Asia-Pacific house prices are predicted to likely rise only modestly during 2018, with regulatory tightening, rising interest rates and declining affordability acting as a drag in most markets.
According to a new report by Fitch Ratings, monetary tightening in the next few years – both globally and within the region – will gradually end the ideal conditions that have supported housing markets over much of the last decade.
However, tightening is unlikely to be enough to trigger a sharp correction during 2018, the firm said.
Moreover, stable economic performance and prudent underwriting standards throughout Asia-Pacific are likely to help contain increases in arrears as mortgage rates rise.
“We forecast arrears in most APAC markets to remain below 0.5 percent,” Fitch said.
The impact is likely to be slightly more pronounced in Australia and New Zealand as house-price growth stabilises, especially in big cities.
Household debt is high in both countries and most mortgages have flexible rates, which leaves borrowers more exposed to faster-than-expected interest rate rises.
Regulators have taken steps to contain price rises in most of Asia-Pacific’s major markets in recent years.
There were signs of these steps gaining traction during 2017 in the main hotspots – Australia, New Zealand and China – where price growth slowed from the double- to single-digits.
China’s authorities implemented the most effective regulatory intervention in the region last year, reflecting strong control over the market.
Tougher rules on home purchases and mortgage loans – particularly in higher-tier cities – slowed price gains dramatically.
Fitch expects most restrictions to remain in place, and predicted price appreciation of just 1 percent in Tier 1 cities, down from 1.5 percent in 2017 and 27 percent in 2016.
Downside risks to prices are low, as there is now considerable pent-up demand.
Several APAC markets will soon start to feel the impact of China’s limits on overseas foreign-currency transfers, it noted.
Australia and New Zealand have attracted particularly strong Chinese investment. Australia has placed its own limits on foreign, non-resident buyers, while Fitch expects New Zealand to introduce restrictions this year.
Further tightening of mortgage-lending standards, particularly in Seoul, and gradual interest-rate hikes are likely to weigh on Korea’s housing market.
Elsewhere in Asia-Pacific, Singapore’s housing market recorded its first price rise in almost four years in 3Q17, and Fitch forecasts price growth to accelerate to 4 percent.
Measures that curbed speculation are likely to remain in place. A wave of new supply is now receding, while the earlier price correction has improved perceived value.
Singapore is the only APAC market where Fitch Ratings has a stable/positive outlook; our outlook for all the others is stable.
Fitch’s Global Housing and Mortgage Outlook includes analysis of house prices, arrears and mortgage lending volumes for 22 countries, including Australia, China, Japan, Korea, New Zealand and Singapore in APAC.