Global Property Guide - Investment Research

    Vietnam’s housing market now open for business

    Vietnam’s property market is heating up, thanks to strong economic growth, and a growing middle-class, after almost five years of a housing slump - but most important is the new Housing Law and the Law on Real Estate Business. These came into effect in July 1, 2015, and allow foreigners and overseas Vietnamese to legally own, sell and transfer real properties.  

    The market is not yet 'really hot' according to some - but it is heating up.

    The new Housing Law has potentially enormous significance.

    First, it removes critical obstacles to foreign property ownership. Foreigners who have been granted a Vietnamese visa, plus foreign investment funds, banks, Vietnamese branches and representative offices of overseas companies can now purchase residential property.

    Foreigners can now own all types of properties, including condominiums and landed property such as villas and townhouses. The properties owned by foreigners can be sub-leased, inherited and collateralized.

    Second, overseas Vietnamese who have maintained their Vietnamese citizenship will be treated like locals and are permitted to own unlimited property in their own names.

    It is estimated that about 70% of the 4 million overseas Vietnamese around the world still maintain their original citizenship.

    Until now, Viet kieu (overseas Vietnamese) and foreigners could only buy one apartment in Vietnam each. The conditions were strict, favouring only those married to Vietnamese nationals, holding managerial positions, or having contributed to the country. These criteria enabled only around 130 foreigners, out of around 80,000, to buy an apartment in Vietnam.

    The revised housing law is revitalizing the property market and sending a broader message that Vietnam is open for business. “The government is looking at ensuring that Vietnam continues to be competitive, continues to be attractive to foreign investors, and to create an environment where business can thrive,” said David Lim of  ZICOLaw Vietnam.

    'There are 4.2 million Vietnamese overseas and about 30,000 foreign executives working here long-term,' said Le Hoang Chau of Vietnam´s Real Estate Association. 'That shows potential for a bright future.'

    'From my own analysis, from now till the end of 2015, the domestic real estate market will be getting hot because foreign capital flowing into the market is quite huge,' said Dr. Nguyen Tri Hieu of An Binh Commercial Bank.  'In particular, at the end of the year, the community of overseas Vietnamese who want to buy houses in big cities will be very high.' 

    In Ho Chi Minh City, Vietnam’s most populated city, sales volumes in H1 2015 have exceeded total sales during 2014. “I can sell about three to five units per month now, much better than before, when I could only sell the same in the whole year,” said Dung, a property broker. 

    Prices of high-end residential properties increased 3.2% q-o-q in Q2 2015, according to CBRE Vietnam.

    In Hanoi, Vietnam’s capital, the average price of newly launched high-end condominium units rose by 2% during the year to Q2 2015, while prices of low-end condo units increased 3%, according to Colliers International.  During the latest quarter, prices of new condo units increased 1% in Q2 2015.

    And several high-end residential projects in Hanoi saw price rises of about 4% to 6% y-o-y in the first half of 2015, according to CBRE Vietnam.

    The upward momentum in residential property prices in Hanoi was also supported by Savills World Research.

    The average price of existing townhouses increased 0.9% q-o-q in Q2 2015, to VND60.3 million (US$2,682) per sq. m. Villa prices rose by 0.1% to VND48.8 million (US$2,170) per sq. m. over the same period New apartment prices in Hanoi also increased 1% q-o-q in Q2 2015 Prices of existing apartments rose by 2% q-o-q in Q2 2015

    The national figures show greater diversity. In Tay Ho and Hoan Kiem, the average price of existing apartments rose by 7% q-o-q in Q2 2015. On the other hand, Ba Dinh and Dan Phuong saw the biggest quarterly decline of 4% over the same period.

    Property prices are expected to continue rising during the remainder of the year. Vietnam’s economy expanded by 6.44% from a year earlier in the second quarter of 2015, the highest growth in five years, according to the General Statistics Office (GSO).

    The economy is projected to expand by 6.2% this year, up from 6% in 2014, 5.4% in 2013, 5.2% in 2012, 6.2% in 2011 and 6.4% in 2010, according to government forecasts.

    Project District Total units Average asking price (US$/sq. m.)
    Hoa Binh Green City Hai Ba Trung 800 1,580
    Mandarin Garden Cau Giay 1,125 1,534
    Thanh An Tower Thanh Xuan 352 1,282
    Trung Kinh Complex,  Home City Cau Giay 1,200 1,190
    Wartermark Ho Tay Cau Giay 128 2,280
    HP Landmark Tower Ha Dong 1,124 801
    Diamond Blue Thanh Xuan 200 870
    Source: Colliers International
    Local house price variations Vietnam gdp inflation

    Hanoi´s most expensive housing is in Cau Giay District, with average dwelling prices of around VND165 million (US$7,344) per square metre (sq. m.) in Q2 2015, according to Colliers International. Tay Ho District follows, with average dwelling prices of VND110 million (US$4,896) per sq. m.  Me Linh District had the most affordable housing, at about VND11.2 million (US$499) per sq. m.

    Vietnam construction floor area

    In Ho Chi Minh City, District 5 had the highest asking price for newly launched condominium units in Q2 2015, with a range of from US$1,400 to US$2,300 per sq. m. It was followed by District 2 (US$1400 to US$2,100 per sq. m.), Tan Binh (US$1,100 to US$1,700 per sq. m.), District 7 (US$900 to US$1,400 per sq. m.), Bin Thanh (US$800 to US$1,200 per sq. m.) and District 6 (US$600 to US$800 per sq. m.).

    In HCMC, newly launched residential developments have the following asking prices:

    In Vinhomes Central Park, a high-end development located in Binh Thanh, villa prices averaged US$7,000 per sq. m. In Saroma, located in District 2, villa prices averaged US$2,000 per sq. m. In Pho Dong Village P.1, also situated in District 2, the average price of villas and townhouses stood at US$1,650 per sq. m. Uncertainties in the implementation of the Housing Law

    The generally quoted figure is that about 500,000 to 1 million overseas Vietnamese want to return to Vietnam to live.  Of course, house prices in Vietnam are relatively cheap compared to other cities in Southeast Asia. 

    However there are some uncertainties.  Circulars guiding the implementation of the new Housing Law have not been issued.  In particular, the administrative procedures have not been simplified yet, and provisions on protection of the interests of investors of real estate projects are not yet available.

    However according to the law developers must obtain guarantees from Vietnam-licensed credit institutions, and should they fail to hand over the residential houses as agreed in the sale, lease out/sale contract, the purchaser or lessor may ask the guarantor for the payments they have made.

    Finally foreigners can transfer money to Vietnam to buy a house - but it is not yet clear that they are allowed to transfer money abroad after they sell or transfer their houses in Vietnam, or to borrow from banks in Vietnam to purchase houses.

    For foreign individuals the house ownership period is 30 years, but it can be extended.  The new law also limits foreigners from owning more than 30% of a single apartment building, or more than 350 houses and apartments in a ward, a subdistrict-level administrative area. The Ho Chi Minh City Real Estate Association has objected to this, because of the concentration of foreigners in key districts.  

    HCMC’s surging demand Vietnam housing construction

    Demand is now surging. In HCMC, total dwelling sales rose by 12% in Q2 2015 from the previous quarter and by 116% from a year earlier, according to Savills. Townhouses accounted for about 82% of the total sales transactions.

    Apartment sales were up 96% to 5,000 units in Q2 2015 from a year ago, the highest level since Q4 2010. District 2 dominated the market, with about 28% share of the total sales, followed by Binh Thanh with 15%. Sales volume of Grade B apartments surged 44% q-o-q in Q2 2015 while sales for Grade C apartments remained stable.

    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.

    Housing supply continues to rise

    Housing supply in Vietnam is now rising rapidly.   In Hanoi, about 19,000 condominium units are expected to enter the market, mainly located in the West and the South West, according to Colliers. In addition, four new villa and townhouse projects will be completed by end-2015, according to Savills.

    In Hanoi the total stock of dwellings (villas and townhouses) was about 30,100 units in 110 projects in Q2 2015, according to Savills World Research. Of the total stock, 1,030 units were newly-built while 29,060 units were existing houses.

    By the end of 2015, four new projects of villas and townhouses in Hanoi are expected to enter the market, according to Savills. Three projects will supply about 390 villas and townhouses.

    In addition, the condo market is also expanding sharply. Five new large condominium projects came into the Hanoi market in Q2 2015, adding about 3,000 units, up 3% from the previous quarter. These residential projects included Hoa Binh Green City, Trang An Complex, Imperia Garden, The Manor Central Park, and FLC Garden City.

