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%.

    India’s house prices are now falling!

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

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

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

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

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

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

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

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

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

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

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

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

    India’s housing boom era

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

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

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

    India’s rupee and inflation crisis

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

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

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

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

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

    India GDP inflation

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

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

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

    India prime lending rate

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

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

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

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

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

    Small mortgage market in India India housing loans

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

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

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

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

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

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

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

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

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

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

    From Q4 2012 to Q1 2013, according to Colliers:

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

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

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

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

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

    Stronger economic growth, rupee depreciation

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

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

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

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

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

    Modi brings hope

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

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

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

    Jamaican housing market set fair

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

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

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

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

    Big news for the economy - the Jamaican Logistics Hub

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

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

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

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

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

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

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

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

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

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

    Weak mortgage market growth Jamaica mortgage loans

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

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

    Affordability challenges caused by weak real disposable income High unemployment levels

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

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

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

    High rental yields

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

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

    Continuous economic recovery in 2014 Jamaica gdp rate

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

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

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

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

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

    Jamaica inflation rate

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

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

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

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

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

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

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

    House price rises continue in Australia

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

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

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

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

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

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

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

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

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

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

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

    Housing remains “severely unaffordable”

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

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

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

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

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

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

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

    Moderate yields, but rent hikes continue

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

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

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

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

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

    Key interest rate on hold Australia interest rates

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

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

    Mortgage market continues to grow. Australia mortgage loans

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

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

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

    Residential construction up

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

    Australia housing starts

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

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

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

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

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

    Modest economic growth, high unemployment Australia gdp inflation

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

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

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

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

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

    Japan: 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.