Markets in review.

ANNUAL HOUSE PRICE CHANGE (%), IN LOCAL CURRENCY TERMS
	2007* (LATEST)	END-2006
Bulgaria	30.59	--
China (Shanghai)	27.85	-0.61
Singapore	27.59	10.15
Estonia (Tallinn)	23.38	28.64
Lithuania	13.64	30.95
Philippines	13.04	9.63
Colombia	12.82	6.77
South Africa	12.52	15.12
Norway	11.56	16.67
Hong Kong	11.25	4.11
Australia	10.63	9.71
Latvia	10.22	68.99
Sweden	9.86	10.50
UK	9.68	10.49
South Korea	9.01	11.60
Poland	8.38	9.67
France (Paris)	8.27	9.70
Japan (6 cities)	7.75	4.12
New Zealand	6.67	11.86
Canada	6.13	10.74
Finland	5.88	6.56
Italy	5.60	6.30
Spain	5.31	9.14
Indonesia	5.24	6.60
Greece	4.18	10.54
Denmark	3.95	14.94
Netherlands	3.77	4.73
Malaysia	3.20	4.80
Switzerland	2.56	3.24
Germany	2.04	3.06
Portugal	0.49	0.65
Israel	-0.51	-3.16
Thailand	-0.78	1.87
Japan	-1.48	-2.78
Ireland (monthly)	-4.68	11.8
US (NAR)	-5.07	-0.18
US (FHFB)	-3.49	-1.9
US (OFHEO)	1.79	6.03
* latest available Source: various series, list of house prices, data and sources here

In 2007, the US housing market crashed, and Europe’s housing markets slowed. But house prices in Asia-Pacific gained momentum.

Shanghai’s red hot housing market continued to rebound, despite efforts by the government to cool the market. House prices rose by 27.85% to end-Oct 2007 from a year earlier; a significant turnaround from 0.6% drop in 2006.

Singapore registered an annual house price increase of 27.6% (24% in real terms) to end-Q3 2007, significantly higher than the 7.6% price increase over the same period in 2006. In real terms, Singapore was the world’s best-performing housing market, given inflation of only 2.66%.

House prices rose by more than 10% year on year (y-o-y) in nominal terms in several developing countries - the Philippines, Colombia, South Africa, and Hong Kong. However, when adjusted for inflation, price increases were generally substantially lower

Urban land prices in Japan’s six largest cities rose by 7.75% during the first half of 2007. Although Japan’s national urban land price index fell by 1.48% during 1H 2007, this is an improvement from the 2.8% price fall in 2006. The Japanese urban land price index is generally believed to lag reality, so significant recovery is taking place in the Japanese housing market.

ANNUAL HOUSE PRICE CHANGE 2007* (%), ADJUSTED FOR INFLATION
	INFLATION-ADJUSTED	NOMINAL
Singapore	24.29	27.59
China (Shanghai)	20.04	27.85
Bulgaria	15.42	30.59
Estonia (Tallinn)	15.08	23.38
Norway	11.93	11.56
Lithuania	11.43	13.64
Philippines	9.88	13.04
Hong Kong	9.44	11.25
Australia	8.60	10.63
Sweden	7.86	9.86
Japan (6 cities)	7.86	7.75
UK	7.49	9.68
France (Paris)	7.01	8.27
South Korea	6.53	9.01
Colombia	6.40	12.82
Poland	5.81	8.38
New Zealand	4.59	6.67
South Africa	3.77	12.52
Canada	3.66	6.13
Finland	3.29	5.88
Spain	2.88	5.31
Netherlands	2.44	3.77
Denmark	2.29	3.95
Italy	2.08	5.6
Switzerland	1.91	2.56
Malaysia	1.73	3.2
Greece	1.54	4.18
Germany	-0.40	2.04
Latvia	-1.02	10.22
Indonesia	-1.18	5.24
Japan	-1.38	-1.48
Portugal	-1.68	0.49
Israel	-1.86	-0.51
Thailand	-2.81	-0.78
Ireland	-9.08	-4.68
US (NAR)	-8.46	-5.07
US (FHFB)	-6.79	-3.49
US (OFHEO)	-0.56	1.79
* latest available Source: various series, list of house prices, data and sources here

The US housing market continues to weaken.

Asia

Housing markets in several Asian countries gained momentum during the first three quarters of 2007, reflecting to some extent continued recovery from the 1997 Asian Crisis.

The strong house price increases in Singapore, South Korea, and Japan have been mainly due to strong economic growth. Mortgage markets in Asia are generally underdeveloped. Hence the effect of interest rate movements on the housing market is indirect, channeled through over-all economic performance. With electronic goods as the main export of these countries, economic growth is expected to drop if the global economic recession occurs in 2008.

