Chart of the Week: Asian property prices

2019 could well be a better year for Asian property market, as the rate cycle has matured, and central banks seem keen to keep ample liquidity.
Samuel Tse04 Mar 2019
Photo credit: AFP Photo

Chart of the Week: Property prices in Asia

As interest rates rose, liquidity tightened, and some country authorities introduced cooling measures in 2018, Asian property markets softened, particularly in Hong Kong and Singapore. China saw some recovery after the doldrums on 2017, but the generally favourable price statistics mask large unsold inventory and debt distress among some developers. South Korea’s long dormant market found no help during the course of the year as BoK sought to normalise monetary policy, with prices flat. 2019 could well be a better year in Asia, as the rate cycle has matured, central banks seem keen to keep ample liquidity in the markets, and a strong stimulus package from the Chinese authorities could get the mortgage market humming again.

Performance of selected Asian property price indices

Source: DBS Group Research.

Please see below a rundown of this week’s key data releases and events with macro relevance:

Eurozone: The European Central Bank (ECB) Governing Council is expected to maintain its cautious tone on growth but play down worries over recessionary conditions. Slowing growth and easing inflation will be, nonetheless, enough for policymakers to make a dovish shift at the margin. Besides highlighting the ongoing reinvestments of bonds and low policy rates, we expect a discussion on further stimulus measures by way of fresh tranche of concessionary loans (but no conclusive announcement). Staff economic projections (particularly GDP) are due for a downward revision.

Hong Kong: Retail sales performance is expected to have improved somewhat in January, from December’s 0.1% (0.2% in volume terms) to 1.5% (0.8%) in value terms. Aside from the usual Lunar New Year seasonal effect, the local consumption sentiments were well supported by rising wages of low-skilled workers (4.1% YoY in 3Q18) amid full employment (unemployment rate at 20-year low of 2.8% in December). The temporary rebound in the equity market should have also rendered some support to the retail sector through positive wealth effect.

China: Exports are expected to contract by 5.8% YoY in February (down from +9.1% in January) due to the different timing of the Lunar New Year. Outward shipment performance should turn sluggish again due to a weakening global demand and effective tariffs from the US. Import growth is also forecasted to fall amid moderating domestic economic activities. Early indicators point to a weakening trade sentiment. New export orders PMI and imports PMI have contracted for 9 and 8 consecutive months respectively. Trade balance will likely deteriorate in the months ahead.

Philippines: We think Philippines inflation will continue to slowdown in February to 4.3% YoY, from 4.4% in Jan19 as impact of increased excise taxes has continued to disappear. In addition, lower rice price in Feb19 might also contribute to lower inflation pressure. Yet, there was an upward pressure to inflation as well coming from higher domestic fuel price and electricity price. Thankfully, stronger Peso has provided some cushion to the transmission of higher global fuel price to domestic price. We see that domestic demand might be pressured as net export continue to weaken further, liquidity tightened, in fact, money supply growth (M1) decelerated to 6.9% YoY in Jan19 from 9.5% in Dec18. We think, more dovish BSP this year (we expect no rate hike in 2019) could support domestic demand this year.

Taiwan: Exports are expected to remain sluggish at 0.7% YoY in February, versus -0.3% in January. Downside surprises are possible, given the double-digit decline in South Korea’s February exports and the further deterioration in China’s and Japan’s Manufacturing PMI. There are no signs of bottoming in the trade cycle yet. Some sort of stabilisation is expected for 2Q, presuming that China’s fiscal stimuli will start to work, and demand in the Apple supply chain will begin to improve on the back of the iPhone price cuts. CPI inflation, on the other hand, is forecasted to remain subdued at 0.2% YoY in February. The high base effects will help to keep inflation figures close to zero, despite the temporary rise in food prices (due to Chinese New Year) and the modest rebound in oil prices.

Malaysia: Trade figures (Jan) are due, and Bank Negara will also convene its policy meeting this week. Headline export growth is expected to register a decline of 0.9% YoY, from an expansion of 4.8% previously. This will be the first negative growth figure since Feb18, which underscores the drag from a weaker global demand, as well as the indirect impact of the trade war. Import growth is also expected to decline, by 1.4% YoY, as domestic demand impetus has been weighed down by the challenging economic conditions. This should bring overall trade balance to MYR 10bn, from 10.4bn previously. Outlook for export performance will likely continue to stay soft in the coming months against the backdrop of weaker global demand.

With potentially a softer trajectory for exports, growth momentum is expected to slow as well. And this corroborates with a downside surprise in inflation reading (-0.7% YoY) in January recently. While the bias could be towards monetary easing, we reckon that inflation is weighed down by some policy changes in the second half of last year, and that it should bottom out in the coming month before trending higher from mid this year onwards. As such, we believe the central bank will keep monetary policy steady for now, although room for monetary easing could increase should inflation fall short of expectation or growth slow more than expected.

South Korea: CPI inflation is projected to remain subdued at 0.7% YoY in February versus 0.8% in January. The rise in food prices as a result of the Lunar New Year will be reflected in the MoM rather than YoY changes in CPI. The underlying inflation should also stay tame, given the ongoing slowdown in GDP growth and the deterioration in output gap which offset the impact from minimum wage hikes. Despite a weaker inflation and growth outlook, the Bank of Korea said explicitly at the policy meeting last week that it is not considering a rate cut for the time being. Sentiments in the KRW and KOSPI markets have deteriorated amidst the sluggish macroeconomic environment, and more importantly, the renewed geopolitical uncertainties following last week’s North Korea-US leadership summit.

To read the full report, click here to Download the PDF.

Samuel Tse

Economist - China & Hong Kong

The information herein is published by DBS Bank Ltd and PT Bank DBS Indonesia (collectively, the “DBS Group”). It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.

PT Bank DBS Indonesia, DBS Bank Tower, 33rd floor, Ciputra World 1, Jalan Prof. Dr. Satrio Kav 3-5, Jakarta, 12940, Indonesia. Tel: 62-21-2988-4000. Company Registration No.