BY Chris Prasad
Knight Frank’s recently released Prime Asia Development Land Index report for H1 2016 has revealed that land development volumes in Asia have matched the level registered in the same period the previous year. However, performances have varied across the board, with some key markets shrinking while other emerging ones have expanded.
The index by the independent global property consultancy derives the price of prime residential
(apartment or condominium) and commercial (office) development land in 13 major cities across Asia.
Overall, it found that Prices of residential sites in the region increase at a slower pace of 1.9% in H1 2016, down from 2.8 per cent in the preceding six months. Price growth of office land, however, picked up speed to 2.2 per cent from 1.9 per cent.
With state-owned enterprises purchasing land aggressively, China saw a 6.0 per cent year-on-year increase in volumes.
According to the National Bureau of Statistics, residential prices in Beijing, Guangzhou and Shanghai surged by 15.3 per cent, 12.8 per cent and 19.5 per cent respectively in H1 2016. This has emboldened developers to bid for land aggressively.
In particular, Shanghai witnessed the average premium over reserve price in residential land auctions soar to 154 per cent in H1 2016 from 60 per cent in the corresponding period last year.
Meanwhile, given the massive upcoming supply of office space, the prices of commercial land in these cities grew at a more moderate but still robust rate.
The situation is different in India. As a result of an overhang of unsold prime housing inventory in Mumbai and New Delhi that requires an estimated four and seven years to clear respectively, Kinght Frank’s indices registered a decline in prime residential land prices.
However, pockets such as Bengaluru are beating the odds. The Silicon Valley of India topped the country in terms of office space take-up as it continues to draw firms to establish or expand their presence there, creating employment and hence housing demand.
The strong office leasing demand has also boosted the prices of prime office development sites in Bengaluru, which grew the fastest in the region. Similarly, prices of commercial land in Mumbai and New Delhi outperformed those of residential sites.
Tokyo registered the largest increase in the residential index. The negative interest rate introduced by the Bank of Japan has brought mortgage rates down, supporting housing demand.
Recent condominium launches with hefty price tags were met with much enthusiasm from home buyers, with one development in Minato ward even fetching a record high average price of JPY 11.6 million per tsubo (approximately USD 33,800 per sq m), prompting us to adjust the achievable gross development value upwards.
In Jakarta, sites for office development enjoyed healthy price growth given by a slight compression in yields, but the eight-year low prime residential market in Jakarta was adversely affected by the government’s effort to tackle tax evasion as well as lower affordability following years of rapid price appreciation. Residential land prices barely moved as a result.
However, if the recently passed tax amnesty scheme succeeds, the repatriation of funds, together with the easing of monetary and macro-prudential policies by raising loan-to-value and financing-to-value ratios for instance, could boost demand for prime residential properties.
In Singapore, the prices of luxury homes started rising in H2 2015 after tumbling by more than 20 per cent in the previous one-and-a-half years, according to Knight Frank’s Prime Global Cities Index.
As such, prime residential land prices could stabilise in the near future.
Similarly, prices of office land in prime locations in Hong Kong were also buoyed by limited availability. However, on the residential side, the confluence of weak demand due to economic headwinds and abundant future supply exerted downward pressure on prices.
Focusing on the Southeast Asian region as a whole, the index found that a strong supply pipeline in the prime office markets of Jakarta, Kuala Lumpur and Singapore has weighed heavily on rents. However, the lacklustre global economy has softened leasing demand.
In particular, the Jakarta and Kuala Lumpur office markets continue to be impacted by the slump in the oil and gas industry, while the slowdown in financial services sector is dampening demand in Singapore.
Consequently, the prime office land indices for these cities registered negative growth in H1 2016.
However, demand for prime land in Bangkok remains robust due to limited availability, while nearby Phnom Penh continues to outperform other cities in the region even though its price growth is decelerating.
Overall, a key cause for concern across the Asian region is the fact that cross-border land investments have taken a dip, with volumes falling by 11.5 per cent year-on-year.