In the Philippines, demand for houses and condominiums has come mainly from families of Overseas Filipinos.

Price increases in China are subject to strong government intervention. Left unhampered, property prices would be expected to rise due to continued economic expansion and rapid urbanization. Adding fuel to the price boom are the Beijing Olympics in 2008 and World Expo in 2010 in Shanghai.

In Thailand, political problems have led to weak economic growth and falling property prices. Property price changes in Indonesia and Malaysia remain unimpressive. Although the national house price index in Indonesia was up 5.2% in nominal terms to end Q-3 2007, the index actually dipped by 1.2% in when adjusted to inflation. In Malaysia, the house price index rose 3.2% (1.7% in real terms) to Q2-2007 from a year earlier.

THE GLOBAL PROPERTY GUIDE’S FORECASTS FOR 2008:

Asia-Pacific

Property prices in much of Asia are still undervalued compared to pre-Asian crisis levels, despite strong increases in 2007.

China is unfortunately not open to investment, and non-resident foreign buyers of dwellings are no longer welcome (though developers still are). While Beijing’s property prices will probably peak in 2008 after the Olympics, Shanghai is still preparing for the World Expo in 2010. With yields at 8% Shanghai’s prices have nowhere to go but up, unless the government intensifies its intervention.

Cambodia could be a proxy for China. Strongly tied to the Chinese economy, Cambodia is open, has high yields, relatively low transaction costs and low taxes, though investors must be prepared for only an indirect acquisition of land due to constitutional limitations on foreign purchases.

The resolution of Thailand’s political crisis in 2008 could open opportunities, after two dismal years. Gross rental yields are good at 7%-8%, income taxes are relatively high but acceptable (compared to the Philippines), the market is pro-landlord. Under better management Thailand could do very well. Indonesia is attractive, but has problems as an investment destination - there are high yields in Jakarta, but very high transaction costs and high rental income taxes. The Philippines too has high yields, but similarly discouragingly high transaction costs and high rental income taxes.

Japan’s housing market is recovering strongly. While Tokyo’s gross rental yields are unattractive at around 4.7%, the price momentum is positive, the law is strongly pro-landlord, there are low-ish transaction costs, and low rental income tax. The recently announced tighter regulation of new dwellings could lead to faster property price appreciation.

In Singapore we believe gross rental yields are now too low, at 2% to 3%. Nevertheless, Singapore is attracting (and admitting) more foreign-born workers – which is positive for prices. Hong Kong’s yields are somewhat higher (around 3% to 5%), and the US$ peg will mean Hong Kong will follow lower US$ interest rates, which should boost the housing market. << Read More... >>

Shanghai RE to slow in ’08

Investment in Shanghai´s real estate market is expected to grow less rapidly and become more vulnerable to policy uncertainties in 2008, according to several large real estate service providers.

Real estate investment saw a slowdown in the fourth quarter last year, with only one notable sales transaction completed in the city, after the government implemented the land appreciation tax and imposed additional restrictions on foreign investment in the sector, according to Jones Lang LaSalle.

"Increasing monetary control and tightening policies are bringing more uncertainties, particularly to the investment market," said Lee Hingyin, director of Research & Consultancy at Colliers International (Shanghai). "The investment market may feel the pinch, and it is likely that foreign investors will be more vulnerable to these policy changes this year," said Lee, adding that he expects more severe measures, which will significantly cool down the investment market.

James MacDonald, senior manager of Research at Savills China, however, said: "In the institutional investment market, it´s not necessary that new policies will be introduced and will affect the market in a big way. Instead, it is the more stringent implementation of previous regulations that has to be
watched."

"The government´s tighter monetary policy this year is expected to have a negative impact on the real estate investment market, which is highly dependent on bank loans," said Chen Sheng, director of the China Index Academy, which tracks property prices.

Wang Qing, an economist at Morgan Stanley Asia Ltd, said in a report that sectors with a high debt-asset ratio, such as real estate, tend to experience larger declines in fixed-asset investment growth after credit tightening. The debt-asset ratio of the real estate sector is over 70 per cent.

Liu Shiyu, deputy governor of the People´s Bank of China, the country´s central bank, said the government will strengthen commercial real estate management and adjust the real estate credit structure to prevent risk.

China's economic explosion

China's cities: faster, bigger, better?

The rapid expansion of cities and swelling of urban populations has been the most spectacular feature of China's rapid development

When Deng Xiaoping visited the undeveloped Pudong area of Shanghai in 1992 and exhorted China to build faster and bigger, an economic explosion was to ensue that would change the world. Today Pudong has joined Manhattan and the City of London as one of the world's foremost business hubs.

