Asia’s Home Prices Rebound as Low Interest Rates Boost Sales

Asia’s Home Prices Rebound as Low Interest Rates Boost Sales
A model of The Interlace, a residential property developed by CapitaLand Ltd., is displayed at the company's office in Singapore. Photographer: Munshi Ahmed/Bloomberg

Home prices in China, Singapore and Australia rebounded as demand for property assets rose, boosted by low interest rates as investors sought real estate investments in the Asia-Pacific region.

China’s new home prices in June increased for the first time in 10 months, while those in Australia’s eight major cities recorded their largest monthly increase in more than two years as lower mortgage rates encouraged buyers. Singapore prices rebounded to a record in the second quarter.

The Federal Open Market Committee said on June 20 it will expand the Operation Twist program to extend the maturities of assets on its balance sheet and stands ready to take further action as needed. Central banks in China and Australia cut interest rates last month, while Singapore’s mortgage rates are at a record low.

“The quantitative easing in the West is finding its way to Asia, which is perceived to be an engine of growth,” said Alan Cheong, a director at Savills Plc in Singapore. “If interest rates stay low for a prolonged period of time, inflation is always a certainty.”

The Fed pushed down its target interest rate close to zero in December 2008 and has engaged in two rounds of asset purchases totaling $2.3 trillion in a bid to lower long-term borrowing costs and boost the economy. The Bank of England will probably expand its so-called quantitative easing program this week as the debt crisis in Europe impedes the U.K.’s return to growth. according to a Bloomberg news survey.

Shares Rise

The housing data pushed property stocks higher. The Bloomberg Asia Pacific Real Estate Index climbed 0.5 percent to a two-month high. The gauge tracking property stocks on the Shanghai Composite Index rose the most in more than week, while Singapore’s real estate index increased to the highest since April 20.

China’s home prices increased 0.1 percent from May to 8,688 yuan ($1,369) per square meter (10.76 square feet), SouFun said in an e-mailed statement today, based on its survey of 100 cities. Beijing led gains among the nation’s 10 biggest cities, climbing 2.3 percent from May, followed by the southern business hub of Shenzhen, which added 0.8 percent. Prices climbed as the central bank cut lending rates for the first time since 2008.

“The rate cut played a big role changing the sentiment on the market,” said Jeffrey Gao, a Shanghai-based property analyst for Macquarie Capital Securities. “The government hasn’t changed the overall direction of the property policy, but it probably will be less stringent on the easing in smaller cities.”

Australia’s Prices

In Australia, the median price of dwellings in capital cities was A$460,000 ($471,000) last month, compared with A$465,000 a year earlier and 3.2 percent lower than the record of A$475,000 set in December 2010, according to data from RP Data and Rismark International.

Reserve Bank of Australia reduced the overnight cash rate target by 75 basis points in May and June, and banks have passed on about 58 basis points of reductions in their standard variable mortgage rates in the past two months, said Annette Beacher, head of Asia-Pacific research at TD Securities Inc.

In Singapore’s private residential property price index rose 0.4 percent to a record 206.8 points in the three months ended June 30 from the previous quarter, according to preliminary estimates released by the Urban Redevelopment Authority today.

Home Affordability

Housing sales on the island climbed even as the government introduced more measures to cool the property market. Home affordability in Singapore has risen to the highest in a decade because of historically low interest rates and flexible payment options available to buyers, according to Jefferies Group Inc.

Average mortgage rates are about 70 basis points above the Singapore Interbank Offered Rate, or Sibor, according to Maybank Kim Eng Holdings Ltd. The three-month Sibor is at an all-time low at just under 0.4 percent, compared with a peak 3.56 percent in 2006, according to data compiled by Bloomberg. A basis point is 0.01 percentage point. That makes Singapore’s mortgage rates the lowest in Asia, according to Credit Suisse Group AG.

“The low interest rate environment and investors looking for investment opportunities to hedge against inflation is resulting in higher prices,” said Nicholas Mak, executive director at SLP International Property Consultants, a real estate consulting company.

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