Cost of land to build prime homes in Asia still rising

Prices of residential sites in Asia increased by 1.9% in the first half of 2016, down from 2.8% in the preceding six months, put office land increased from 1.9% to 2.2%. Overall development land investment volumes in Asia matched the level registered in the corresponding period last year, according to the Prime Asia Development Land Index from international real estate firm Knight Frank. As compared to the preceding six months, however, they were 40.4% lower and the index report explains that land markets tend to be more active in the second half of the year, which accounts for 60% of the transactions historically. With state owned enterprises purchasing land aggressively, China, which accounts for more than 90% of the deals in Asia, saw a 6% year on year increase in volumes while in Thailand some major deals boosted volumes by 190.4%. However, cross border land investment volumes fell by 11.5% year on year. ‘Part of the reason is that while Chinese developers have previously snatched up land in Hong Kong and Singapore, they now appeared to have joined their local counterparts to become more cautious amid the ongoing correction in housing prices in these markets,’ the report explains. As a result, China bought 88.8% less land year on year in the rest of Asia. In China, among the cities tracked, Shanghai experienced the strongest growth in prime residential land prices. ‘While the government raised the down payment requirement on second and subsequent properties as well as tightened non-locals’ purchase eligibility, shadow banking and peer to peer financing helped home buyers circumvent these rules, although authorities are closing the loopholes,’ it adds. According to the National Bureau of Statistics, residential prices in Beijing, Guangzhou and Shanghai surged by 15.3%, 12.8% and 19.5% respectively in the first half of 2016 and the report says this emboldened developers to bid for land aggressively. In particular, Shanghai saw the average premium over reserve price in residential land auctions soar to 154% in the first six months of the year from 60% in the corresponding period last year. 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, the Knight Frank indices registered a decline in prime residential land prices. It adds that strong office leasing demand 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 and the report says that the negative interest rate introduced by the Bank of Japan has brought mortgage rates down, supporting housing demand. Indeed, 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 US$ 33,800 per square meter. Sites for office development in Asia also… Continue reading

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