,481) per sq. m. during the year to January 2014. The average price of new condominium units rose by 6.5% to JPY526,000 (US$5,158) per sq. m. over the same period. The average price of existing detached houses was up by 1.7% to JPY20,480,000 (US$200,818) over the same period.

    Surprisingly, land prices are still falling. During the year to January 2014, the average price of land in Tokyo Metropolitan Area fell by 10.9% to JPY260,800 (US$2,557) per sq. m., while in Osaka Metropolitan Area the average land price dropped by 4.7% to JPY183,200 (US$1,796) per sq. m.

    In 2013, residential construction was at its strongest in more than a decade, with an 11% y-o-y rise in new dwelling starts.  New dwelling starts continued to increase in early 2014, rising 12.3% to 77,843 units in January 2014 compared to the same period last year, according to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT). Likewise, the total floor area of new dwellings started increased by 10.5% to about 6.76 million sq. m. Most residential construction is occurring in Tokyo, which accounted for about 40% of all new dwellings started. Osaka accounted for about 12% while Nagoya for 8% of all new dwellings started.

    In Tokyo, the total number of condos sold rose 15.9% to 36,567 units in 2013 from a year earlier, according to LIJ. Likewise, in Osaka, the number of condos sold increased by 10.4% y-o-y to 16,654 units in 2013.

    In 2013, total outstanding real estate loans in Japan increased 2.8% to JPY435.9 trillion (US$42.75 trillion) from a year earlier, according to the Bank of Japan (BOJ).

    House prices are expected to continue rising in 2014, given that the government is expected to inject an additional stimulus package in the second half of this year. Moreover, Tokyo’s successful bid to host the 2020 Summer Olympics is expected to boost property demand and the construction sector over the next 7 years.

    In 2013, the Japanese economy expanded by 1.5%, after GDP growth of 1.4% in 2012 and a contraction of 0.45% in 2011. The Japanese economy is expected to expand by 1.4% this year and by another 1% in 2015, according to the International Monetary Fund (IMF).

    The lost decade Japan urban land price index graph

    In fact, Japan is still recovering from the great asset bubble of the late 1980s. From 1970 to 1980, land prices in Japan rose 200% (23.5% in real terms), and 238.5% in the six major cities (39.3% in real terms). Then during the 1980s, there was a 103% increase nationally (61.6% in real terms) and a 272.2% rise in the six major cities (196.4% in real terms).

    The 1991 crash left banks with bad loans of almost USD 1 trillion, contributing to Japan’s ‘lost decade’.

    Japan urban land price change graph Japan’s super-strong financial system Japan non performing loans

    Japan’s financial system is now in excellent shape. During Junichiro Koizumi’s prime ministership (2001 to 2006) tighter asset assessments of major banks caused a large decline in NPLs, from 8.7% of total loans in March 2002, to 1.4% in March 2008, according to the Financial Services Agency (FSA). Lending competition has also intensified, especially in metropolitan areas. Net result: housing loan costs have fallen.

    Interest rates are “virtually zero” Japan interest and mortgage rate graph

    The BOJ’s key interest rate has been “virtually zero” (0% - 0.1%) since October 2010, and below 1% since mid-1990s. Bank variable interest rates in Japan have hardly moved since 2000, remaining at 2.475% in December 2011.

    Yet demand for loans remains weak, given the recent financial crisis, and the earthquake‘s impact. The ratio of outstanding home loans to GDP remains very much lower in Japan than in other developed countries, at around 24.5%.

    Japan banks lending

    Could a reason for lacklustre demand for housing loans be low rental returns? Global Property Guide research suggests that rental yields in Tokyo fell from an average of 5.5% in 2009, to 4.8% in 2011, findings consistent with trends shown in IPD-Recruit residential data (see chart below). However if Tokyo prices have been rising ahead of rents, weak loan demand is less likely to reflect a specific reluctance to buy versus rent, and more a general reluctance to spend on any kind of housing.

    Japan residential prices and rent Hints of recovery Japan-land sale registration

    Japan was seriously affected by the global financial crisis in 2008 and 2009, and following that house prices fell by up to 4% nationally, and by almost 8% in the six major cities. However, Japan’s economy bounced back in 2010, and there were strong new condominium sales in Tokyo, with the number of dwelling units sold up 22.5%, according to the Real Estate Economic Institute. The increase was helped by the enhanced mortgage tax break carried over from 2009.

