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America 2007 World Housing Market Review & 2008 Forecasts Housing markets in several Asian countries gained momentum during the first three quarters of 2007, reflecting to some extent continued recovery from the 1997 Asian Crisis.The strong house price increases in Singapore, South Korea, and Japan have been mainly due to strong economic growth. Mortgage markets in Asia are generally underdeveloped. Hence the effect of interest rate movements on the housing market is indirect, channeled through over-all economic performance. With electronic goods as the main export of these countries, economic growth is expected to drop if the global economic recession occurs in 2008.In the Philippines, demand for houses and condominiums has come mainly from families of Overseas Filipinos. Price increases in China are subject to strong government intervention. Left unhampered, property prices would be expected to rise due to continued economic expansion and rapid urbanization. Adding fuel to the price boom are the Beijing Olympics in 2008 and World Expo in 2010 in Shanghai.In Thailand, political problems have led to weak economic growth and falling property prices. Property price changes in Indonesia and Malaysia remain unimpressive. Although the national house price index in Indonesia was up 5.2% in nominal terms to end Q-3 2007, the index actually dipped by 1.2% in when adjusted to inflation. In Malaysia, the house price index rose 3.2% (1.7% in real terms) to Q2-2007 from a year earlier.PacificProperty prices in Australia continue to recover from the housing market slowdown during 2004 to 2005. The house price index for eight capital cities rose by 10.6% to Sept 2007 from a year earlier, slightly higher than the 10.1% annual increase in Sept 2006. Except for Sydney and Perth, Australia's other major cities all registered house price increases of more than 11% y-o-y to Sept 2007. The availability of housing finance combined with lack of supply fueled house price increases in 2007, despite rising interest rates. Population growth from immigration and the skills shortage in the construction sector also contributed to higher prices.Double-digit house price increases are expected to persist in 2008 in Australia.No drastic changes in immigration policy are expected, now that the Labor Party is in power, and new schemes to assist low income renters and house buyers are likely to increase demand for housing units.Signs that New Zealand's house price boom is coming to an end appeared in the second half of 2007. Although the national median house price rose 6.6% y-o-y to NZ$352,000 in Nov 2007, this was the lowest annual house price increase since Feb 2003.The Reserve Bank of New Zealand (RBNZ) has raised its benchmark interest rate four times between March and July 2007 to 8.25%. The market downturn is expected to continue in 2008, and is expected to last until 2009.Middle East and AfricaThe depreciation of the US dollar against major currencies could be beneficial for the Middle East's property markets. As the currencies of Gulf Cooperation Countries (GCC) are pegged to the US dollar, their property markets are getting cheaper as the US dollar depreciates – while everyone expects their currencies eventually to be revalued against the US dollar.The biggest concern is oversupply. Dubai is swamped with new properties to be delivered in 2008 and 2009. A slump in demand from international buyers due to a global economic slowdown could exacerbate the problem. The speculative nature of its housing market makes Dubai highly susceptible.In South Africa, the house price boom is coming to a halt. Annual house price growth peaked at 33% to end-2004. Since then, house price growth started decelerating, and was down to 13.6% y-o-y to end-Oct 2007. Adjusted for inflation, the house price index rose by only 5.3%. The slowdown was due to higher interest rates, lower economic growth, and to The National Credit Act, implemented June 2007, which imposed stricter rules on lending.Israel'smarket is showing signs of recovery. The average price of owner-occupied dwellings rose 4.6% (2.5% in real terms) to Q3 2007 from the previous quarter. However, it is still 0.5% (1.9% in real terms) lower than its level in Q3 2006.THE GLOBAL PROPERTY GUIDE'S FORECASTS FOR 2008:EuropeBuying housing in much of Europe should be avoided in 2008, because housing is relatively highly valued, having seen a long period of price appreciation (graphs here). The Baltics has been rising for a long time as a result of strong economic growth, but rental yields have fallen strongly - avoid.Some areas of Eastern Europe are still good value, however. Just because Eastern European housing markets have been booming for a long time, does not necessarily mean that the boom is over.In Bulgaria, Sofia has attractive yields despite the absurd over-hyping of areas such as the ski resorts. In Romania, Bucharest