18/01/2014 Talking Business with Linda Yueh

We got there in the end with the weather! Now it's time for a look at

talking business. What makes a city a global property

hotspot? Where are house prices headed? And, is art a good

investment? Here in Singapore, I'm Linda Yueh, these are my guests, and

we're Talking Business. A warm welcome to the programme.

It's a favourite dinner party topic: where are house prices headed? And

why have they risen so rapidly in some cities? Before I find out the

answers from my guests, I was in London to investigate what makes a

city attractive to foreign buyers. In other words, what makes a global

property hotspot? Potential home-buyers know all too

well in cities like London that house prices are skyrocketing

despite the tepid economic recovery. And it's not just London, you see

this across global property hotspots. Here, prices have more

than doubled since 2005. In Asia, Singapore has seen price rises by

more than 230%. In Hong Kong, they now have the most expensive homes in

the world. In New York, despite the housing crash, prices are up nearly

50%. So, why are house prices rising so rapidly?

Out of the reach of most people, high-end flats like this one, which

is attached to a hotel, are a sign of how much demand there is for

housing in places like London. Record low interest rates and even

government schemes to help home-buyers are some of the reasons

why house prices are rising. And London is an attractive place to own

property because there is no annual tax based on the value of that

property. So, if you owned one of these $15 million homes, you would

pay an annual tax of $16,000 and that includes the local property

tax, but a tax based on property value does exist in other global

cities. Peter, who is buying in London? Are

they Brits or are they foreigners? Everyone is buying in London at the

moment. I'm proud to say that the British are probably 40% of our

business. Next is probably Russia and the satellite CIS states, which

is about 20%. We have an equal 15% with the Middle East and Europe, and

then Asia. Different cities are concerned about foreigners coming in

to buy properties, so in Asia there are taxes on foreigners buying and

selling homes. In London, a similar measure comes into effect from 2015.

All who are worried about house prices will be following those

measures closely. Joining me today to discuss the global housing market

are three experts from the biggest estate agents. David Green-Morgan,

Global Capital Markets Research Director at Jones Lang La Salle.

He's an expert on the value of cross-border property investments

around the world. Nicholas Holt, Asia Pacific Head of

Research at Knight Frank. He leads a team of over 50 and has worked

extensively on projects in the UK, Europe and throughout Asia-Pacific.

Yolanda Barnes, director of Savills World Research, based in London. She

has analysed world markets for over two decades. Welcome to all of you.

I'm going to start with you, David. How overvalued are some of these

property markets in these kind of key cities?

That's the million-dollar question, are any of them actually overvalued?

I think it all comes down to demand and supply and at the moment in many

major cities around the world, demand is outstripping supply.

What about you, Nicholas? We have certainly seen a big upswing

in some of the global cities, notably London, Hong Kong,

Singapore. We have seen prices in Hong Kong go up 120%. At the same

time, we have seen low interest rates, which has led to significant

amounts of money coming into the market. In places like Singapore and

Hong Kong, we certainly expect a correction in the next 12 months.

It is such an interesting question because the nature of demand has

actually changed. We used to value property in relation to people's

incomes, it was all about debt finance. What we have seen since

quantitative easing started, the buying up of bonds, the

disappearance of safe assets for investors and the diversification

into other asset types in the investing community, means that

there is now a huge demand coming in on world cities which is very

different to what a lot of those cities have experienced in the past.

We have equity rich, cash-rich investment buyers competing with

locals. So the old methods of evaluation just don't hold true any

more. David, which of these cities would

you say has really been the beneficiary of this cheap money?

I think the cities in Asia have benefited and really seen the

capital flows, Singapore, Hong Kong, to a lesser extent Chinese cities. A

lot of that money has then fuelled investment, particularly into

London. The flow of money from Asia into London has been I think

probably unprecedented. I don't think we have seen this level of

capital flows into property in general since the financial crisis.