    Hanoi’s luxury segment is concentrated in Hoan Kiem and Hai Ba Trung District, the capital city’s business hubs, with a total stock of about 2,200 units in Q2 2015.

    In HCMC, about 15,500 condominium units are expected to come to market in 2015, mostly outside the CBD (such as District 2, District 4, District 7 and Binh Thanh) due to insufficient land availability, according to Colliers. Moreover, 1,250 villas and townhouses are expected to be launched in the coming months, according to Savills. The supply of new villas and townhouses was about 1,140 units in Q2 2015, up by 3% from the previous quarter and by 216% from a year ago, according to Savills. Most of the dwelling stocks were located in Go Vap, Binh Tan and Binh Chanh District.

    The supply of newly launched condominium units in HCMC surged 70% q-o-q in Q2 2015 to reach about 25,000 units, according to Colliers International. The high-end segment accounted for 62% of total supply. Most of the newly-built condo units that recently entered the market come from the following developments:

    Gateway Thao Dien in district 2 (high-end project) Everich Infinity in district 5 (high-end project) Sky Center in Tan Binh District (high-end project) An Gia Riverside in district 7 (mid-end project) Saigonres Plaza in Binh Thanh (low-end project)
    Project Location Type Completion
    FLC Garden City Tu Liem, Hanoi Villa/Townhouse 2016
    Trang An Complex Cau Giay, Hanoi Villa/Townhouse 2017
    Goldsilk Complex Ha Dong, Hanoi Townhouse 2017
    Evelyne Garden Ha Dong, Hanoi Villa/Townhouse 2017
    The Manor Central Park Thanh Tri, Hanoi Villa/Townhouse 2018
    Pho Dong Village P.1 District 2, HCMC Villa/Townhouse 2016
    Saroma District 2, HCMC Villa 2016
    Vinhomes Central Park Binh Thanh, HCMC Villa 2017
    Source: Colliers International
    Apartments are now increasingly becoming popular

    In Hanoi, the number of newly-built apartments released onto the market surged 24% during the year to Q2 2015, to 13,400 units, according to Savills World Research. The capital’s total apartment supply had already reached 121,400 units in Q2 2015.

    In HCMC, launches of new apartments surged 138% y-o-y to more than 9,700 units during the year to Q2 2015, the highest level in five years, according to Savills. Overall, there were about 26,000 apartment units available in Q2 2015, a significant increase of 27% from the previous quarter and 72% from a year earlier. In addition, about 59,200 apartment units from 90 existing and future projects are expected to enter the market in the next two years. Most of which are concentrated in District 9.

    Under-served low-end market

    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.

    The demand for affordable houses is now outstripping supply, as residential development has largely focused on high-end customers.

    Decision 996/QD-TTg

    Prime Minister Nguyen Tan Dung signed Decision 996/QD-TTg in June 2014 to increase the number of social housing projects in Hanoi, while ending construction of commercial housing projects in the city centre, especially the four downtown districts of Dong Da, Hoan Kiem, Ba Dinh, Hai Ba Trung and part of the southern Tay Ho District. Priorities will be given to construction of urban areas and residential areas in the city´s outskirts.

    This year, the government expects to spend more than VND6.7 trillion (US$321 million) to construct about 1.8 million sq. m. of floor space (20,000 apartments) for retired civil servants, and  another 2 million sq. m. of floor space for workers and students.

    The memory of a housing bust (2009-2013)

    Vietnam witnessed a prolonged housing catastrophe in recent years, mainly due to the impact of the global crisis. Property prices plunged by double-digit figures. The government was embarrassed, the banks were bankrupt, and the economy slowed sharply.

    There were a staggering number of unsold housing units in Vietnam’s two biggest cities.  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.
    The banking system effectively collapsed. One out of every ten loans in the banking system had stopped paying, according to the central bank. However, Fitch Ratings believes the percentage of bad loans could have been much higher.

    In an effort to bolster demand:

    A VND5 trillion (US$222 million) credit package was given to homebuyers by the Vietnam Bank for Industry and Trade (Vietinbank). The government bought US$8 billion of non-performing loans, especially from the real estate sector. The government provided the real estate market with a US$1.4 billion stimulus package in 2013 and placed stricter financial requirements on property developers. The State Bank of Vietnam (SBV), the country’s central bank, slashed the refinance rate and discount rate several times. An exemption of about 10% of the value added tax (VAT) for home buyers is now being proposed by the Housing and Real Estate Market Department. Rental market expanding

    The rental market has been expanding recently, as the number of customers asking for apartments to lease increases. In HCMC, occupancy rate was 84% in Q2 2015.

    Moreover, supply of high-grade rental apartments is also increasing. In HCMC, there were more than 3,000 serviced apartments in the market from 79 projects in Q2 2015, with District 1 accounting for about 40% (1,700 units) of the total supply.

    Project District Grade Total units Expected completion
    Cosmo Residence 3 B 30 2015
    New Pearl 3 B 120 2015
    Saigon Centre Phase 2 1 A 216 2016
    Saigon Ascott Waterfront 1 A 222 2016
    Icon 3 B 63 2016
    Source: Colliers International

    Rental yields in Vietnam remain high, ranging from 6% to 7% in 2014, according to Chen Lian Pang of CapitaLand Vietnam. This is particularly true for high-end apartments in Hanoi and HCMC such as at Indochina Plaza Ha Noi, Dolphin Plaza and Starcity Le Van Luong.

    Monthly rents for apartments in Vietnam almost doubled in 2014 from the previous year, to reach US$2,000 to US$4,000, according to CBRE Vietnam.  However the rent rise then paused, and in Q2 2015, the average monthly rent for apartments in HCMC stood at US$23 per sq. m., unchanged from the previous quarter, but down by 2% from a year earlier, according to Colliers International.

    In Q2 2015:

    For Grade A apartments, the average monthly rent was US$31 per sq. m. For Grade B apartments, the average monthly rent was US$25 per sq. m. For Grade C apartments, the average monthly rent was US$16 per sq. m. Underdeveloped mortgage market Vietnam interest rate

    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 still hinder 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.

    Though interest rates are falling in recent years, they remain relatively high. In 2014, the average lending rate stood at 10%, down from 10.5% in 20 13, 14% in 2012, and 17% in 2011.

    As a result, mortgage interest rates in major banks are also falling. Techcombank’s mortgage rate dropped to 7.99% in March 2015, from 9.49% in January 2015; Vietcombank’s mortgage rate fell to 7.5%, from 7.99%; and ACB’s mortgage rate fell to 7.5%, from 8.9%.

    Devaluing the dong Vietnam exchange rate

    Vietnam has pegged the dong to the US dollar for several decades, within a limited band of 1% to 2% - an important measure used by the SBV to maintain macroeconomic stability.

    However the State Bank of Vietnam (SBV), the country’s central bank, has devalued the dong twice so far this year, most recently in May, in an effort to buoy slowing exports.

    The exchange rate is expected to remain unchanged for the rest of the year. “Between now and the year end, it´s not necessary to raise the issue of devaluing the Vietnamese dong, especially when the State Bank has full ground to forecast that inflation in the whole of 2015 will be at 3% instead of 5% as per the government´s target at the start of the year,' said Deputy Governor Nguyen Thi Hong.

    Three decades of uninterrupted growth

    In the second quarter of 2015, Vietnam’s economy expanded by 6.44% from a year earlier, the highest growth in five years, according to the country’s General Statistics Office (GSO).

    Vietnam has experienced three decades of uninterrupted growth, based on figures from the International Monetary Fund (IMF).

    1981-1990 – average real GDP growth of 5.9% per year 1991-2000 – average real GDP growth rate of  7.6% annually 2001-2010 – average real GDP growth rate of 6.8% annually
    Vietnam unemployment

    In 2014, the economy expanded by a robust 6%, after growing by 5.4% in 2013, 5.2% in 2012, 6.2% in 2011 and 6.4% in 2010, according to the IMF. The economy is projected to expand by another 6.2% this year, based on government forecasts.

    The Vietnamese government is now in the process of easing business regulations and pursuing a long-running privatization drive, to boost growth further.

    Unemployment remains low. In Q2 2015, the country’s unemployment rate was 2.44%, from 2.22% in Q1 2015, 2.1% in Q4 2014, 2.17% in Q3 2014, 1.84% in Q2 2014, and 2.21% in Q1 2014, according to the GSO. From 6.42% in 2000, the overall jobless rate continuously dropped to 2.45% in 2014, according to the International Monetary Fund (IMF).

    In August 2015, the inflation rate stood at 0.6%, down from 0.9% in the previous month and far below the 4.31% inflation during the same period last year, according to the GSO. The country’s inflation rate for 2015 is projected at 3%, below the government’s initial target of 5%.