is still attractive, with good yields. In Slovakia, Bratislava remains attractive and undervalued, as are other areas of the country. Budapest's housing market is recovering, and we think it is sustained by low price-rent ratios. Turkey, Greece and other coastal areas in Southern Europe are still undervalued.Middle East & Africa Investors should avoid Dubai, because of the overhang of property due for delivery in 2008 and 2009, except possibly detached houses. The newly-opening Gulf countries such as Abu Dhabi and Oman could eventually produce good returns.We believe Egypt is attractive. We are much less interested in beach resorts (its too hot on the West coast of the Red Sea in summer!) than in Cairo, where prices are low by regional standards, gross rental yields are among the highest in the world, taxes are low, and transaction costs are reasonable. The downside? An increasingly repressive and unpopular regime.We also like Jordan. Despite strong price rises pushed by Iraqi refugees and Gulf money, rental yields in Amman are still spectacular, and taxes are low. Amman is not the most exciting place, but under the liberal economic regime of King Abdullah, GDP growth has been quite good at 4% a year over the past 5 years.South Africa is rapidly cooling, after more than five years of double digit house price increases. The housing market is likely to be dampened by political uncertainty associated with the 2009 election, given the pro-redistribution rhetoric of front-runner Jacob Zuma.Asia-PacificProperty prices in much of Asia are still undervalued compared to pre-Asian crisis levels, despite strong increases in 2007.China is unfortunately not open to investment, and non-resident foreign buyers of dwellings are no longer welcome (though developers still are). While Beijing's property prices will probably peak in 2008 after the Olympics, Shanghai is still preparing for the World Expo in 2010. With yields at 8% Shanghai's prices have nowhere to go but up, unless the government intensifies its intervention.Cambodia could be a proxy for China. Strongly tied to the Chinese economy, Cambodia is open, has high yields, relatively low transaction costs and low taxes, though investors must be prepared for only an indirect acquisition of land due to constitutional limitations on foreign purchases.The resolution of Thailand's political crisis in 2008 could open opportunities, after two dismal years. Gross rental yields are good at 7%-8%, income taxes are relatively high but acceptable (compared to the Philippines), the market is pro-landlord. Under better management Thailand could do very well. Indonesia is attractive, but has problems as an investment destination - there are high yields in Jakarta, but very high transaction costs and high rental income taxes. The Philippines too has high yields, but similarly discouragingly high transaction costs and high rental income taxes.Japan's housing market is recovering strongly. While Tokyo's gross rental yields are unattractive at around 4.7%, the price momentum is positive, the law is strongly pro-landlord, there are low-ish transaction costs, and low rental income tax. The recently announced tighter regulation of new dwellings could lead to faster property price appreciation.In Singapore we believe gross rental yields are now too low, at 2% to 3%. Nevertheless, Singapore is attracting (and admitting) more foreign-born workers – which is positive for prices. Hong Kong's yields are somewhat higher (around 3% to 5%), and the US$ peg will mean Hong Kong will follow lower US$ interest rates, which should boost the housing market.In Australia, we expect house price increases to persist in 2008. No drastic changes in immigration policy are expected, and new schemes to assist low income categories will likely increase housing demand. In New Zealand, we expect the market pause to continue.Latin America and CaribbeanMuch of the Caribbean seems overvalued and likely to be affected by any slowdown in leading US sectors, such as the banking industry.We are keenest on the Bahamas, despite high transaction costs. Gross rental yields in the Bahamas are quite good, at around 5.5% to 7%. The law is pro-landlord. There are no taxes. Square metre prices are reasonable by Caribbean standards, at around US$4,000 per sq. m. – a snip for sterling or Euro buyers. The downside is very high transaction costs, consisting of stamp duty and estate agents' fees.Our top picks for Latin America are Argentina (Buenos Aires still has excellent yields, and the economy is growing strongly), Uruguay (piggy-backing on Argentina as usual), and Colombia, which we believe is recovering politically and will soon be attractive to US buyers. Countries in the ¡®second home' diaspora of the US will remain attractive, as they are significantly less expensive than the Caribbean.The above article is from Global Property Guide.
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