Urbanisation, rising home ownership and ageing populations are strong themes across much of Asia. Another is the huge diversity of performance across the markets of this huge and eclectic continent. These are among the findings of the RICS's first annual Asian housing market review as Stephen Brown reports
Earlier this year, the Royal Institution of Chartered Surveyors (RICS) commissioned Savills to carry out the first annual review of housing markets in Asia, looking at how housing systems have evolved against wider national economic and socio-demographic contexts of selected Asian countries.
It also highlights key drivers of housing demand and government initiatives, which have shaped the delivery of homes over the past 60 years. A key message to emerge from the 2008 Asian Housing Review is the diversity in performance. As can be seen from the figure, some markets, such as South Korea, have performed well over the last decade, others, such as Japan, have not fared so well.
A key characteristic of all the markets that we looked at - China, Hong Kong, Japan, Korea, Malaysia, Singapore and Thailand - is that they have had to respond to intense housing needs and a shortage of housing units as demand for good quality housing increases.
This has been a result of significant and sustained economic growth over the last decade, and an improvement in living standards and rise in incomes. It is in urban areas that this trend has been most apparent, although impoverished areas in both urban and rural locations are still present in many Asian countries.
Home ownership has been promoted as a means of reducing levels of poverty and unburdening the public housing sectors It has risen sharply and now accounts for over 50% of all households. Furthermore, the development of the mortgage sector and the rise of mortgage take-up levels have been key features of the rise in home ownership in Asia. But what has been driving this demand?
What drives housing demand in Asia?
"Historically, it has been Asia's expanding populations that have been the main driver of housing demand", commented Simon Smith, head of research of Savills Asia, one of the authors of the review. However, population growth has slowed in the past 30 years, with birth rates declining across the region.
Hong Kong now has the lowest fertility rates at 0.9 births per woman, compared with 2.9 in the early 1970s - this represents a 69% decline. Hong Kong is not alone. China, Japan and Korea also have low fertility rates and as such will experience future negative population growth.
In contrast to this trend, however, many of Asia's major cities have experienced high population growth as people believe them to offer better employment opportunities. This perception has led to high levels of rural to urban migration, which has put a strain on the physical and social infrastructure of cities and has shaped the profile of housing demand.
Together with improved living standards and the resulting longer life expectancies, this means that Asia has a larger ageing population. The high proportion of the population over 65 is likely to influence housing demand in terms of affordability and housing type. Additionally, the level of old age dependency presents the risk of negatively impacting national economic productivity in the future.
Let's consider the economic climate in which these changes are occurring in order to understand better what has influenced the level of residential investment and development in Asia. The economic context We know that housing markets are influenced by what is happening in the wider economy.
What were the trends in Asia that had an impact on housing markets? As Jacqui Daly, director at Savills, who led the research from the UK, notes: "The economies in Asia have been on a roller-coaster ride over the last decade." With the exception of China, all of the countries that we looked at suffered significant negative economic growth immediately after the 1997/1998 Asian financial crisis.
While 2001 also saw a period of economic downturn, this was followed by a period of positive economic growth across the region. Indeed, since 2005 Malaysia, Hong Kong, Singapore and most significantly China have recorded annual GDP growth in excess of 5%.
It is the export industries that have supported economic growth in developed Asia, and this is particularly the case in Japan. In emerging Asia, strong domestic demand generated by consumption has supported recent economic growth in Malaysia, Hong Kong and Singapore. In 2007, the export industries of Thailand and South Korea boosted economic growth, although the global economic slowdown risks negatively impacting international demand for export goods from these countries.
However, while export growth in China is currently showing signs of slowing, rising consumption and strong investment is supporting continued robust GDP growth, forecast at around 10% annually to 2013.
Rising food and fuel prices, coupled with growing domestic consumption, has recently led to high levels of inflation across Asia. While the IMF generally expects inflation to remain under 3% after 2008, it is forecast to remain high in China and Hong Kong. In Hong Kong particularly, inflation is expected to remain high thanks to strong domestic demand and the fact that the local currency is pegged to the US dollar, which is softening.
If the US dollar witnesses inflation, then the possibility of negative real interest rates could put upward pressure on asset prices in Hong Kong. But what does this mean for the housing markets? How are they performing? The first thing to note is that national house price performance has varied across Asia.
While both Malaysia and Korea have generally experienced house price growth since 1999, in contrast, house price growth in Thailand and China peaked in 2004 and has subsequently been declining. House prices in Hong Kong declined significantly in the early 2000s, and this was also the case in Singapore, albeit at a lower level.