The point that Yolanda makes is very important. There has been a real

psychological shift, particularly on the investment side. So many people

got burned by the financial crisis, but they want to hold assets that

they can see and touch and go and live in if needs be. I think that

has really changed the investment habits.

Nicholas, are there particular cities that you would isolate?

We talk about "hot money" in markets. I don't think we have hot

money in property. Property is a very illiquid asset, ie you cannot

sell it quickly. However, touching on the issue quantitative easing,

Singapore and Hong Kong are joined at the hip to what happens in the US

in many ways. Because their currencies are pegged effectively to

the US dollar. So, if we do see interest rates start to rise in the

US, that will impact in Asia-Pacific, certainly Singapore

and Hong Kong the most. It is interesting on that point,

maybe for the first time or certainly in the last 15 or 20

years, the Singapore and Hong Kong governments have acted out of sync

with what is happening in the US. With all of these cooling measures,

we're really starting to see an impact on pricing in Singapore and

Hong Kong. Yolanda?

I think there is also a real question about interest rates

rising, I think there is an increasing disconnect between

central banks' base rates and the investment environment. In other

words, the sort of returns investors are after. If you have a shortage in

global assets, increasing wealth, and this desire amongst the world's

ultra-high net worths to put money into real estate, then you have a

situation where you could have rising interest rates but still a

huge demand for quite low-yielding assets.

Before hearing house price predictions from panel, I caught up

with the founder of CapitaLand, one of the largest property developers

in Asia. I asked Liew Mun Leong what makes a city attractive to

investors. My definition of "hotspot" is what I

see as transcending capital, targeting high return, but high risk

investment. You mention money going in, seeking

high and in some cases fast returns, is there a danger that some of the

cities could be experiencing hot money inflows and then therefore a

bubble? In the first place, in this city, I

hate to say it is not like America, you have some control over how much

you can pay your mortgage. The leverage cannot be 100% or even

110%, as in America, because they go beyond the capital value of the

home. But in Asia, right now in Singapore you only can borrow 60%.

This makes a bubble less likely to happen because unless the value

drops beyond 40% then it will not burst.

In your 20 years of experience, I want you to share with us the best

insider tips for investing in property.

My own view, whether that is at company level or through my own

involvement with real estate, the first thing is can you afford in

terms of your capital outlay or mortgage? If you can, trust your

guts. Because every property is different. Even at a corporate

level, when I buy a building or a big project, on land, for that

matter, once I have the price and my stomach says this is good, I'll go

and buy it. I'm sorry, but I don't rely entirely on calculations, of

course we do checks, but if I can afford it and I like the price, I'll

go buy it. That was Liew Mun Leong, the

recently retired founder of CapitaLand.

Whether there is a housing bubble in key global cities has become a

pressing question as this month marks the beginning of the end of

the era of cheap money. For five years, the US central bank has

injected cash into the economy, but starting now, the Fed is tapering or

cutting back its monetary stimulus. As a result, global interest rates

are heralded to rise, and those mortgage costs. These are key

factors for the housing market. So, I went along to two of the most

expensive cities in the world to investigate the impact.

Two of the priciest cities in the world. These views help make Hong

Kong and Singapore as desirable as Monaco, Geneva, and London to the

global jetset. In Singapore, it costs about $20,000

to buy one square metre, or 2.5 million for a high-end property like

this one. What makes it such a property hotspot?

Politics, security, the legal system, language. What we're seeing

now is a global shift in many of these global cities, and we're all

going to the same point. Eventually, perhaps. But Singapore

is cheaper than many established cities, like New York. The only cost

of occupying a ten million-dollar home is 300,000. Here, it is one

fifth of that. It is why prices have more than doubled since 2007. But,

are Singaporeans worried? No, it doesn't bother me because I

already have a property, fully paid for, so I'm happy.

It is a concern for Singaporeans. It's a bit too high now, it is very

difficult, but it's coming down, I think?

It helps that more than 80% of Singaporeans living quality social

housing, which taken by the government-subsidised mortgages.

