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Asia’s Real Estate Markets Leap Ahead

21 April 2011 No Comment

By Helen Kaiao Chang

See the original story in Asian Real Estate magazine or view the article online.

The real estate market is looking up in Asia.

In Mumbai, India, in 2010, one billionaire built a 27-floor skyscraper – as his private residence. In Shanghai, China, property prices have grown by nine times in seven years ending 2010. And in Ho Chi Minh City, Vietnam, a 2-bedroom luxury condo now goes for US$500,000.

Asia’s real estate markets “are strong enough to grow into the high expectations (that) current pricing trends imply,” said C.Y. Leung, Asia Pacific Chairman of the Urban Land Institute.

China and India’s economic growth are fueling real estate prices throughout Asia. And as the U.S. economy falters, more money is flowing into Asia, according to a report, Emerging Trends in Real Estate Asia Pacific 2011, published by the Urban Land Institute and PriceWaterHouseCoopers.

Asian real estate markets are also booming due to an emerging middle class, limited property supply, and growing demand, said experts affiliated with the Asian Real Estate Association of America.

The top investment city in China is Shanghai, India is Mumbai, and Vietnam is Ho Chi Minh City, according to the Trends report. “Shanghai has long been a traditional entry point to the mainland market” in China, it said. But Mumbai and Ho Chi Minh City are “the newest emerging markets,” it said. “They present plenty of risk, but also a chance to get in on the ground floor.”

For American real estate agents and investors, Asia offers a new opportunity for cross-cultural business growth. But understanding the markets and risks are critical for success, said experts.

Mumbai

Formerly called Bombay, the Indian city of Mumbai is experiencing explosive growth. The entire country was expected to hit nearly 10 percent economic growth in 2010, according to the International Monetary Fund. As the country’s financial center, with a population of 20 million, Mumbai is reaping the benefits.

The city is already one of the world’s top billionaire cities, as home to 20 billionaires, according to Forbes. The country’s ultra-wealthy and middle-classes are also growing rapidly, pushing demand for housing.

“Demographics drive the market,” said Rob Mehta, broker with Re/Max Results in Minneapolis, Minn. and president of International Properties Group, which does business in India. “The local market is appreciating with this new-found prosperity.”

Within the city, the hottest areas are in the financial district and along the peninsula. Views of the Arabian Sea, luxury housing and excellent transit and railway systems make this a desirable area to live, said Mehta.

The most expensive areas are Colaba, in the heart of the financial center; Narimam Point, which overlooks the sea; and Malabar Hill on the other side of the peninsula. “Anything within the water and city, anything that puts you on the peninsula,” said Mehta, “just skyrockets.”

The super-rich are raising prices in Mumbai. In November 2010, Mukesh Ambani, an industrialist billionaire, completed a 27-story skyscraper in the heart of the city – for his family of five to live.  In 2007, a non-resident Indian bought a 4-bedroom flat overlooking the Arabian Sea for a record US$8.62 million.

Mumbai’s suburban market is also growing, radiating out from the city center. This comprises two types of residential housing: houses and luxury condos. Houses within seven miles of the city typically run US$1 million and up. “Unless you’re a millionaire, you won’t be able to buy a house anymore,” said Mehta. Houses farther out tend to be run-down, with outdated amenities.

Condos are more affordable, convenient and have Westernized amenities. Prices typically range from US$150,000 to US$200,000 for a one-bedroom condo; US$300,000 to US$400,000 for a 2-3 bedroom, 1,800-2,500 sq. ft. condo; and US$500,000 to US$700,000 for a 3-4 bedroom, 1600 sq. ft. to 2,000 sq. ft. luxury condo, close to shopping.

The market may experience temporary pullbacks due to the West’s recession, but the long-term curve is up. “Short-term trends might cause a hiccup,” said Mehta, “But not like anything we’ve seen in the U.S.”

Shanghai

This “Paris of the East” is China’s most cosmopolitan city, with a huge shipping port, romantic riverfront and a blend of historical European and Chinese architecture. The city’s population of nearly 20 million has been riding China’s economic train of an average annual 9.6 percent growth rate, according to tradingeconomics.com.