    Property sales are now rising sharply. In Tokyo, the total number of condos sold rose 15.9% to 36,567 units in 2013 from a year earlier, according to LIJ. Likewise, in Osaka, the number of condos sold increased by 10.4% y-o-y to 16,654 units in 2013.

    Japan housing starts

    In 2013, residential construction was at its strongest in more than a decade, with an 11% y-o-y rise in new dwelling starts.  New dwelling starts continued to increase in early 2014, rising 12.3% to 77,843 units in January 2014 compared to the same period last year, according to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT). Likewise, the total floor area of new dwellings started increased by 10.5% to about 6.76 million sq. m. Most residential construction is occurring in Tokyo, which accounted for about 40% of all new dwellings started. Osaka accounted for about 12% while Nagoya for 8% of all new dwellings started.

    Trade deficit continues to grow

    Japan’s trade deficit continues to grow. In 2013, Japan saw a record trade deficit amounted to JPY11.5 trillion (US$112.7 billion), up 65.3% from a year earlier. Prolonged deterioration in the country’s trade balance is expected to erode its position as a net creditor, one of Japan’s main credit strengths, according to Moody’s Investors Service.  This is surprising, given the yen’s decline.

    In addition, the country’s fiscal health is the worst among major industrialized countries, with a public debt equivalent to more than 200% of GDP. In 2013, the country’s central government debt topped JPY1,000 trillion (US$9.8 trillion) for the first time in its history.

    Healthy economic growth in 2013 Japan gdp inflation

    From 2000 to 2007, the Japanese economy grew by an average of 1.5% annually. However due to the global financial meltdown, the economy contracted by 1% in 2008 and by another 5.5% in 2009. The economy returned to growth in 2010 with GDP growth of 4.7%.  Then Japanese growth contracted again, shrinking by 0.5% in 2011 due to the impact of the Great Tohoku Earthquake (magnitude 9.0) last March 11, 2011. In addition the economic slowdown in China, Japan’s largest export market, exacerbated the situation. Then there was the anti-Japanese feeling in China sparked by the dispute over Diaoyu/Senkaku Islands. The economy grew by an anaemic 1.4% in 2012 and by another 1.5% in 2013.

    The Japanese economy is expected to expand by 1.4% this year and by 1% in 2015, according to the International Monetary Fund (IMF).

    In an effort to boost economic growth, Prime Minister Shinzo Abe, came to power in December 2012 with a program of reflationary policies, widely referred to as “Abenomics”, including the following:

    Inflation targeting at 2% Correction of the excessive appreciation of the yen Negative interest rates Radical quantitative easing Expansion of public investment Buying of construction bonds by the Bank of Japan Revision of the Bank of Japan Act

    Effective April 1, 2014, the sales tax was increased from 5% to 8%. The sales tax is expected to rise again to 10% in October 2015.

    Inflation increased to 1.6% in March 2014, up from 1.5% the previous month and in sharp contrast with a deflation of 0.9% in the same period last year, according to Stat Bureau Japan. Consumer prices rose by 0.4% in 2013, after falling for four straight years (-1.3% in 2009, -0.7% in 2010, -0.3% in 2011 and -0.04% in 2012), according to the IMF.

    Japan exchange rate

    However, Abe risks losing public support. The new sales tax combined with price increases of commodity goods (e.g. dairy products, meat, gasoline and electricity) could pressure the consumer, given inadequate wages growth. Consumer confidence dropped for a fourth straight month in March 2014.

    “Households are already seeing their real incomes eroding and it will get worse with faster inflation,” said Taro Saito of NLI Research Institute.

    In fact, the OECD recently warned the Japanese government that the economy may suffer a slowdown if inflation continues to rise without wage expansion. As a result, the OECD downgraded its 2014 economic growth forecast for the third largest economy to 1.2% from an initial 1.5%.

    “While the recent pick-up in inflation is encouraging, it could undermine the recovery unless it is accompanied by a matching rise in wages,” the OECD said.

    The yen weaken sharply by 18% to an exchange rate of JPY103.46 = US$1 during the year to December 2013, mainly due to Abe’s policies. However the yen reversed direction during the first four months of 2014, gaining 1.5% against the U.S. dollar. At time of writing, the exchange rate stood at JPY101.98 = USD1.


    Argentina defaults again; currency restrictions hurting property market

    Argentina house pricesArgentina has been here before.