    Will falling interest rates save India's residential market?

    India’s property market faces a worrying rise in unsold inventory, after a spectacular house price boom over the past three years. Sales in India´s top eight cities fell by 4% in June 2015 compared to June 2014, with unsold inventory rising 18% during the same period, according to property research firm Liases Foras. 2015 ended with lower new launches and sales volumes, at 240,360 and 261,260 units, respectively, across the top eight cities.

    According to Knight Frank, unsold inventory has now reached:

    206,000 units in the National Capital Region (NCR) 181,000 in Mumbai 100,000 in Bengaluru 63,000 in Pune 41,000 in Ahmedabad 36,000 in Chennai 36,000 in Kolkata 31,000 in Hyderabad

    Growth in the Reserve Bank of India’s nationwide housing price index slowed to 13.7% (8.7% inflation-adjusted) during the quarter ended September 2015 compared to the same period in 2014 – down from a 17.5% rise in Q1 2015 and 14.5% in Q2 2015.

    All major cities, with the exception of Chennai and Bengaluru, exhibited slowing momentum:

    Prices in Delhi rose 21.9% (16.5% inflation-adjusted) year-on-year in Q3 2015, slower than the first and second quarters’ 26.5% and 22.7%, respectively. In Mumbai, house price rises weakened to 10.8% (5.8% inflation-adjusted) from 11.0% in Q1 and 11.1% in Q2.  In Ahmedabad, growth slowed to 7.4% (2.6% inflation-adjusted) from 9.2% in Q1 and 7.4% in Q2. In Kolkata, growth was 7.1% (2.3% inflation-adjusted), down from 32.4% in Q1 and 19.1% in Q2. Prices in Kochi even fell by 7.2% (-11.3% inflation-adjusted) Bangalore price rises, on the other hand, have been gaining momentum from 10.0% in Q1 and 15.5% in Q2 to 19.1% (13.8% inflation-adjusted) in Q3. Price growth in Chennai is also impressive at 12.4% (7.4% inflation-adjusted) in Q3, up from 4.9% in Q1 and 3.8% in Q2.

    “While stated prices remain elevated, transaction prices have already fallen by 10-15%,' said Saurabh Mukherjea, CEO of institutional equities Ambit Capital. 'Discounts have increased significantly in the secondary market and distress sales are becoming increasingly common.”

    India house price change mumbai delhi

    Developers operating in Mumbai and Delhi, where prices are the highest, will particularly experience more pressure on sales and cash flow, according to Moody’s.  Based on Ambit Capital’s research, it will take around 11-14 quarters to clear the inventory in these areas.

    Pankaj Kapoor, managing director of Liases Foras, points out that demand for real estate has been stagnating because during the last decade property prices have risen strongly, while salaries have not kept pace. Houses have become unaffordable, so sales aren’t picking up. Sanjay Dutt of Cushman & Wakefield says the situation may take two more years to stabilize, with the green shoots becoming visible after a year.

    Although the Reserve Bank of India (RBI) implemented monetary easing during the first half of 2015, this has not yet had a significant impact on the mortgage market. Bank lending to the real estate sector rose by just 7.5% during the year to May 2015, against overall bank lending growth of 8.5%.

    Nonetheless,Vikas Halan, Moody’s Vice President and Senior Credit Officer believes that despite the difficulties, India´s solid economic growth will provide some support to housing sales and the gradual easing of lending rates will also boost investor confidence and activity.

    “Cuts in interest rates by the Reserve Bank of India, if passed on by the banks, will filter down to the property market, reducing the cost of borrowing for developers as well as buyers, and supporting demand,” says Halan.

    Rental yields are low

    Rental yields in India are low, according to Global Property Guide research.

    In South Mumbai, average yields range from 2.2% to 2.3% gross, even lower than a year ago. New Delhi rental yields remain very poor, at between 1.9% and 2.1%. Bengaluru registered higher yields ranging from 3.7% to 4.4%, but are still much lower compared to the figures registered in 2007, ranging from 7.2% to 10%.

    Yields data from real estate company Magic Bricks paint the same picture:

    City Rental Yield
    Delhi 2.76%
    Mumbai 2.55%
    Bengaluru 3.68%
    Pune 2.79%
    Chennai 3.16%
    Kolkata 3.86%
    Hyderabad 3.71%
    Source: Magic Bricks

    As Ambit Capital notes, if the Indian real estate market was correctly priced, the rental yield should tend to be somewhere close to the cost of borrowing. Instead, Mumbai, for example, has a rental yield of around 2%, while the lending rate is around 10%.

    RBI cuts interest rate by 25 bps

    The Reserve Bank of India (RBI) cut its policy interest rate by 25 basis points to 6.5% in April 2016, in line with the reduction expected by economists after inflation slowed to 5.18% in February. Interest rates are now at the lowest level since 2011.

    India interest rates

    India´s central bank governor Raghuram Rajan has said that the bank´s monetary policy stance will remain “accommodative”, raising the prospect of another cut later this year.

    Since January 2015, the central bank has reduced its policy rate by 125 basis points. Butwhile the cuts have helped improve sentiment, banks have been very reluctant to lower rates for borrowers, complaining of tight cash conditions.

    To make policy rate cuts more effective, the RBI has taken steps to increase liquidity by:

    reducing banks’ reserve requirements raising the reverse repo rate – the rates lenders charge to the central bank pledging to inject more long-term liquidity over the next 12 months

    The RBI had also invoked new rules forcing commercial banks to set lending rates in accordance with those of the RBI.

    Is Indian economy the world´s fastest-growing, or are the numbers wrong? India GDP inflation

    The Indian economy expanded by 7.3% during FY 2014-2015, according to the Statistical Office - the fastest rate of economic growth in the world, coming just as the Chinese economy is losing steam, with its annual growth slipping to 6.8%. The same organization forecasts growth of between 7-7.5% for India in 2016-17.

    However not everyone is convinced. The figures, which are based on a new methodology, raised eyebrows from several institutions including the Reserve Bank of India. The new methodology instantly raised India’s GDP growth from 4.7% to 6.9% for FY 2013-2014, according to Arvind Subramanian, chief economic advisor to the government of India.

    “Some observers feel the figure is inflated, and that sectors like IT are booming while core fundamentals like agriculture and industrial manufacturing aren’t performing as well: In other words, India´s economy may look better on paper than it feels to a lot of Indian citizens,” said Jonah Blank, senior political scientist at the RAND Corp.

    The Reserve Bank of India is now attempting to get a more accurate picture of the health of the economy through hybrid models that mix elements of the old and new GDP methods.

    The Statistical Office, however, assures the fitness of its data. “You have to understand the new GDP data essentially captures efficiency, says Ashish Kumar, former head of the CSO. 'Comparing it with volume-based indicators would be a mistake.”

    Indian mortgage market growing

    Given the boom of the past few years, the rapid growth of India’s mortgage market is no surprise.  The combined portfolios of banks and specialized housing finance companies catering to the housing market have increased 20% CAGR over the last decade. Banks’ have made USD 142 billion of real estate loans, according to Ambit Capital.  Housing Finance Companies have an exposure of USD 68 billion to the real estate sector.

    Total housing loans in India amount to around INR12 trillion (USD 180 billion), slightly less than 10% of GDP. This is still small compared to, for instance, China’s at 20% of GDP, the UK’s at 88% and US’s at 81%.

    How fast was expansion last year?  Reliable data on home loans is unavailable. However, according to Housing Development Finance Corporation (HDFC), India´s largest mortgage company, made INR 130 billion (USD 2 billion) of loans in 2015, up from the INR 86 billion (USD 1.3 billion) worth of loans in 2014 and INR 33 billion (USD 500 million) in 2013.

    Regional Markets

    India’s property market can be divided into three segments:

    Delhi-NCR and Mumbai, most affected by oversupply; Bangalore and Pune, where sales are lagging but healthier; Tier-II or small cities and towns, which are mixed.

    The Delhi-NCR property market is now struggling in the midst of an inventory overhang. The investors who used to dominate the market have started to flee, with some entering a “distressed resale” mode, offering a 15-20% discount on the primary market price. Around 48,800 units were sold in NCR in 2015, a surprisingly small improvement over 2014, according to Knight Frank

    “NCR has certain systemic issues because the market is built on speculative ground and the basic financial and execution discipline required by a developer is absent. The only trigger that will get NCR back on its feet is execution and delivery,” said Jasmeet Chhabria, managing partner at ARGIL Advisors LLP, an affiliate of Religare Global Asset Management.

    Developers have been restricting new launches, which stood at only 63,460 units in 2015, down 20% y-o-y and the lowest figure since 2010.