Countless other Chinese cities are determined to follow in Shanghai's steps. Cities have been the engines of China's economic growth, contributing 70% of its annual gross domestic product. But they are also the stage on which China's most intense social and environmental struggles are being played out.

The rapid expansion of cities and swelling of urban populations has been the most spectacular feature of China's rapid economic development over the past two decades. China has become one large construction site: the stock of urban buildings has doubled in a mere five years, reaching almost 15 billion square metres in 2004. In 2005, Shanghai constructed more building space than exists in all the office buildings of New York City. Construction projects in China account for 30% of the global total.

The largest human migration in the history of mankind has been occurring in tandem. China's urban population has grown from less than 20% of the total in 1980 to more than 40% today. A change on the same scale occurred over 120 years in the UK. More than 200 million people have moved to China's cities in tha past 25 years, providing the labour to fuel the country's breakneck economic growth. Urban population growth is expected to continue unabated, reaching 60% of the total population by 2030. In the next two decades China's cities are expected to absorb about 300 million people - equal to the current US population - from rural areas.

To a large extent, this shift has been willed and encouraged by the government. It is straightforward to see why. Simply put, there are too many farmers in the Chinese countryside. The productivity of labour in the agricultural sector is merely one-quarter of that in the service sector and a whopping nine times lower than in industry. To sustain economic growth and achieve its developmental goals, China has little choice but to shift the large pool of surplus rural labour into higher-productivity urban-based jobs.

While a compelling economic logic underpins China's great urbanisation drive, the mounting social and environmental strains it causes cannot be ignored.

As well as providing a ready supply of cheap new labour, urbanisation has added to a growing pool of urban poor. China's 130 million migrant workers are marginalised economically and socially. They are parties to a primitive and unstable social contract that is beyond the protection of the law.

This denies them many rights, including social security guarantees enjoyed by the permanent residents of cities. These people have low pay, unstable jobs and inadequate medical care. They are mostly crammed in to ramshackle "villages" (dormitories) with an average of five square metres of living space per person and often no heat, running water or sanitation facilities.

Urban expansion has meant large-scale conversion of productive agricultural land for urban development. The area occupied by China's cities expanded by 50% between 1998 and 2005. Close to 50 million farmers have been deprived of their land in this way, with only meagre compensation as solace. Land grabs have become the number one cause of protests in China.

Land conversion has in some cases become a major driver rather than a mere symptom of urbanisation. Indeed, the sale of land to developers is an important source of revenue for municipalities - which are not allowed to borrow from capital markets - as well as a source of significant personal enrichment for corrupt local officials. It has been estimated that earnings from the urbanisation of rural land commonly contribute up to two thirds of the revenue of local governments.

As a result, China is repeating the same mistakes that the US had committed, in building sprawling cities that are more suited for cars than for people. Indeed, in some cases, roads are built primarily for the purpose of urbanising land. The ensuing land development is almost always oriented towards the private car and very difficult to serve effectively with public transport. Such mistakes will lock China into a future of rising oil dependence and severe urban air pollution from fuel combustion.

Cities are often built without regard to basic ecological constraints. Beijing has sufficient water resources to sustain a population of about 10 million, yet today it is home to 17 million residents and growing. Scientists warn that the aquifers below the North China Plain may be drained within 30 years. Yet above ground cities are booming and new developments mushrooming like there's no tomorrow.

The pervasiveness of prestige projects is another salient feature of urban wastefulness. Extravagant government offices, outsized piazzas, unnecessary convention centres and expectant central business districts are the norm even in most economically backward areas.

So far, so familiar: most of the aforementioned problems are not unique to China. Where China stands out is in the extent of experimentation with alternative and more sustainable city models.

In the search for solutions to its urbanisation challenges, China has flung its doors wide open to international co-operation. The world's leading engineering, urban planning and design firms are converging in China and the boldest experiments are taking place.

In Huang Baiyu in Liaoning province, a future is being built in which cities function like superior organisms: self-sufficient in energy, with waste streams recycled endlessly. Similarly ambitious and innovative urban concepts and designs are being tested in "eco-cities" in Wuhan, Zhejiang and Shanghai, to name but the most prominent.

China has become a global laboratory of urban change and an incubator of technological, design and policy innovations. Paradoxically, therefore, China's urban mayhem has made it the epicentre of global debate on sustainable urbanisation.

The author is National Co-ordinator for the UK-China Sustainable Development Dialogue, and an Environmental Economic consultant to the World Bank in China. He is also founder and director of EnAct 21, a policy advisory consultancy dedicated to promoting sustainable development through diplomacy. He writes here in a personal capacity and his views do not necessarily reflect those of the UK government or of the World Bank.

LEO HORN-PHATHANOTHAI