    In 1989, Argentina experienced a period of hyperinflation, with annual inflation reaching almost 5,000%.  Combined with power cuts, this led to the downfall of Raul Alfonsín’s presidency. A similar crisis in 2001 forced another president, Fernando de la Rua, to vacate his seat, leading to what is now considered the largest ever sovereign default, amounting to US$ 95 billion.

    Now Cristina Fernández’s popularity is plunging and the economy is paying the price for her populist policies. Inflation is a big problem. The country’s economic outlook is bleak.  The peso has been crashing.

    In January 2014, Argentina devalued its currency by 19% as it struggled to hold onto dollar reserves.

    On 31 July 2014 came Argentina’s debt default.  This is a complicated matter – Argentina has the money, but vulture fund Elliott Management’s victory in a U.S. court has rendered technical default Argentina’s only way out of a painful situation, for now.

    Uncertainty about the Argentine peso is jinxing the country’s property market. On one hand, sellers demand to be paid in dollars, proven safer than the peso. On the other, buyers are prevented from acquiring these dollars by strict currency controls. 

    In 2013, Argentina’s economy expanded by only 3%, after only 1.9% GDP growth in 2012.  Looking further back, the Fernández government oversaw 8.9% GDP growth in 2011, 9.2% in 2010, and six years of excellent growth after 2012, before a blip during the global crisis of 2009.

    That growth was at the cost of inflation, which remains stubbornly high.  Foreign reserves are down to less than US$ 30 billion and are still dwindling despite tight currency controls encouraging dollars to return to the country, partial devaluation, and since the beginning of 2014 much higher interest rates and a new inflation index.

    The country’s real estate industry, which is practically a dollar-only market, is suffering. 

    Sales and prices are down Argentina Property sales

    Prices in Buenos Aires were down 10.3% in May, compared with the previous May, to US$ 1,693 per sq.m..  Sales declined 15.4% y-o-y in May, to 2,898 transactions, according to Reporte Inmobiliario, having already declined significantly the previous year.

    Mortgages are limited, with only 3% of Argentines having access to such facilities. Many are turning to rented accommodation as home ownership becomes harder, on the back of limited mortgage lending and stringent currency regulations.

    “The main issue in Argentina is that the real estate market has historically been transacted in dollars so when you make it impossible for people to source dollars liquidity gets disrupted,” says Bret Rosen, managing director of research at Jamestown Properties LLC in New York.

    Inflation is falling Argentina inflation

    Credible private estimates put Argentina’s real inflation rate in 2013 at 55%, despite much lower official estimates.  On February 13 a new nationwide CPI index replaced the benchmark greater Buenos Aires index, which had shown inflation at less than half private estimates since 2007.  The move came a year after Argentina was the first nation censured by the International Monetary Fund for failing to report accurate economic data.

    According to the new index, inflation is now falling.  It was 1.8% in April, 2.6% in March, 3.4% in February and 3.7% in January.  However that’s the officially estimated CPI increase per month, not per annum.

    The authorities have managed to contain inflation by a new policy of keeping interest rates at almost 30% while negotiating price caps on hundreds of consumer staples and price rollbacks on industrial goods. Yet despite the new index, private estimates believe inflation is still somewhat higher than the official index, and the IMF is still grumbling that Argentina needs to clean up its statistics.

    Mortgage lending hampered by Argentines’ distrust of banks Argentina Mortgage loans

    Almost all property deals are done for cash in Argentina, without a mortgage.  The fact is, Argentines do not trust their banks.  So savings from the private sector barely enter the banking system.

    “If the people don’t put their money in the banks for saving, then the bank does not have any money to lend,” says Sebastian Sosa, owner of real estate company RE/MAX. He adds that unless stability, credibility and trust are established, mortgage finance in the country will remain limited. 

    Increasing external savings are no longer an option. Since the economic crisis of 2001, it’s been difficult for Argentina to attract foreign individuals and companies to deposit funds in the country’s banking system.

    The current loan situation is very disappointing, with available mortgage credit falling by around 50% from 2000 to the present, according to the Central Bank of Argentina.  The vast majority of real estate transactions will continue to take place in cash.

    Argentines are turning to rented accommodation – yields are high

    Renting is the only option for many who have no means of saving and buying property, owing to limited mortgage lending. This, along with the difficulty of acquiring dollars for real estate transactions, has brought a surge in demand for rented accommodation. But finding a place to rent in Argentina is becoming increasingly difficult.

