China’s residential property market could stabilise by the first quarter of next year, as more supply becomes available, according to financial services firm Nomura.
It said office space could be the segment to watch in Asia Pacific this year because of low valuations and stable yields.
The property bubble in China is raising some red flags in the country, but Nomura said the market is likely to cool in the first quarter of next year.
Apart from government measures to control credit to curb demand, Nomura also believes supply issues will come into play.
“There is still a lack of supply today. We have to wait until Q4 this year, or Q1 next year to get massive supply to come in, out of the pipeline. By that time, I think we can see a pretty sharp decline in prices,” said Sun Mingchun, chief China economist at Nomura.
Nomura told an investor conference that it also expects government tightening measures to relax at around the same time, coinciding with China’s annual economic policy meeting in March.
Meanwhile, in other fast growing regional markets like Hong Kong and Singapore, Nomura sees opportunities in the office space segment, both from the perspective of yield and valuations.
Property counters and REITs in Singapore have been trading at 0.7 to 0.8 times price-to-book, which make them attractive buys.
Analysts see demand climbing, as tenants take advantage of the low rent environment.
Hong Kong property could see higher yields, as commercial demand rebounds with the Asian economic recovery.
“I think most of the participants have misjudged the speed of the recovery. For calendar years 2010 and 2011, we’re expecting residential to go up 20 per cent. But in the office space, we’re expecting rents to go up by 47 per cent,” said Paul Louie, head of Property Equity Research at Nomura.
Nomura also expects the mass market residential segments in these markets to do well this year, with more stable yield growth from rentals.
Source: Channel News Asia, 7 Jun 2010