Singapore is an attractive place to work and to live and to buy a

property. That is because there is no capital gains tax and that is

rather appealing to foreigners as well. But the government is worried

about frothy markets and has begun to impose taxes to deter some

investment and speculation. It's a similar tax system in the

world's most expensive property market, Hong Kong. Foreign buyers

now pay a tax equal to a quarter of the purchase price. Prices are

falling about but are still high. So, who is buying?

Previously we had a broad mix of buyers, investors, mainland Chinese,

expats, as well as local Hong Kong people and people buying for self

use of course. Though, since the government cooling measures have

been put into place, the transaction costs involved in purchasing a

property have become so high that it has made Hong Kong a less attractive

place to invest. It is hard not to wonder: is there a

bubble? House prices are estimated to be overvalued by 30 to 40%.

That's one of the most overvalued markets in the world.

When the last bubble burst in 1997, during the Asian financial crisis,

house prices fell by 60% and continued to decline for six years.

The trouble with bubbling markets is that once interest rates rise, so

does the risk of collapse. But the director of Hong Kong's richest man,

Li Ka-Shing's property company, thinks it's different this time. If

you compare the cost of buying a property or holding a piece of

property, which is very low right now, in 1997 I think the interest

rate was in excess of 10%. Now the interest rate is only about three%,

so I think that the buyers or property owners will find that very

affordable. House prices are 13 times the average salary, higher

than even during the last bubble. It's hardly affordable, as a young

professional who is staying with a friend in a typical Hong Kong flat

told me. I work in a professional field, in

hotels, and even I spend around 50 to 60% of my whole salary to pay for

my mortgage. Even if I spend nothing, I would have to save about

two whole years for the deposit. Unlike Singapore, there is a bigger

social impact, because public housing is inadequate. It only

covers 30% of the population. I visited the home of Mrs Wong. She

tells me the flat is too small. 400 square feet is the size of a studio

flat, but he resides a four person family.

TRANSLATION: The rent is really high. It is our biggest expenditure.

It takes up half of our monthly income and we don't earn much money.

Homes may be unaffordable, yet new properties continue to be launched,

targeting house-buyers. TRANSLATION: Even houses fell by

10%, we can't afford to buy property or pay the mortgage because that is

the way we can afford it with your current income. Prices are really

too high, especially for newlyweds like us.

Even so, it is not easy to buy a property. Potential buyers have to

see how they come out in a ballot system. Other are those who can

afford to live anywhere in the world. The global Bridgetown to buy

in cash in places with a good quality of life and favourable

taxes. For the rest of us, it means that house prices are more out of

reach if we live in a global property hotspot.

Still with me are: Yolanda Barnes, director of Savills World Research,

David Green-Morgan, Global Capital Markets Research Director at Jones

Lang La Salle, and Nicholas Holt, Asia Pacific Head of Research at

Knight Frank. All right guys, this is the million-dollar question:

where are house prices headed? Yolanda?

It all depends where. There is a huge difference between Detroit and

New York and quite a few interesting things in between. I think we will

see the most growth is the second-tier cities, going forward. I

think a lot of the biggest global cities are pretty fully valued and

if you look at London at the ultra prime market, transactions are still

high and growth is undeniably still there. It is actually slower than

the more suburban prime markets. What about you, David?

I think here in Asia we will see house prices declining, particularly

Singapore and Hong Kong, while the governments keep up with these

cooling measures. The most effective ones seem to be the ones which have

influenced the mortgage market, interestingly. While that's

happening, we continue to see Asian money flowing into the US and

Europe. I think that will continue to have a positive impact on pricing

in those markets. What is your prediction, Nicholas?

I am bullish on Australia, Sydney and Melbourne, I think we're going

to see some price growth over there in the next 12 months. I'm bullish

on Tokyo, central Tokyo condominiums and increasing numbers of foreign

investors going into those markets. Finally, the US is, I think,

certainly on the upward curve. We'll see some good price growth there.