    Unsurprisingly, rents have been rising. During 2009, they fell significantly in terms of US dollars but now they are stronger again. Average apartment rental yields are around 7% to 8%, based on the latest Global Property Guide research.

    Those who can afford to buy property tend to invest in buy-to-let properties because they perform remarkably well due to growing demand. Property owners who were once looking to sell are now content to rent out, as selling has become difficult.

    Central Bank to regulate interest rates Argentina interest rates

    Interest rates were allowed to rise sharply at the beginning of 2014 as part of a shift in government policy to contain inflation and incentivize dollar inflows. However, while interest rates on short-term deposits currently stand at around 22%, annual interest charges on loans and credit cards are frequently above 50%, and in some cases reach above 100%, according to Argentina Independent.

    Cabinet Chief Jorge Capitanich recently announced that the Central Bank would begin to regulate “extortionate” interest rates in the financial system.

    “It is in the State´s interest to set a regulatory framework to prevent abuses that affect loan takers with a negative impact on consumption and on all Argentines,” said Capitanich. “Many countries regulate interest rates,” he explained, mentioning France, Italy, Germany, Colombia, Chile and Uruguay as examples.

    It is expected that restrictions would be applied to interest rates on all types of credit. The new regulations will seek to reduce the gap between the interest rates offered by the Central Bank to the private sector, and those offered by commercial banks to consumers.

    Construction activity continues to decline Argentina house construction

    Seasonally-adjusted construction in Argentina fell 2.6% in the first quarter of 2014 compared with the same period in 2013, according to the National Institute of Statistics and Censuses (INDEC). In May 2014, construction level dropped 4.4% y-o-y (seasonally-adjusted). Weak construction activity is largely due to the weak wider economy.

    Most construction inputs also displayed negative growth. Sales for construction paint fell 15.9% from January to May 2014 compared to the same period in 2013. Sales also fell for asphalt (-4.9%), cement (-3.3%), and hollow blocks (-3%). On the other hand, sales for floor and wall coverings increased 28.6%.

    CEDIN: government’s laundering tool Argentina reserve

    To reduce the size of the black market and find a new source of dollars, the government created the CEDIN (Certificado de Deposito Para Inversion), a Certificate of Deposit for Investment which began circulating in July 2013.

    Locally known as the “laundering law”, the scheme invites those with undeclared dollars to trade their dollars for CEDINs (without facing penalties for their “black” currency – in effect, a tax amnesty).  The dollars received must be spent on buying or renovating a house.  The recipient (house seller or contractor) may then sell the certificate(s) or cash them in for real dollars at the Central Bank.

    The government believes that Argentines have about US$ 160 billion worth of undeclared dollars. That is more than five times the value of Argentina’s foreign currency reserves. Alejandro Vanoli, head of the Security and Exchange Commission, at first asserted that the certificates will have a “revitalising” effect and “bring an interesting level of liquidity to the economy”.

    Most people, however, were skeptical and thought that the CEDIN would have very little impact in reversing downward trends in the property market and construction industry. Many felt that opposition members of parliament would reject the whole deal when Fernández’s mandate ends. And if someone transfers the money into the country from an unreported bank account held abroad, he must report its history of transactions!

    After nine months the Cedin had only managed to attract US$ 754 million – not nothing, but only 18.8% of the government’s initial goal.

    A rough journey ahead Argentina economy

    After the country lost its longstanding legal battle with US hedge fund creditors, it is now returning to courts again, this time against the United States.

    Argentina has asked the international court of justice (ICJ) in The Hague to hear a lawsuit against the United States over an alleged breach of its sovereignty, after a US court judge blocked it from paying its restructured 2001 debts, leading to the default of July 2014, the 8th default in Argentina’s 200-year history.

    Argentina’s last default is primarily rooted in its earlier monetary policy. In the 1990s, the government decided to peg the Argentine peso to the US dollar. But this meant that during economic shocks, Argentina can’t use its usual monetary tools to control the economy.

    When Europe’s and Brazil’s currencies fell so much in 1998, Argentina’s exports became severely expensive and Argentina desperately needed a weaker peso. This, of course, couldn’t be achieved without abandoning the dollar peg. It was then forced to reduce wages to cut prices. But this only pushed unemployment up and tax receipts down.

    The government turned to fiscal policy – raising taxes and cutting spending to reassure investors about the deficit. But this made the slump even worse.