    No new major projects are being launched in the city except for a few redevelopments, according to Colliers. Ongoing projects expected to come online by end-2016 to end-2017 include:

    DLF Ltd.’s DLF Kings Court in Greater Kailash at INR 40,000 (USD 602) per sq.ft. Aarone Group’s Botanica in Neeti Bagh at INR 35,555 (USD 535) per sq.ft. Parsvnath Developers’ Parsvnath Paramount in Ashok Nagar at INR 18,000 (USD 271) per sq.ft.; and Parsvnath La Tropicana in Civil Lines at INR 17,000 (USD 256) per sq.ft. Mumbai

    The picture is not any better in Mumbai, with new launches dropping by 23% to 20,776 units in the second half of 2015 compared to the same period in 2014 – the lowest H2 figure since the financial crisis, according to Knight Frank. Builders have put new projects on hold while trying to rid of old inventory.

    “It s a tough market. Even though builders may not be giving discounts openly, behind closed doors, negotiations are on,” said Colliers India director Arvind Kapoor.

    Despite the festive season, sales in Mumbai have fallen 6% y-o-y to 34,135 units in the last six months of 2015, according to Knight Frank.

    Projects expected by Colliers to be completed by 2017-2019:

    Kanakia Spaces’ K-14 project in Bandra West at INR 65,000 (USD 978) per sq.ft.; and Kanakia Paris in BKC Annexe at INR 23,500 (USD 353) per sq.ft. Rustomjee’s Seasons in BKC Annexe at INR 27,300 (USD 411) per sq.ft. Radius’ Project Bandra in BKC Annexe at INR 26,900 (USD 405) per sq.ft. Ahuja Group’s Altis in Worli at INR 24,000 (USD 361) per sq.ft. Bangalore(Bengaluru)

    Interest from the developer community seems to be shifting away from the major cities of Mumbai and Delhi, to cities like Bangalore. Bangalore´s rise is due to the e-commerce boom and the IT sector, and the city is still relatively affordable. Although new launches in Bangalore fell by 26% y-o-y in H2 2015 to 24,190 units, they were 16% higher than in Mumbai, according to Knight Frank.  Sales were up by 25% compared to H1 2015.

    “With 31% of overall India launches in April-June, Bengaluru has left the NCR (25%) behind for the first time in recent history,” says Anuj Puri, Chairman & Country Head, Jones Lang LaSalle (JLL) India.

    Ongoing projects coming online in Bengaluru between end-2016 and 2019, according to Colliers:

    L&T Realty’s Raintree Boulevard in Sahakar Nagar at INR 6,900 (USD 104) per sq.ft. Sobha Developers’ Sobha Forest View in Lingadheeranahalli at INR 6,109-6,950 (USD 92-105) per sq.ft. Brigade Properties’ Golden Triangle in Budigere Cross at INR 5,400 (USD 81) per sq.ft. Prestige Developers’ Lakeside Habitat in Varthur at INR 5,220 (USD 79) per sq.ft. Godrej Properties’ Godrej E City in Electronic City at INR 4,450 (USD 67) per sq.ft. Pune

    Its proximity to Mumbai and its affordability encourage growth in the Pune area. Both new launches and sales rose in the second half of 2015, according to Knight Frank. A total of 18,135 units were launched in H2 2015, up 9% compared to H2 2014; while 20,740 units were sold in the same period, up 3% compared to a year ago.

    “Pune is the only city that has shown double digit price appreciation in the last two years,” says Ashutosh Limaye, Head of Research & Real Estate Intelligence Services, JLL India.

    Projects set for completion between 2016 and 2018 include:

    Supreme Universal’s Supreme Estaban in Koregaon Park at INR 16,200 (USD 244) per sq.ft.; and Supreme Amadore in Baner at INR 9,000 (USD 135) per sq.ft. Kool Homes’ Blue Lotus 2 in Sopan Baug at INR 9,500 (USD 143) per sq.ft. Kolte Patil’s K P Heights in Kothrud at INR 9,000 (USD 135) per sq.ft. Naiknavere Group’s Eminence in Viman Nagar at INR 8,900 (USD 134) per sq.ft. Hyderabad

    Sentiment in Hyderabad’s residential market nosedived during 2010-2014, in advance of the bifurcation of Andhra Pradesh. However the city is getting renewed attention. In the second half of 2015, 5,740 units were launched, up 11% compared to the same period in 2014, according to Knight Frank. Unsold inventory shrunk to 31,480 units, the lowest since 2010. Cushman & Wakefield expects 45,000 residential launches in Hyderabad over the next two years.

    “All the negative factors are behind us and buyers are now more confident about acquiring property in the Hyderabad market,” says C Shekar Reddy, president of Credai.

    Developers are also optimistic about the launch of the metro rail project.  Demand is expected to exceed supply in the INR 3,000-4,000 (USD 45-60) per sq.ft. property segment, most of which lies along the metro rail corridor, according to Reddy.


    Ahmedabad, the largest city and former capital of Gujarat in Western India, has been unable to sustain buyer momentum, despite the Gujarat International Finance Tec-City (GIFT) and the Delhi-Mumbai industrial corridor.

    Sales volumes has been heading down since the first half of 2013. In 2015, only 16,800 units were sold, 9% down on to2014 and the lowest volume in 6 years, according to Knight Frank. New launches, however, rose 11% in 2015 to 15,500 units – creating additional oversupply.


    Both the primary and secondary markets of Chennai, another significant beneficiary of e-commerce investment, have been resilient. Sales declined 15% y-o-y in H2 2015 to 8,792 units; but the market’s health has been improving, according to Knight Frank. Unsold inventory has been inching down since the beginning of 2015. Interest in micro markets such as Velachery, Sholinganallur and Mount-Poonamallee High Road (MPR) has risen despite recent floods, according to Colliers.

    Notable ongoing projects that should finish by Q1 2016-Q4 2018 include:

    Ozone Developers’ Ozone Metrozone in Anna Nagar at INR 10,990-15,990 (USD 165-240) per sq.ft. Olympia Group’s Olympia Opaline Sequel in Navalur at INR 4,700 (USD 71) per sq.ft. BSCPL’s Bollineni Hillside in Perumbakkam at INR 4,100 (USD 62) per sq.ft. Mahindra Lifespaces’ Aqualily in Singaperumal Koil at INR 3,850 (USD 58) per sq.ft. Pacifica Companies’ Aurum in Padur at INR 3,670 (USD 55) per sq.ft. An activist government with a social agenda for real estate

    Prime Minister Narendra Modi’s government has been extremely active since taking office in 2014 in pushing policies to develop the housing market, reduce housing shortages for the poor, and promote affordability.

    Housing for All

    The Modi government has launched a massive set of schemes under the umbrella title 'Housing for All by Year 2022'. The government has identified 305 cities and towns in 9 states for beginning construction of houses for urban poor by means of public-private-partnership (PPP) and interest subsidies, on which it intends to spend US$30 billion over the next six years. It will lower developers´ borrowing costs and increase homebuyer loan limits for affordable housing from INR 2.5 million (USD 38,000) to INR 6.5 million (USD 98,000) in metropolitan cities and to INR 5 million (USD 76,000) in other cities.

    Smart Cities

    The “Smart Cities” initiative was launched two months after Modi took office, and was allocated INR 70 billion (USD 1.05 billion) in the recent budget. The project aims to create large-scale urban areas that can attract investment and provide high quality living standards. The government aims to identify 100 cities for potential development by 2017. Each city will receive a INR 1 billion (USD 20 million) grant per year over a five-year period, according to JLL India.

    Real Estate and Infrastructure Investment Trusts (REITs)

    First proposed in 2008, REITs were only permitted in India in 2014. It is expected that the country´s first REIT will be launched in the first half of 2016, with large organizations such as DLF, Blackstone and Brookfield already expressing interest. The REIT industry has the potential to reach a market capitalization of USD15 billion in three years, according to JLL India.

    Real Estate (Regulation and Development) Bill

    First proposed in 2013, the bill aims to establish a regulatory authority to protect buyers, provide a platform to settle disputes, and impose strict penalties on developers for non-compliance with project registration and disclosure of wrong or misleading information. Moody’s believes the bill will lead to increased consumer confidence, transparency and industry discipline.

    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 accelerating in Australia

    Australia annual house pricesAustralia’s housing market continues to rise, amidst modest economic growth. House prices rose by 11.4% in Australia´s eight major cities during the year to end-Q3 2015 (9.72% inflation-adjusted), up from an annual rise of 9.23% in a year earlier and the highest y-o-y increase since Q2 2010, based on figures from the Australian Bureau of Statistics (ABS). House prices increased 2.17% (1.71% inflation-adjusted) quarter-on-quarter in Q3 2015.

