Real Estate

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Real estate in Singapore just finished a second ho-hum year, with home prices down 3.7 percent from 2014. But investors only need to look at the gravity-defying markets to their north and south -- Hong Kong and Sydney -- to better appreciate the risk they may have been spared. At least until now. 

Property prices in all three urban centers saw a massive surge as Western central banks printed cheap money and Chinese home buyers embarked on a global hunt for assets. Singapore, however, effectively warded off the threat of a crash by aggressively taxing home purchases by foreigners and squeezing the supply of mortgage loans. It took some 12 rounds of increasingly harsher policy tightening between September 2009 and December 2013, but the city-state did eventually manage to tame the speculative fervor, a feat Hong Kong, pursuing a largely similar strategy, failed to achieve.

Now that U.S. interest rates are rising, Hong Kong, which pegs its currency to the greenback, is staring down the barrel at tighter financial conditions and the possibility of abrupt drops in the city's bloated home prices. That's also the risk in Sydney, as the 1.2 percent slide in December, a second straight month of declines, amply demonstrates.

Craving for a Soft Landing
Cumulative gains in home prices since March 2007
Sources: Centaline Property Agency; Singapore Urban Redevelopment Authority; CoreLogic

Australia may yet be able to prevent a housing collapse, even though the median home value in Sydney has almost doubled since 2008. That's because slumping prices of Australia's coal and iron ore exports have opened up the space for investors to speculate on a further easing in the central bank's 2 percent benchmark interest rate, which might keep financing costs low for property owners.  

Sky High Sydney
Source: CoreLogic RP Data

Hong Kong, though, may have no choice except to at least partly relive the grinding late 1990s-style deflation in asset prices: home values in the city slumped by 58 percent between 1997 and 2002 as the U.S. dollar surged. Meanwhile, in Singapore, the bigger risk is that authorities delay lifting property curbs, worsening the glut of unsold homes and sparking panic sales by smaller developers. That could bring back the risk of sharper price declines, something the city-state has assiduously avoided so far given that 46 percent of total household assets, or S$828 billion ($582 billion), are tied up in property.  

The top five markets with the best potential for price appreciation this year are the U.S., Brazil, Spain, Ireland and the U.K, according to a survey by the Association of Foreign Investors in Real Estate. When it comes to Asia, investors' best hope is for a soft landing, though if the wobbly home prices from Hong Kong to Sydney is any guide, it's not clear if even that modest wish will come true.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Andy Mukherjee in Singapore at

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