What about Singapore and Hong Kong? I agree with David. I think we will

see corrections they are over the next 12 months.

Here is the question which will be most telling for me, I think. If you

were to buy a house now, which city would you buy it in? Yolanda?

I'll take Chicago. I would bet on Chicago being the next US city to

start moving. OK, David?

I'd say Tokyo. I think with urbanomics and the Olympics, it

looks incredibly cheap internationally.

OK, Nicholas? I'd still choose London. There was a

chronic housing shortage in the south-east of England but I think

the fundamentals are good and I'd still buy London.

Great selection, but I noticed that none of you actually picked

Singapore! I think that's going to cause some people here to be a

little bit worried! I'd like to thank my panellists: Yolanda Barnes,

director of Savills World Research, David Green-Morgan, Global Capital

Markets Research Director at Jones Lang La Salle, and Nicholas Holt,

Asia Pacific Research Director at Knight Frank.

Property isn't the only real asset that investors worried about cheap

cash and inflation are looking at. Art is another asset catching the

eye of investors. But by one measure, art prices rose by only

two% last year against a backdrop of global stocks rising by over 10%.

Yet last year saw the sale of the most expensive piece of art ever. A

Francis Bacon painting went for over $142 million. It is those

contemporary and modern pieces, rather than the classical ones, that

make up the bulk of the global art trade, accounting for nearly 70%.

And it's a big global market, generating $60 billion worth of

sales each year. Who are the figures buyers? The Chinese are vying with

the Americans and Europeans for the title. I went to see what kind of

art is being sold and how the market is doing now.

You probably recognise this image of Queen Elizabeth II of Britain - it

was on the cover of Time magazine. I'm here with renowned light artist,

Chris Levine, to find out how this work came to be. Chris, you're here

in Asia, showing some of your work. Tell us about your use of light in

that portrait. Thank you. I was commissioned by the

island of Jersey in 2004. It was 800 years since Jersey broke away from

France and they wanted a modern portrait to signify that

relationship. When you look at this image, it

actually gives you different perspectives. Tell us a little bit

about how you managed to do that. It is shot with multiple cameras, so

different views. It is a lenticular process and is pretty much visible

in all conditions. So in every image, you basically see

two frames? Yes, as you move from left to right

you're going three whole series of stereoscopic pairs.

I see you have a few other pieces here. That looks like Kate Moss.

This is Kate Moss: model, cultural icon, some would say. Chris, you

have brought these portraits to Asia. Tell us why you are here.

Light crosses all language and it is about the experience and goes beyond

culture. What we're looking at is something that takes seeing into the

experiential realm. Kate represents so much on so many different levels,

but I wanted to get to the beauty that is within, and it is a light

thing. In terms of the market for art, is

it very global these days? Yes, especially with an image of

Kate, it is international, created in the UK, but the cultural aspect

of it is multidimensional and crosses borders.

How have you found the reaction in Asia?

Incredibly receptive. I'm fine to create something that goes beyond

the word, into human experience. So hopefully it is appreciated by

people all over the world. That's certainly another

eye-catching portrait of Grace Jones. What were you trying to do

with this portrait? Grace is a living legend, another

icon. You think of all the energy and dynamism of Grace and what I was

trying to do was to pull her to a point of stillness and somehow in

doing that it increased the whole dimension of the experience. Is

contemporary art a good investment, versus, say, the Masters?

You're asking an artist! You need to talk to the gallery for that but I

think it has been shown that the right selection can be a really good

investment. That was Chris Levine, who assures

me the light bulbs in those pieces last a long time. Whether it is art

or property, investing in real and tangible assets becomes more

enticing when is greater concern about inflation. It is now that the

end of the era of cheap money appears at hand. Working out if

house prices are going up, though, is the million-dollar question.

That's all we have time for this week. Check out our website and me

on Twitter @LindaYueh. Join us next week or more Talking Business with

me, Linda Yueh. The radar tells the story over the

evening. Largely dry in eastern England. Elsewhere, it has been

pretty wet and