    Sydney saw the biggest increase, with residential property prices surging by 19.9% (18.1% inflation-adjusted) during the year to Q3 2015, followed by Melbourne (9.9%), Canberra (4%), Brisbane (3.8%), Adelaide (3.5%), and Hobart (1.7%). On the other hand, residential property prices dropped in Perth (-3.3%) and Darwin (-2%) over the same period.

    The mean price of residential dwellings in Australia was AU$612,200 (US$429,734) in September 2015, up 10.2% from the same period last year, according to the ABS.

    New South Wales, especially Sydney, has the most expensive housing in the country, with the mean house price at AU$780,900 (US$548,152) in Q3 2015, about 30% above the national mean house price. In contrast, Tasmania has the cheapest housing in Australia, at a mean price of AU$321,100 (US$225,396) over the same period.

    Some critics believe that Australia´s housing market remains severely overvalued.

    The Economist estimated that Australian house prices are overvalued by more than 30% as of Q3 2015. According to the Global Real Estate Bubble Index published by investment bank UBS, Sydney house prices are significantly overvalued and at risk of falling in the future. Based on the report, Sydney house prices had increased by about 30% since 2012 while income and rents had stagnated over the same period. According to the International Monetary Fund (IMF), housing market risks in Australia remain heightened, especially in Sydney, mainly due to investor credit and interest only loans. House prices are estimated to be moderately overvalued by about 10%. 

    Yet demand remains strong. In October 2015, seasonally-adjusted purchases of established dwellings rose by 8.4% to 46,868 units from the same period last year, according to ABS. In fact, the value of established dwelling purchases soared by 23.7% to almost AU$18.11 billion (US$12.71 billion) over the same period. Likewise, seasonally-adjusted purchases of new dwellings increased 8.9% y-o-y to 2,953 units while the value of new dwelling purchases soared by 32.4% to almost AU$1.25 billion (US$0.88 billion) over the same period.

    The continued strength of the housing market is somewhat surprising, since Australia´s economy is estimated to have grown by a modest 2.4% in 2015, after GDP growth of 2.7% in 2014, 2.1% in 2013, 3.6% in 2012, 2.7% in 2011, 2.3% in 2010 and 1.6% 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%, after cutting it by 25 basis points each in February and in May 2015. The other factor is increased purchases of residential real estate by foreign nationals, especially Chinese, who continue to find Australian property very attractive. Proposed foreign investment in the country’s residential real estate market surged to AU$34.7 billion (US$24.36 billion) in 2013-14, up from AU$17 billion (US$11.93 billion) in the previous year, according to the Foreign Investment Review Board (FIRB). China topped the list of real estate approvals, with AU$12.4 billion (US$8.7 billion), twice that of the United States.

    Acquisition of residential real estate by foreign nationals and corporations is subject to FIRB approval. Foreigners are not allowed to buy an established (previously occupied) house. They may buy an unoccupied new dwelling, but only if the FIRB feels that the purchase will not add to the shortage of properties available to native Australians.

    Australia’s housing boom; crash avoided Australia price 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 affordability continues to deteriorate Australia building approval

    Australia, specially its five major metropolitan areas, remains “severely unaffordable” in 2015. Among the nine developed nations covered by the 12th Annual Demographia International Housing Affordability Survey, Australia was ranked third most unaffordable major housing market in 2015.

    The survey uses the Median Multiple to assess housing affordability in 367 metropolitan markets in Australia, Canada, China (Hong Kong), Ireland, Japan, Singapore, New Zealand, the United Kingdom, and the United States. The Median Multiple follows this formula: Median Multiple = median house prices / median household income.

    Aside from Sydney, Australia’s least affordable housing markets in 2015 included Melbourne with a Median Multiple of 9.7, followed by Perth (6.6), Adelaide (6.4), and Brisbane (6.1).

    Of the 51 Australian markets surveyed in 2015, 33 were rated “severely unaffordable” (Median Multiple of 5.1 and above), 12 were “seriously unaffordable” (Median Multiple between 4.1 and 5.0), 4 was rated moderately affordable (3.1-4.0), and 2 markets evaluated as affordable (3.0 & under).

    Among the 367 major markets, Sydney was ranked second most unaffordable. In fact, housing affordability in Sydney deteriorated by about 24% in 2015 from the previous year, the largest change ever recorded in the historu of the Demographia Survey. Outside the major markets, the Tweed Heads (Queensland), is the most severely unaffordable market, with a Median Multiple of 9.3.

    This was supported by the UBS Global Real Estate Bubble Index, ranking Sydney as the third most vulnerable market in th world to real estate bubble risk.

    The severe housing unaffordability in the country, especially in Sydney, was mainly due to the urban consolidation in Australia during the period, which severely limit or even prohibit new housing construction on or beyond the urban fringe.

    Rental yields down, rents rising slightly Australia exchange rate

    Rental yields in Australia have hit historic lows, amidst strong house price increases. Sydney saw the biggest decline in rental yields, falling to 3.3% in September 2015 from 3.8% in the same period last year, according to CoreLogic RP Data Rentral Report. Likewise, yields in Melbourne dropped to 3% from 3.4% over the same period. On the other hand, Canberra yields remained steady at 4.1% in September 2015 while Darwin had a robust rental yield of 5.9%.

    Our own yields research for Australia is now rather old (Global Property Guide Research of August 2014). During the period, the gross rental yield for apartments in Sydney, i.e., the gross return on investment in an apartment if fully rented out, ranged widely, from 2.8% to 5.0%. Small apartments earn significantly higher rental returns than big apartments.

    'Gross rental yields at record lows and affordability constraints are acting as a further disincentive, particularly in Sydney where the median unit price is equal to, or higher, than the median house price in every other capital city,' said Tim Lawless of CoreLogic RP Data.

    During the third quarter of 2015, the average rent in Australia’s major cities rose by a meagre 0.5%, according to CoreLogic. Darwin suffered the largest annual decline in rental rates of 11.4% in Q3 2015, which was followed by Perth (-5.8%). On the other hand, Melbourne and Sydney saw the biggest annual rental growth in Q3 2015, at 2.1% and 1.9% respectively. Minimal annual rent increases were also seen in Hobart (1.5%), Canberrra (1%), Brisbane (0.5%), and Adelaide (0.1%).

    “A lot of investors are looking at capital growth potential, rather than rental returns,” said Cameron Kusher of CoreLogic. “That can be successful when properties are climbing, but over the long term, you need some sort of rental return. A lot of properties in Sydney and Melbourne especially don’t currently have that potential.”

    Key interest rate on hold Australia interest rates

    The Reserve Bank of Australia (RBA) kept the official cash rate unchanged at a record low of 2% in December 2015, after cutting it in February and May 2015, in an effort to support borrowing and spending amidst a slowdown in the mining sector.

    “Monetary policy needs to be accommodative,” said the RBA. “Low interest rates are acting to support borrowing and spending. While the recent changes to some lending rates for housing will reduce this support slightly, overall conditions are still quite accommodative.”

    As a result, interest rates for housing loans were also at their historic lows:

    The average standard variable interest rate for housing loans was 5.65% in December 2015, unchanged from the previous month but down from 5.95% in a year earlier. The average discounted variable interest rate for housing loans stood at 4.85% in December 2015, unchanged from the previous month but down from 5.1% in a year ago. The three-year fixed interest rate for housing loans stood at 4.45% over the same period, unchanged from the previous month but down from 5.1% in a year ago.

    “Growth in lending to investors in the housing market has eased. Supervisory measures are helping to contain risks that may arise from the housing market,” said the central bank.

    Mortgage market continues to grow

    The Australian mortgage market has grown from around 15% of GDP in the 1970s, to 58% of GDP in 2002 and finally to around 95% last year, thanks to low interest rates.

    Australia mortgage loans

    In the third quarter of 2015, the total residential housing loans outstanding in the country rose by around 8% y-o-y to more than AU$1.55 trillion (US$1.09 trillion), based on figures from the Reserve Bank of Australia.

    Housing loans for both investors and owner-occupiers increased. During the third quarter of 2015, housing loans for owner-occupiers stood at AU$911.75 billion (US$640 billion), up by 10% from the same period last year. Likewise, housing loans for investors also increased by 4% to AU$526.08 billion (US$369.28 billion) over the same period.

    Residential construction declining

    Residential construction activity is falling. In October 2015, construction of dwellings in the country also fell both in number and in value, by 12.4% and 7.9%, respectively.