    By late 2001, unemployment was over 20% and Argentines were rushing away from the peso. The government tried to stop the run by limiting withdrawals. But this only started violent protests which later caused the resignation of then president Fernando de la Rua. This led to a US$ 95 billion default, cutting off Argentina from international capital markets and hampering growth.

    Argentina tried to make up on its obligations. In 2005 and 2010, it offered the holders of its defaulted debt new “exchange bonds” that paid 35 cents per dollar on the original debt. About 75% of outstanding bonds were exchanged in 2005. Then in 2010, there was a new offer to the remaining holdouts that brought participation to 93%.

    The remaining 7%, led by Wall Street billionaire Paul Singer, refused to settle and sued Argentina in the US courts for full repayment. After a stretched court battle, the group got District Court Judge Thomas Griesa to rule that Argentina could not pay the creditors who had accepted its debt restructuring until it fully paid those who had rejected it. Unable to meet the creditors’ demand, Argentina was forced to enter its second default since 2001.

    Economists expect an outflow of dollars if Argentina does not come out of this quickly, putting more pressure on dwindling central bank reserves, now less than US$ 30 billion.

    However, no one expects a recession anywhere near as deep as in 2002, when GDP fell 10.89%.

    Some even see the present situation as a buying opportunity.

    According to Timetric, there has been an influx of international house buyers buying at 60% of the original value, due to high inflation, lack of local demand and discount for dollar purchases. This tangible investment can then be sold at a later date when the economy shows signs of stability.

    Presidential elections may also encourage such investments. Since Cristina Fernández can no longer run for reelection in October 2015, there are hopes of more moderate economic policies from her successor. 


    Bangkok's condo index up 14%, despite the politics

    Thailand’s housing boom continues. But political unrest and an economic slowdown are flashing red warning signals.

    The Thai price index for single detached houses rose by 4.9% (4.11% inflation-adjusted) during the year to end-Q4 2014, after annual house price rises of 4.19% in Q3, 4.81% in Q2, and 5.71% in Q1 2014, according to the Bank of Thailand (BOT).

    The condominium index soared by 14% (13.18% inflation-adjusted), and is actually a more relevant index. Condominiums are what Bangkok people, including foreign homebuyers and expatriates, tend to live in. The longer-established detached houses index over-represents the rural population.  

    The price index for townhouses rose by 6.60% (5.82% inflation-adjusted), and the residential land price index surged by 6.36% (5.59% inflation-adjusted).

    “Property prices in Thailand remain very attractive by international standards, for example at least four times cheaper than Singapore, said Apichart Chutrakul, Sansiri's CEO and Co-founder.

    With strong economic fundamentals, the market also offers good prospects for capital gains, with quality high-end and luxury projects in the best locations ensuring maximized capital appreciation in the long-term.”

    Moderately good yields on Bangkok property

    Average rental yields in Bangkok range from 5.0% to 6.8%, according to the Global Property Guide's rental yields research of April 2014. Higher yields are realized from small apartments measuring 65 sq. m., with yields of around 6.83%, while a 350 sq. m. apartment earns gross rental yield of around 6.16%.
    Mortgage lending up

    Personal housing credits rose 12.1% y-o-y in 2014 to THB 1.688 trillion (US$ 52 billion), according to the BOT. Total property credits outstanding rose 9.8% in 2014, to THB 2.25 trillion (US$69.3 billion).  Outstanding mortgages were 6.8% percent of GDP in 2014.

    The strong growth may be due to the “SCB Home Builder Plus” campaign launched by the Siam Commercial Bank (SCB), the biggest mortgage lender in Thailand. During SCB's campaign, loans of up to 100% of the home building contract are available together with an additional 30% credit line for home decorations, furniture, close-circuit systems, burglar alarms, solar roof systems, etc. The campaign was initiated to meet the needs of clients having homes built on their own land, approved and mortgaged by December 31, 2015, according to SCB.

    Residential construction activity remains robust. Residential building licenses rose by 11.9% in 2014 to 94,091 units, according to the Department of Land.  Condominium registrations surged 5.8% to 108,175 units. New houses in Bangkok Metropolis, including apartments and condominiums, self-built houses, and housing projects, also increased by 1.4% to 133,762 units in 2014.

    LPN Development, Thailand’s biggest condominium developer recorded a presales of about TBH 3 billion (US$ 92.4 million) for this year’s first quarter.

    'We plan to launch more condominium projects in the second quarter, having launched just one in the first three months,' said Opas Sripayak, LPN Development's managing director. 'This will boost our second-quarter sales beyond what we achieved in the first quarter'.

