Wednesday, April 28, 2010

Stimulus withdrawal a worry for property sector

THE way governments wind back stimulus measures poses a key risk to the region's real estate markets, according to a Citibank executive yesterday.

Mr Aamir Rahim, chief executive of Citi Private Bank Asia Pacific, told a briefing: 'The impact of such liquidity withdrawal on interest rates and the speed of private sector capital deployment to pick up the slack produced by such withdrawal measures obviously are the overriding risks to the property outlook.'

Mr Rahim also flagged inflationary pressures as 'liquidity continues to chase assets' and the tightening of monetary policies as key risks to track.

The Chinese government, for example, has introduced yet more measures to cool the property market, ordering developers not to take deposits for sales of uncompleted flats without proper approval.

It has also imposed curbs on loans for purchases of third homes and increased the downpayment requirements and mortgage rates.

However, Citi's global head of real estate, Mr Thomas Flexner, said the steps are unlikely to overshoot and restrict growth in the other parts of the economy.

Mr Flexner, who was speaking at the briefing in conjunction with Citi's two-day Asia Pacific Property Conference at the Four Seasons Hotel this week, said that while the bubble in the Chinese residential market was 'very real', it is most pronounced at the higher-end and more speculative sectors of the first-tier cities.

In these centres, about 70 per cent of buyers are speculators.

'We call them speculators, they call themselves investors... There is real vulnerability there but I don't think it is systemic,' he added.

'There is certainly the prospect of potential losses by investors in that sector and on the part of developers who own land banks and who are leveraged.'

However, he said that, unlike a debt implosion or a credit bubble, which had contagion effects, China's bubble would not affect first-time home owners and would not have a 'significant larger impact on the Chinese economy and its ability to grow over time'.

Real estate is an increasingly popular asset class, with Asian clients of Citi Private Bank having close to 50 per cent of their portfolios in property.

This compares with 33 per cent globally.

Source: Straits Times, 28 Apr 2010

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