    In September 2015, the total number of dwelling starts fell by 3.11% to 52,340 units from a year earlier, according to the Housing Industry Association (HIA). Western Australia registered the biggest drop in housing starts of 20.6% y-o-y in September 2015, followed by Northern Territory (-17.2%), Victoria (-5.5%), Queensland (-4.4%), and South Australia (-2.3%). In contrast, the Australian Capital Territory’s construction sector saw the biggest annual increase in dwelling starts of 15.2% in September 2015, followed by New South Wales (9.8%) and Tasmania (9.8%).

    Australia housing starts

    Moreover, housing starts in Australia is expected to fall by 12% to 186,080 units in 2016 from the previous year, according to the HIA.

    The decline in housing construction is expected to exacerbate the shortage of affordable housing in the country, which could drive those at the bottom of the market to become renters instead of buying, and struggle 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 extended impact of the global credit crunch, some developers continue to struggle to secure finance.

    The value of dwelling stock owned by households in the country rose by 12.2% y-o-y to AU$5.56 trillion (US$3.94 trillion) in September 2015, according to the ABS. New South Wales accounted for the biggest share of the total dwelling stock at about 40%, followed by Victoria (26.5%), Queensland (15.4%), and Western Australia (9.9%).

    Over the same period, the number of residential dwellings in Australia stood at around 9.57 million, up by 1.7% from a year earlier.

    Economic growth remains modest, exports improving Australia gdp inflation

    In the third quarter of 2015, Australia’s economic growth accelerated to 2.5% from a year earlier, up from annual growth rates of 1.9% in Q2 2015, 2.1% in Q1 2015, and 2.2% in Q4 2014, fuelled by the biggest increase in exports since 2000 and supported by the central bank’s decision to keep its key rates steady, based on figures from the Reserve Bank of Australia (RBA).

    Economic growth was estimated at around 2.4% last year, from an average annual growth of 3% from 2000 to 2014, according to the International Monetary Fund (IMF).

    The RBA kept the target cash rate at 2% in December 2015, after a cutting it by 25 basis points in May 2015, in an effort to buoy the domestic economy amidst an economic slowdown in China, Australia’s largest trading partner.

    The Australian dollar (AUD) depreciated by about 11% from AUD1 = USD0.8202 in December 2014 to AUD1 = USD0.7306 in December 2015.

    Australia’s export industry is now improving. In Q3 2015, the country’s current account deficit narrowed to about AU$18,104 million (US$12,826 million), down from a deficit of AU$20,506 million (US$14,528 million) in the previous quarter, according to the ABS. Despite this, demand from China remains unstable.

    In December 2015, the nationwide unemployment rate dropped to 5.8%, unchanged from the previous month and down from 6.1% in the same period last year, according to the ABS. There were about 727,500 unemployed persons in Australia in December 2015, down by 3.6% from a year earlier.

    Consumer prices rose by 1.7% in Q4 2015 from a year earlier, slightly up from 1.5% in the previous quarter, but unchanged from a year ago, amidst falling petrol prices. Australia’s nationwide inflation rate averaged 3.1% during 2008-2011 before declining to 2.2% during 2012-2014.

    Japan: despite a weak economy and a shrinking population, Abenomics is pushing house prices up

    Japan house prices graphWhat´s affectionately known as “Abenomics” - i.e., the reflationary policies of Prime Minister Shinzo Abe, who came to power in December 2012 - includes stimulating the economy by increasing public infrastructure spending, devaluing the yen and aggressive quantitative easing by the Bank of Japan (BOJ).

    It´s working - and it is not working.

    For house-owners the news is good: housing demand is robust. House prices are rising rapidly.  Residential construction activity is recovering.

    The news for the economy is less good. 

    The Japanese economy contracted by an annualized 1.6% in Q2 2015, in contrast with an expansion of 4.5% the previous quarter. The economy shrank by 0.06% last year but is expected to return to growth this year with real GDP growth of 1.04%. 

    The Japanese yen has fallen an amazing 38% from January 2013 to August 2015, to JPY123 = US$1 today, mainly due to Abe’s policies.  Still, the economy is not moving. Hardly a big success.

    But the effects of Abenomics on house prices have been significant.

    In Tokyo Metropolitan Area:

    Existing condominium units´ average prices rose by 6.6% to JPY453,000 (US$3,762) per sq. m. during the year to June 2015, according to the Land Institute of Japan (LIJ). New condominium units´ average prices skyrocketed by 21.4% y-o-y to JPY829,000 (US$6,885) per square metre (sq. m.) y-o-y to June 2015. Existing detached houses prices rose 1.3% to JPY32,470,000 (US$269,655) over the same period.

    In Osaka Metropolitan Area:

    Existing condominium units´ average prices increased by 9.3% to JPY282,000 (US$2,342) per sq. m. during the year to June 2015. New condominium units dropped slightly by 0.4% to JPY551,000 (US$4,576) per sq. m. over the same period. Existing detached house prices were up by 4.7% to JPY20,720,000 (US$172,074) over the same period.

    Surprisingly, land prices are still falling. During the year to June 2015, average land prices in Tokyo Metropolitan Area fell by 1.5% to JPY193,000 (US$1,603) per sq. m., while in Osaka Metropolitan Area land prices dropped by 3.8% to JPY125,000 (US$1,038) per sq. m., according to the LIJ.

    House prices are expected to continue rising for the remaining months of 2015, given an additional Abenomics stimulus in the second half. Moreover, Tokyo’s successful bid to host the 2020 Summer Olympics should boost property demand and construction over the next 7 years.

    Residential property sales increasing - a little

    During the first half of 2015:

    In Tokyo, the number of existing condos sold rose slightly by 0.75% to 18,460 units from the same period last year, according to LIJ. Existing detached house sales increased more strongly, by 5.3% y-o-y to 8,802 units. In Osaka, existing condos sold rose by 5.3% y-o-y to 9,010 units in H1 2015, while existing detached houses sales rose by 10.9% to 6,383 units.
    Japan housing starts

    Land sales are also increasing. In Tokyo, lots sold increased 4% to 5,098 units in the first six months of 2015 from the same period last year. In Osaka, land sales surged by 16% to 1,199 units.

    Housing supply recovering - slowly Japan new dwellings

    After declining last year, housing starts are recovering. Authorized housing starts rose by 7.4% to 78,263 units y-o-y to July 2015, according to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT). In 2014, housing starts fell by 10.8% to 880,470 units.

    Last year was particularly bad in Tokyo Metropolitan Area, with new condominiums entering the market falling 20.5% to 44,913 units, according to LIJ. Likewise in Osaka Metropolitan Area, new condos entering the market dropped 23.8% to just 18,814 units.

    During the first half of 2015, the number of new condos put into the market fell by 7% y-o-y to 18,036 units in Tokyo, while it increased 16% in Osaka, to 10,102 units.

    Japan’s shrinking population is a major problem.

    It is estimated that Japan will lose a third of its population in the next 50 years. In addition, about 40% of the population will be over 65 years old by 2060.  During 2014, the country’s total population dropped by a record 271,058 people to about 126.16 million, as births fell and deaths rose.  

    The shrinking population is already producing an increasing surplus of housing units. There are many sightings of abandoned homes in Tokyo.  

    As of 2013, there were already an estimated 8.2 million unoccupied homes in the country, representing a record 13.5% of all residences.   

    “Based on our projections, the size of the annual decline will keep getting bigger before peaking somewhere between 2060 and 2070,” said Futoshi Ishii of the National Institute of Population and Social Security Research. The pace of decline is expected to reach more than 700,000 annually by 2025 and about 1 million by 2060. 

    However, the declining household size may mitigate the situation.  The average household size is projected to decline to 2.37 by 2025, from 2.67 in 2000, and 5.0 in 1950, according to the Ministry of Internal Affairs and Communication. More Japanese are living alone and fewer are living in multiple-generation households, increasing the demand for quality housing.

    The government has introduced measures to stop the population shrinking:

    Childcare provision was boosted by the Act on Child and Childcare Support of August 2012. The Comprehensive Support System for Children and Child-rearing, introduced in April 2015, will promote early childhood school education, childcare and child-rearing support services in local communities. The government is expected to approve enhanced support for families with three or more children. Local governments are being encouraged to offer speed dating and other forms of matchmaking, and to support marriage, child-bearing and child-rearing. The government is expanding free nursery care. The government also plans to establish fertility treatment counselling centres in major cities. Low yields, stable rents Japan tokyo price

    Rental yields in Tokyo central districts range from 3.7% to 4.1%, based on Global Property Guide research conducted in April 2015.

    Yields are a little higher on smaller apartments, at 4.11%. Not great, though not untypical for a city like Tokyo.

    Rents are stable. In 2014, the nationwide apartment rent index was unchanged from a year ago, based on figures from the Japan Real Estate Institute.