    Impact of the continuing political crisis Thailand gdp inflation

    However Thailand is now gripped by unprecedented political unrest, with Prime Minister Yingluck Shinawatra removed from office by a court, along with nine other cabinet ministers.

    Thailand’s economy expanded by only 2.50% in 2014, down from 2.9% in 2013, and a sharp slowdown from GDP growth of 6.5% in 2012, according to the International Monetary Fund (IMF).

    The economy is projected to grow by a modest 3.78% this year and another 4.0% in 2016, according to the IMF. However, other agencies are now projecting below 2% economic growth for Thailand, as the country is embroiled in political unrest.

    “All the economic engines appear to have stopped functioning rendering Thailand’s economic outlook the worst in 40 years,” said Mr. Thanawat Polvichai, director of the Economic and Business Forecast Centre of the University of Thai Chamber of Commerce.

    “The contraction of economic growth, the shrinking of export and domestic consumption, farm price slump and delayed disbursement of government’s spending budget have combined to make the private sector feel not confident with the state of the economy,” he further explained.

    Consumer confidence fell to 80.4 points in January 2015, and is expected to continue falling in the coming months, according to the University of the Thai Chamber of Commerce (UTCC).

    Exports, which account for more than 60% of the country’s economic output, are also faltering. In February 2015, total exports fell by 6% from the same period last year, according to the Commerce Ministry. On the other hand, imports rose by 0.8% in February 2015 from a year earlier.

    “The continued declines (in exports) were due to the lower shipments of oil products and gold,” said Secretary of the Commerce Ministry Chutima Bunyapraphasara.

    The political crisis started in late 2013 when the government of Yingluck Shinawatra attempted to pass a political amnesty bill that critics claim would allow her brother Thaksin Shinawatra, the ousted Thai leader, to return from exile. The move brought tens of thousands of protesters onto the streets of Bangkok.

    Yet Thailand is attracting again tourists, despite the political unrest. In January 2015, international tourist arrivals surged by 16.30% from the same period last year to 2,654,634 people.

    “We expect growth in tourism and foreign direct investment as well as an improvement in foreign interest in investing in the Thai property market,” said Aliwassa Pathnadabutr, Managing Director of CBRE. 'This will be another key growth driver for the luxury residential market.'

    The value of land and building transactions fell by 2.2% in 2014 to THB 969.1 billion (US$ 29.8 billion), according to the Department of Land, Ministry of Interior. The Central region accounted for about 63% of all transactions, followed by the Eastern region (12%) and the Northeastern region (9%).

    Interest rate cut Thailand interest rate

    In March 2015, the country’s inflation rate stood at -0.57%. The Bank of Thailand, the country’s central bank, sets an inflation target range of 1.5% to 2.5% Consumer prices in the country are expected to increase by about 2.1% this year.

    To stimulate the economy, Thailand's key interest rate by was cut 0.25%  to 1.75% by the Bank of Thailand in March 2015.  It had been at 2% since December 2010.

    “The main motivations for rate cuts have been the recent bout of deflation and relative currency strength,” said Krystal Tan, economist at Capital Economics. 'Headline consumer prices fell 0.5% y/y in February, after a 0.4% decline in January. Meanwhile, Thailand's nominal effective exchange rate has risen considerably, raising concerns about export competitiveness.'

    “We doubt the Bank of Thailand will make any further rate cuts this year. Deflation has been largely a reflection of the fall in global energy prices, rather than demand factors, and will likely prove temporary,” she added.

    Thailand exchange rate

    The BOT has also taken additional measures to make life easier for foreign buyers and investors by relaxing foreign exchange regulations under the Capital Account Liberalization Master Plan. Thai baht transactions by non-residents (NRs) and by corporate treasury centers will also be relaxed.

    The main goal is to deepen Thailand’s financial markets by allowing greater flexibility and diversification for residents and NRs, according to the BOT.

    “Thailand will allow Thais to freely purchase foreign currencies for deposit up to a limit of $5 million, raising it from $500,000,” said the BOT.  “It would double the outstanding limit for non-residents in borrowing the baht from domestic financial institutions for transactions undertaken without underlying trade and investment in Thailand to not exceeding 600 million baht ($18.3 million), which is expected to be effective in May.”

    The Thai baht rose modestly to THB 32.61 = US$ 1 in March 2015, after two consecutive months of decline this year.