Kamis, 09/10/2008

US crisis causes downfall in world property market

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US crisis causes downfall in world property market

The US financial crisis has posed a very heavy blow to the world property market. The recession has caused a drop in property industrial growth in almost all countries around the world. The Asian property market is also not in a safe position at this time considering the high inflation in countries in the region.

A research conducted by Knight Frank that was put into Global House property Index estimates that the growth of global property business growth in the second semester of 2008 will drop 4.8 percent from the same period of last year.

The US recession was caused by credit defaults in medium property ownership. Bad credits had been triggered by rising inflation that had forced the US government to raise credit interest rates. Drastic hikes in interest rates had caused property owners fail to repay housing loans.

The seemingly ‘small’ case turned out to have serious domino effects on the US macro economy notably its property sector. Failures to repay housing credits forced homeowners to sell their houses at low prices. Unfortunately, they found it so difficult to find buyers because everybody just kept their wealth and did not dare use it for speculations. Share prices of US property firms plunged on the interest market. Bad credits affected bank liquidity and accordingly caused banks suffer big losses. In the end, the United States was plunged into crisis.

Most countries in Europe have got into serious trouble almost like the United States. The difference is that the US is now in a “crashed” momentum while Europe as a whole is still in the “slow down” one. Indeed, the growth of the European property industry is low with some countries even experience negative growth index. Yet, good news comes from Eastern Europe. Property prices in the region still show an upward trend.

Bulgaria is one of the high achievers in the European property industry. Global Property Guide said Bulgaria’s property prices rose 30.6 percent 2007. Cumulatively, property price hikes in that country have reached 68 percent over the past two years. Overall, the Bulgarian property sector has grown by 22.3 percent Demands for property in Bulgaria have continued to come from domestic and foreign investors. But, some worry that there will be oversupply especially in resort locations.

Meanwhile, some European countries now experience stable growth in their property industry, like Slovakia, Russia and the Czech Republic. The property industry in those countries has achieved annual growth of 25 percent. But, others are experiencing downward growth like Lithuania, Denmark, the UK, Latvia, Spain, Sweden, Poland, Finland, the Netherlands and Switzerland. In the last two quarters of 2007 apartment prices in Lithuania stagnated at EUR 3,620 per sqm. In the UK, home prices in the third quarter of last year rose 9.7 percent albeit lower than the 10.5 percent in 2006. Falling to the lowest level were property prices in Latvia. They dropped 24.1 percent.

Should be watchful

Asia has felt little effects of the slowing global property market. Even, property markets in Asia are now in good condition. Since the first three quarters of 2007 Asia has achieved momentums of ‘bright’ prospects. It is as if Asia is showing to the world that it has managed to survive and has got out of the crisis that hit it in 1997. Since the first three quarters of last year, property prices rose significantly in Singapore, South Korea and Japan in line with their high economic growth.

Asia has now become an alternative destination for investors. The US economic recession has forced investors to seek other investment places. They want investment destination countries with great potentials, which are adequately supported by other factors like economic, social and political stability. Asia is viewed as have potentials to address the needs of investors. Quite many Asian countries have become the targets of investors like China, Singapore, South Korea, Thailand, Dubai and Cambodia.

On the whole, the Asian property sector is continuing to develop. In Shanghai, property prices rose by 27.85 percent in 2007. In Hong Kong, they increased by around 25 percent. But, in Singapore, whose property normally grew well, property prices are falling albeit lightly. Meanwhile, property markets in other countries like Indonesia and Malaysia are “calm”.

So far, Asia has not been directly affected by the slowdown in the global property market. But, higher inflation is now looming in the region. As such, countries in Asia should learn from what have befallen the US and Europe. Asia should be on the alert and make necessary preparations for alternative solutions so as to avoid the nightmares that have hit the US and Europe when inflation very strongly hits it. (NS)