    In the country’s metro areas:

    In Tokyo Metropolitan Area, apartment rents increased 0.2% y-o-y in 2014. In Osaka Metropolitan Area, apartment rents dropped 0.2% y-o-y in 2014. In Nagoya Metropolitan Area, apartment rents were unchanged over the same period. Interest rates are “virtually zero” Japan interest rate

    The BOJ’s key interest rate has been “virtually zero” (0% - 0.1%) since October 2010, and below 1% since mid-1990s. As a result, bank variable interest rates in Japan have hardly moved since 2000, remaining below 3%.

    Five of the country’s major banks reduced their fixed mortgage rates in September 2015. The Bank of Tokyo-Mitsubishi UFJ (MUFJ), Sumitomo Mitsui Banking Corporation (SMBC), and Mizuho Bank reduced interest rates for a 10-year fixed mortgage loan to 1.20%. Sumitomo Mitsui Trust Bank reduced its 10-year rate to 0.85%, while Resona Bank reduced it to 1.15%.

    Housing loans are rising. New housing loans to households from domestically-licensed banks rose by 10% from the previous year in Q2 2015,, while total outstanding housing loans increased 2%, according to the Bank of Japan (BOJ).

    Yet the amount of housing loans is much lower than in other developed countries. This can be partly attributed to Japan’s prolonged economic woes. The ratio of outstanding home loans to GDP in Japan stood at around 37.6% in 2014, slightly up from 36% in 2006.

    The 'lost decade' and after Japan residential urban land price index

    The economic benefits of Abenomics for the Japanese economy are still in doubt.

    Slow growth is the reason that Abenomics was adopted.  Japan has not yet fully recovered 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 Japan´s banks with bad loans of almost USD 1 trillion, contributing to Japan’s ‘lost decade’.

    In fact, Japan’s land prices have continued to fall.  In March 2015, residential land prices dropped 0.7% from a year earlier, according to Japan Real Estate Institute. In the past 15 years, residential land prices in Japan fell more than 40%, and by 23% in the six major cities.

    Japan gdp inflation

    The picture in the wider economy is not so positive either.

    After the ´lost decade´ after the 1990´s, 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 Japanese economy bounced back in 2010 with 4.7% growth. Then in 2011 GDP shrank by 0.5% due to the Great Tohoku Earthquake (magnitude 9.0), and China´s economic slowdown. Anti-Japanese feeling sparked by the Diaoyu/Senkaku Islands dispute didn´t help.  Japan´s economy grew by a modest 1.8% in 2012 and by another 1.6% in 2013.

    The recent poor economic performance of Japan is a major blow for Prime Minister Shinzo Abe growth plan. 'Abenomics” includes 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

    Japan faces a long-term growth slowdown.   It is not obvious that Abenomics is the cure.

    The economy shrank by 0.06% in 2014, but is expected to return to growth with GDP growth of 1.04% in 2015, according to the International Monetary Fund (IMF).

    The situation has not been eased by a sales tax increase from 5% to 8% in April 1, 2014. The sales tax is expected to rise again to 10% in October.

    Scary numbers: huge trade deficit, record public debt

    It was the worst result since records began in 1979: Japan’s trade deficit rose 11.4% in 2014 to a record JPY12.78 trillion (US$109 billion), weighed down by post-Fukushima energy bills.

    Japan government gross debt

    Japan’s trade deficit has since narrowed, thanks to lower oil imports and stronger exports to the U.S.   In August 2015, the value of exports increased 3.1% from a year earlier, to JPY5.9 trillion (US$48.7 billion) while imports fell 3.1% to JPY6.5 trillion (US$53.4 billion).

    'However the deficit is likely to widen in the latter half of this fiscal year,” said Shunsuke Kobayashi of Daiwa Institute of Research. The cause?  Weakening corporate demand for Japanese products in the U.S.
    Japan had a public debt equivalent to about 230% of GDP in 2014 - the worst among major industrialized countries. In 2014, the country’s central government debt topped JPY1,200 trillion (US$10 trillion) for the first time in its history.

    Despite Abenomics, inflation is falling Japan exchange rate

    Abenomics was intended to stimulate the economy, partly by generating inflation.  Yet Japan’s core inflation fell 0.1% in August 2015 from a year ago, the first decline since April 2013.

    Because of this, the Bank of Japan is expected to step up its pace of monetary easing this October to meet its inflation target of 2%.

    However Abe was re-elected unopposed as head of the ruling Liberal Democratic Party (LDP) in September 20, 2015. His new term will run until September 30, 2018.
    Abe is not giving up.  He recently declared a new stage for his economic growth plan, with a focus on fuelling the economy and population growth, and improving social security.

    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. 


    Another East European sizzler - Romania’s housing market is heating up strongly, despite the political crisis

    Romania house pricesRomania has a long history of corruption and of protests against corruption, and Prime Minister Victor Ponta, who himself faces trial for corruption, has just resigned after some 20,000 people took to the streets in protest against a Bucharest nightclub fire.  But is this "same old, same old"? 

    Maybe not.  The fresh face in national politics is president Klaus Iohannis, elected in November 2014.  Previously mayor of Sibiu, he turned it into one of Romania´s most popular tourist destinations. His popular appeal is as outsider to the country´s corrupt and warring political elite, although he briefly became president of the National Liberal Party during June-December 2014.  Highly critical of Ponta, he is vocal about the need to curb Romania´s endemic corruption.

    “In my opinion, it is much more than a mere government change," said Iohannis of Ponta´s resignation.  "I believe we are talking about a paradigm change in the Romanian politics and I believe it is good..."

    Many good things happening at the same time

    This potential sea-change in politics has coincided, largely by chance, with an economic upturn.

    The Romanian economy is expected to grow 3.4% this year and by 3.9% in 2016, according to the IMF. Romania’s economy grew by 2.8% last year, after GDP growth of 3.4% in 2013.

    “Romania is one of the CEE countries with the most notable growth rate in investment volumes and evidence of a shift in investor sentiment towards the country,” said Damian Harrington of Colliers International, Eastern Europe.

    Romania’s housing market is growing strongly, with low interest rates and improving economic conditions. House prices are rising robustly. Demand is picking up. Residential construction activity is improving.

    All the country´s major cities saw an increase in house prices during the year to end-Q3 2015:

    In Bucharest, the capital, the average selling price of apartments rose by 3% to €1,086 per sq. m. In Cluj-Napoca, Romania’s second most populous city, apartment price soared by 12.4% to an average of €1,124 per sq. m. In Timisoara, the average selling price of apartments surged by 10.8% to €923 per sq. m. In Brasov, the average selling price of apartments rose by 2.5%, to an average of €861 per sq. m. In Constanta, the country’s oldest city, apartment prices rose by 7.2% to an average of €907 per sq. m.

    Cluj-Napoca´s double-digit house price increases are due to strong demand from working residents, expatriates, and students. The city is becoming Romania´s manufacturing and economic hub, and is home to the country’s largest university.

    The average national selling price of apartments increased by 5.7% during the year to end-Q3 2015, to €964 per square meter (sq. m.), the highest increase in almost a decade, based on figures released by real estate firm On a quarterly basis, house prices rose by 3.2% in Q3 2015.

    There are no restrictions on foreign nationals acquiring dwellings in Romania.  Ownership of land is tricky, but companies incorporated in Romania as well as resident foreign nationals and non-resident EU citizens can acquire land.

    Residential transactions quadrupled last year!

    Demand is rising fast. The value of real estate transactions almost quadrupled in 2014 to €1.2 billion from the previous year, according to PwC Romania, while the country´s largest bank, Banca Comercială Română (BCR), tripled its real estate loans.

    Volumes of new apartment transactions in Bucharest increased 25% in 2014, the highest level since the global crisis, according to Colliers International.

    “The low segment attracted the highest share of demand,” said Colliers International. "However, the middle segment witnessed an increasing number of closed deals in 2014, indicating a higher interest for buyers for such products."

    Land deals are also recovering. “2014 was the first post crisis year when large residential land deals were closed in Bucharest,” Colliers added.  Major residential land transactions in Bucharest in 2014 include the 13.8 hectares of lot bought by Metropolitan Residence in Bucuresti Policolor for €18 million, and the 2.6 hectares of residential lot bought by Impact in Bucuresti B Vacarescu for €9 million.

    Romania´s great housing market collapse

    Romania´s economy grew robustly from 2001 to 2008, with an average annual real GDP growth rate of 6.5%, according to the IMF.  From 2002 to early-2007, property prices and demand rose in anticipation of EU accession, which took place in January 2007. But investors were disappointed by non-implementation of economic and political reforms which had been promised as part of EU accession conditions. Corruption remained rife, largely ignored (or tolerated) by the government.