While price growth regained momentum in Hong Kong in 2004 and most particularly in 2007, prices in Singapore were largely static until 2007, when they rose dramatically. In contrast to other Asian countries, house prices in Japan declined in the early part of this decade, and have mainly remained static in the last five years.
China
Demand for residential is intensifying in China's principal cities, Beijing and Shanghai, driven by economic growth, increased affordability, and migration of workers to urban areas. Semi-skilled and unskilled workers migrating to the cities from poorer regions are increasingly putting a strain on urban physical and social infrastructure.
Demand for housing is acute at all levels, and an ageing stock and a general lack of upmarket rental product is creating strong demand for new-build properties. Despite massive housing privatisation since the 1980s, China's government continues to play an active role in housing policy.
Housing policy, monetary policy and unclear development regulations are leading to low levels of residential supply coming onto the market, especially in the affordable housing sector.
Hong Kong
The Hong Kong housing market continues to be characterised by high demand for housing at all levels of the market. A low level of new residential supply is likely to continue, putting pressure on house prices. While home ownership has been encouraged by the government since the 1950s, just over half of all households are now home owners, which is low compared with other countries that we looked at.
However, this is supported by a very strong public rented housing sector for which there is continued demand. Despite this need, delivery of new public rented housing has declined in the past five years, exacerbating the need for housing for low-income households.
Japan
As a result of aggressive housing construction policy in post-war Japan, construction continued in order to fuel national economic growth, even when dwellings outnumbered households in the early 1970s.
When strong levels of national economic growth halted in the early 1990s, Japan's owner-occupiers, who formed a high proportion of total households, suffered from diminishing asset prices. Further, lower levels of domestic consumer activity also contributed to continued house price decreases.
Stronger national economic growth since 2002 is a positive sign for Japan, although reliance on exports to the US in a time of global economic downturn may again adversely affect Japan's economy, and further weaken the housing sector.
South Korea
Accelerated housing construction since the 1970s to relieve the country's housing shortages has led to the development of an active housing market in South Korea. Today, more than half of homes are owner-occupied, although rising house prices are negatively impacting buyer activity.
Through regulatory measures, the government continues to play a strong interventionist role in housing construction to prevent house price inflation. High levels of recent construction activity, fears of house prices falling, and the global ‘credit crunch' have recently contributed to a deterioration of investor sentiment in the housing sector.
Malaysia
The Malaysian housing market is characterised by high levels of home ownership at 85% of all households, which has been supported by Malaysia's central housing policy. Economic growth since the late 1980s and rising affordability has strengthened housing demand in Malaysia, leading to high levels of residential construction activity.
Price rises at the top end of the market have encouraged developers to construct significant amounts of new residential property aimed at higher-income groups, which has led to over-supply in this sector.
Conversely, while the government has actively sought to solve the issue of slum and squatter areas in inner city locations, insufficient delivery of public housing, and a right-to-buy scheme has meant there is a shortage of houses to accommodate low-income households.
Singapore
Housing demand is driven by an increasingly affluent domestic market, falling household size and high immigration levels. Widespread use of financial incentives and a government subsidy has led to an owner-occupier culture at 90% of all households, the highest rate among the countries reviewed.
Historically, low levels of new supply and high demand has been driving residential price increases across the market. However the global economic slowdown is likely to affect the Singapore housing market.
Indeed, Savills has revised its house price growth forecasts for 2008, from double-digit growth to between 0% and 5% growth. At the top end of the market, Singapore's position as a global financial centre attracts overseas residents, who are fuelling demand for high-end properties.
Thailand
Growth in Thailand's housing sector commenced in the mid 1980s in line with the country's improved economic performance and rising household incomes. With increasing urbanisation and with many households living in slum and squatter
areas, the Government Housing Bank (GHB) has played an active role in encouraging low-income families into home ownership.
Today, Thailand boasts a high home ownership level, at 83% of all households. Political instability continues to have a significant influence on consumer and investor confidence in Thailand, affecting housing demand.
As Darren Jensen, director RICS Asia, concludes: "Housing markets across Asia face fresh challenges with the advent of the global credit crunch, but we are far better placed to weather this storm than would have been the case a few years ago, and I am sure that, in the longer term, the markets will continue to be able to meet the needs of all groups within society, contributing to the stable and harmonious development of society across Asia".
The full report of the Asian Housing Market Review is available to download from www.rics.org/ahr
Stephen Brown is head of research at RICS