The real estate market has boomed in the last decade. The greatest demand is for luxury highrise apartments, which cater to the city’s growing middle and upper classes, said Vincent Wong, founder of Shanghai-based Sunshine Real Estate agency, which markets in the U.S.

Many of these highrises are zoned with mixed use.  For example, a building might have retail shops on the ground level, offices on the second and third floors, and residential units from the fourth floor up. Supermarkets, schools and transportation are all within a few blocks, which appeals to buyers,

“Chinese love the convenience,” said Wong. “They don’t want to be too far from necessities.”

Prices have gone crazy. For example, condo prices near the People’s Square increased by nine times in seven years – from RMB$8,000/sq meter (or about US$112/sq. ft.)  in 2003 to RMB$70,000/sq. m. (or about US$982/sq. ft.) in late 2010, according to Wong.

In Pudong, prices more than quadrupled in seven years. Condos that sold for RMB$10,000/sq. m.(or about US$150/sq. ft.) in 2003 sold for RMB$45,000/sq m.(or about US$670/sq. ft.) in 2010. These condos are typically 1,200 to 2,800 sq ft.

The government intervenes regularly to cool the real estate market. Various laws in recent years include higher taxes for real estate investors who sell within two years of purchase or limiting the number of properties an individual can own to four. Such laws have resulted in stop-and-go activity in the market, said Wong, but he believes the overall market trend is up.

“In China, they all want bricks and mortar,” he said. “That’s the reason why they just love to own their own property. The demand is still there.”

Foreigners are also investing in Shanghai real estate – during years when the government policy allows it. But investors need to follow the rules, particularly if borrowing from local banks, which are subject to government regulations. “They are worried about people speculating on their currency,” said Wong.

The hottest areas in Shanghai are in the central business district (CBD) and Pudong, a financial area, said Wong. Suburbs near the river are also popular – Jingan, Luwan and Huang Pu districts are all commanding top dollar. Xujiahui, a new district featuring shopping arcades and new technology, is also popular, particularly among overseas Chinese investors, he said.

Ho Chi Minh City

Once known as Saigon, Ho Chi Minh City is marked by broad boulevards flanked by huge leafy trees. The city is home to the national palace and scores of banks, trade offices, hotels, cathedrals, cafes and artisan centers. Like Mumbai and Shanghai, this southern Vietnamese city is its country’s financial and cultural hub.

With a growing middle class, it is also a place that attracts Vietnamese bureaucrats, tycoons and celebrities – from the northern capital city of Hanoi to the surrounding southern provinces. Many overseas Vietnamese also return here. The city’s population is about 7.25 million.

The country’s economy expanded by about 7 percent in 2010, largely due to corporations moving their manufacturing plants from China to lower-cost Vietnam. Overseas Vietnamese have also lifted the local economy, sending back approximately US$7 billion a year. This is according to statistics cited by Vinh Nguyen, owner/broker at Westgate Realty Group, based in Washington, D.C., who frequently travels to Vietnam.

Traditionally, Vietnamese lived in multi-generational homes, paying cash and gold for houses. With the emerging middle class, many couples are now able to afford to buy their own homes. In the last decade, developers raced to build condos to house these new workers. On the high-end, a two-bedroom, 1,500 sq. ft. condo now goes for US$400,000 to US$500,000, said Nguyen.

The greatest demand is in the downtown area, known as Districts 1 and 3, said Nguyen. District 7, located in the city’s south, is also popular, because of its modern infrastructure, architecture and amenities. Many of the high rises are mixed-use commercial and residential buildings.

But the city is now suffering a glut of condos on the market, said Nguyen. He likens it to Miami, Fla., saying it will take another one to two years for the market to absorb the excess units. Many developers of existing buildings are stuck, he said. “You see a lot of half-empty buildings.”

Foreigners are still not allowed to invest in Vietnam. But if citizens elect a progressive political party to office in early 2011, policies could change to allow foreign buyers, said Nguyen.

For more tips on buying real estate in Asia, click here.

Helen Kaiao Chang is a ghostwriter, editor and journalist. She can be reached at www.ghostwriter-needed.com.

Follow Helen on Twitter @HelenChang

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