    Then came the Euro-crisis. GDP plunged by 7.1% in 2009 and fell by another 0.8% in 2010:

    In 2009, house prices plunged by 20.62% (-24.22% inflation-adjusted) from a year earlier. In 2010, house prices fell by 15.88% (-22.08% inflation-adjusted) from a year earlier. In 2011, house prices dropped again by 4.07% (-6.99% inflation-adjusted) from the previous year. In 2012, house prices fell by 1.31% (-5.96% inflation-adjusted) from a year earlier. In 2013, house prices fell by 8.18% (-10.43% inflation-adjusted) from a year earlier. In 2014, house prices dropped 0.78% (-1.78% inflation-adjusted) from a year earlier.

    Property prices fell by more than 56% from 2008 to 2013 due to the adverse impact of the global economic downturn and the ensuing Euro-crisis.

    An explosive combination Romania interest rates

    Now economic recovery, in tandem with low interest rates, is changing everything. The National Bank of Romania (BNR) kept the policy rate unchanged for the third consecutive meeting at 1.75% in September 2015 - a record-low.

    The key rate has been cut several times since January 2014.  Average interest rates for long-term RON-denominated loans are now very low.  In September 2015:

    1 year housing loan interest rates averaged 8.64%, up from 8.32% a year ago but down from 12.06% in 2009-10. 1-5 year interest rate fixation (IRF) loans averaged 5.71%, down from 6.8% a year earlier and from an average of 13.13% in 2009-10. 5 year IRF housing loans and over averaged 3.96%, down from 5.08% a year earlier and from 10.93% in 2009-10.

    Interest rates have likewise fallen on euro-denominated housing loans, which were 61% of all housing loans outstanding in September 2015.

     1 year IRF euro housing loans averaged 5.80%, down from 5.81% the previous month but up from 4.35% a year earlier. 1 to 5 year IRF euro housing loans averaged 6.03%, down from 6.68% the previous month and 7.66% a year earlier. 5 year and over IRF euro housing loans averaged 4.32%, down from 4.39% in the previous month and 4.59% a year earlier. Small but rapidly expanding mortgage market Romania housing loans

    Romania’s mortgage market is growing rapidly. From about 3.4% of GDP in 2007, it grew to 6.75% of GDP in 2014.  From 2008 to 2014 housing loans outstanding surged by 18.3% annually.

    In September 2015, the total amount of housing loans rose by 14.3% y-o-y to RON48.77 billion (€11 billion), according to the National Bank of Romania.

    About 33% of the outstanding housing loans were RON-denominated in September 2015, sharply up from just 5.5% from 2010 to 2013. The share of euro-denominated loans fell from 84% in 2013, to 61%.

    This shift in homebuyers´s preferences is because of central bank support for local currency lending, to protect against exchange rate risk, by limiting the "First Home" programme to RON-denominated loans. "First Home" loans are almost 50% of the total outstanding housing loans.

    Rental yields are moderately good

    The gross rental yield for apartments in Bucharest ranges from 6% to 6.6%, with medium-sized apartments fetching the highest rental returns, according to research conducted by the Global Property Guide in May 2015.

    Medium-sized but well-refurbished apartments in Bucharest cost less per square metre (sq. m.) than larger apartments. A 120 sq. m. apartment costs around €1,680 per sq. m. while a 200 sq. m. apartment costs around €2,300 per sq. m. This largely explains the difference in returns.

    Rents on apartments in Bucharest range from €7.69 per sq. m. to €11.28 per sq. m. per month. One can rent a 75 sq. m. apartment for about €530 per month.

    Romania is a nation of homeowners, with a homeownership rate of over 80%. This can be partly attributed to government policies which encourage families to purchase their own houses:

    For first-time homebuyers, the government extends a state guarantee of 50% to the banks that fund up to €60,000; VAT on properties with an area of ​​up to 120 square meters is reduced to 5%.

    In 2014, Romania´s total dwelling stock increased by 12% from 2000, to about 8.84 million units, according to the NIS.

    Construction activity recovering Romania residential building permits

    Bucharest´s residential stock reached more than 26,000 units by end-2014, up 18% from a year earlier and the largest addition to the housing inventory since the global crisis, according to Colliers International.  Major projects in the capital include the Militari Residence, Cosmopolis, Confort Urban, City Point, Timisoara 58, and Onix Residence, among others.

    In 2014, the total number of residential building permits nationally fell by just 0.3% y-o-y to 37,672 units, according to the National Institute of Statistics (NIS). On the other hand, the total useful area of residential building permits rose by 4.2% y-o-y to almost 7.2 million sq. m..

    Then during the first three quarters of 2015, residential building permits rose by 5.2% from the same period last year, according to the NIS. The total useful area of residential building permits soared by 16.6% y-o-y to 6.2 million sq. m..  For an instance, Citadela Residence, a special residential complex in the city of Cluj-Napoca, has been recently launched. Real estate developer Construct Aprodex has also invested about €10 million in a housing estate in Bucharest in early-2015.

    Political tension remains, amidst anti-corruption drive

    Romania was under communist rule for almost four decades after the end of the World War II. The communist rule finally ended when Nicolae Ceausescu was executed in 1989.

    A centrist government came to power in 1996, finally ending the dominance of the ex-communists. However, political tension hindered the centrist government´s attempts at economic reform. In 2000, the left returned to power when Ion Iliescu was re-elected as president, but he also failed to initiate sufficient reforms to spur investment and fight the serious problem of corruption.

    Centrist alliance leader Traian Basescu, elected president of Romania in November 2004, vowed to speed up EU-oriented reforms. The country joined NATO in late March 2004, and joined the EU in January 2007.   Yet despite Basescu´s re-election in 2009, corruption remained a key issue.

    The economic crisis and after

    Romania suffered severely during the global financial meltdown, with real GDP contracting by 7.1% in 2009, and by another 0.8% in 2010.   Basescu´s imposition of austerity response to the crisis made conditions intolerable for many, resulting in many demonstrations and the collapse of his popularity. Real GDP grew by a meagre 1.1% in 2011.  In 2012 economic growth slowed sharply to just 0.6%.

    In 2012, the country went through three governments. Prime Minister Victor Ponta replaced Mihai-Razvan Ungureanu, who in February 2012 had succeeded Emil Boc, who was forced to resign amid violent protests at his government´s drastic public spending cuts.

    Thousands of laid-off workers took to the streets in protest against mass layoffs, and generally the country has been in ferment.

    Romania gdp inflation

    Somewhat of a cross-current to the anti-austerity demonstrations was an explosion of outrage against corruption targeting principally the beneficiaries of the anti-austerity protests, Ponta´s Social Democratic Party (PSD).  In December 2013 public outrage was caused by MPs passing a new Penal Code giving themselves exemption from prosecution, primarily pushed by Ponta´s PSD. The outrage was compounded in August 2014 by a law making it legal for MPs to switch parties ("Black Thursday").

    The power struggle between PM Ponta and President Traian Basescu, known as the "War of the Palaces", sapped foreign investors’ confidence, and boosted borrowing costs.

    In December 2014 Iohannis became president, the first ethnic German president of Romania.  Since his election there have been a series of arrests for corruption, and increased support for the National Anticorruption Directorate (DNA).  In March 2015 former Finance Minister Darius Valcov was arrested (though in June the Supreme Court ordered his release to stand trial in conditions of freedom).  In June 2015, prosecutors questioned Ponta on suspicion of forgery, tax evasion and money laundering, prompting President Iohannis to demand his resignation.  In September 2015, prosecutors formally indicted Ponta on corruption charges.

    The economic outlook is good Romania unemployment

    Romania (GDP/cap US$9,981 in 2014, population almost 20 million) is the country with the highest poverty levels in the EU. More than 30% of the population live on less than $5 per day.

    Yet there is much good news. The economy is back on track, and is expected to expand by 3.4% this year, and by another 3.9% in 2016, according to the IMF.

    The country’s budget deficit is projected to fall to 1.86% of GDP this year, from 2.2% of GDP in 2014. In September 2015, Romania’s national budget recorded a surplus of €1.3 billion (0.87% of GDP), up from a surplus of just €90 million (0.06% of GDP) in the same period last year.

    Unemployment stood at 6.8% in September 2015, unchanged over the past six months, but slightly up from 6.7% in the same period last year, according to the NIS.

    Inflation was -1.5% in September 2015. Inflation slowed sharply to about 1.45% in 2014, from 4% in 2013, 3.3% in 2012, 5.8% in 2011, and 6.1% in 2010, according to the IMF.


    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.