International Buyers Line Up for Luxury in Asia
Following long months of restricted travel and closed borders in many countries across Asia, a gradual relaxation of the rules means high-net-worth individuals are resuming property purchases in some locations.
But while lifted restrictions encourage travel and investment in Asia, the threat of a global economic downturn and weakened currencies are also affecting property markets.
In Singapore, for example, the number of international buyers—including foreigners and permanent residents—of luxury apartments for 2022 through September was 198, approximately 62% of the 320 international buyers in 2021, according to the Urban Redevelopment Authority in Singapore.
Last year didn’t see as many international buyers as the year prior, says Lewis Cha, executive director, List Sotheby’s International Realty, Singapore. “Although Covid-19 continued to plague the world in 2021, the growth of emerging industries like biomedical, fintech, and big tech, along with rebounding stock markets and cryptocurrency gains, resulted in more money being poured into luxury real estate,” he says.
While easing pandemic restrictions in 2022 spurred cross-border travels, Cha says the increasing pressure of a fast-changing financial market and escalation of geopolitical threats is affecting the Singapore housing market. However, the negative news could have a positive impact on the Singapore market in the coming year.
“As ultra-high-net-worth buyers are opportunistic and savvy, they would see any fall in the stock market as a possible opportunity to pick up some prime real estate for less,” Cha says.
In Japan, which recently reopened for tourism, more-relaxed policies as the pandemic loosened its grip increased buyer interest in luxury properties, says Miwa Urata, sales agent, List Sotheby’s International Realty, Japan. However, she believes the weak yen is having a greater effect on the Japanese property market.
“I expect that, in addition to the weak yen, the winding down of the pandemic will soon give people a chance to come to Japan, and therefore more clients will be previewing properties,” she says. “After all, many clients make the decision to buy after seeing the actual property.”
Investor Haven in Singapore
Foreign buyers continue to be drawn to Singapore, although some properties are restricted to local buyers, such as designated “good class bungalows” on the main island, Cha says.
“Luxury apartments in good-quality buildings with high-end finishes and fittings that are priced from S$5 million and up, located in the Core Central Region that includes prime residential districts 9, 10, and 11, the Downtown Core, and Sentosa Cove, are available for anyone to buy,” Cha says. “In Sentosa Cove, a residential enclave on the resort island of Sentosa, both permanent residents and foreigners can buy villas, subject to approval by the Land Dealings Unit.”
Cash Buyers Make a Comeback
Over the past few years, even ultra-high-net-worth individuals have taken advantage of historically low interest rates and used credit to purchase homes. Now that interest rates have more than doubled over the past year, reaching more than 7% during mid-November 2022, these buyers are turning back to cash.
“We are definitely seeing buyers move from loans to cash,” says Ryan MacLaughlin, owner and principal broker, Island Sotheby’s International Realty in Hawaii. Some, he says, “are hoping to finance the home after the fact as a refinance with a lending institution, once interest rates go back down. They will wait for that even if it’s a year or two away.”
During the third quarter of 2022, 35.7% of single-family home and condo sales in the U.S. were all-cash, according to Attom Data Solutions.
That number tends to be higher among luxury buyers, Sotheby’s International Realty brokers say. Jacques Menahem, founder, French Polynesia Sotheby’s International Realty, says about 50% of his transactions in the past year came from cash buyers.
“Sellers always prefer cash over credit,” Menahem says. With interest rates changing so quickly, banks may change their mind on preapproved loans. A seller will likely choose the less risky bet.
In some places, cash buys have always been the norm. Buyers of “big-ticket properties are mainly cash buyers and therefore, quite immune to the rising interest rates at the moment,” explains Chris Whitehead, managing partner LUXHABITAT Sotheby’s International Realty in Dubai, who’s seen an influx in ultra-high-net-worth individuals over the last 12 months. For areas like Dubai, he says, buyers are “more sensitive to the stock market and foreign exchange market fluctuations as opposed to interest rates.”
“Our equity-to-loan ratio is probably as high as you’ll find in any jurisdiction in the world,” says Joe Zahm, president and broker, Turks and Caicos Sotheby’s International Realty. “We have so many cash buyers.”
Some of those offers may be all-cash to a seller, he says, but a buyer may still be getting money off their business line of credit or on their primary home line of credit.
Cain says over 50% his clients buy all cash. “In the last three to six months I’ve seen more cash buyers enter the market than financed buyers. Although rates have increased, they are still reasonable from a historic perspective,” he says. “People who need to buy due to life circumstances will still transact regardless, but if possible, may try to get smaller loans or buy down their rates.”
With Inventory Increases, Markets Begin to Turn Slightly In Buyers Favor
Buyers finally are breathing a sigh of relief. Amid increasing interest Brates and uncertain economic conditions, we’re seeing moderate increases in home inventory and buyers may find the balance of power shifting slightly in their favor.
“Even though inventory has increased, buyers aren’t quite yet in the driver’s seat,” says Shelton Wilder, sales associate, Sotheby’s
International Realty Brentwood Brokerage. That said, “there is a slight change in negotiating power and keeping contingencies in place.”
While more homes may come onto the market in the coming months, don?t expect to see inventory increase overnight, says Lawrence Yun, chief economist for the National Association of Realtors. Total inventory was at 1.22 million units at the end of October 2022, up from the seasonal low in January 2022 of 850,000. The October number was down 0.8% from both September 2022 and October 2021. In October 2022, there was a 3.3-month supply, up from 3.1months in September 2022 and 2.4 months in October 2021.
“We don’t anticipate a large increase because many homeowners won’t want to give up their low interest rate from refinancing or purchasing over the last two years,” Yun says. “We may see some moderate increases, but not anything drastic.”
Jim Egan, Morgan Stanley’s U.S. housing strategist, told Bloomberg’s Odd Lots podcast that inventory is one of the most important statistics with which to gauge the health of the market. “There are three angles we look at: new inventory, existing inventory, and shadow inventory/ distressed,”he told the podcast. “The third is what you need for downward momentum in year-over-year prices; we don’t see that happening.”
“With the economy the way it is, I believe buyers are cautious, but, at the same time, with such little supply, we are seeing sales of properly priced homes still moving at a rapid pace,” says William Montero, global real estate advisor, Gibson Sotheby’s International Realty in Massachusetts. He says inventory is down year-over-year in Boston?s high-end Back Bay neighborhood, “though price per foot and sales are steady.”
Montero adds that under-construction luxury towers like Raffles and St. Regis Residences will likely fetch record prices for Boston – between US$2,000 and US$5,000 per square foot.
Homes being built are among the most important statistics facing the housing forecast, and at the moment, the U.S. is two million to six million units underbuilt, Egan told the Odd Lots podcast. Single-family home starts are likely to go down in 2023, compared with 2022, he said.
At the moment, though, we’re still in seller’s market territory, he says. “Technically, an inventory below six months of supply is still a seller’s market, and we’re at four month,” he said.
In a survey of leading agents across Sotheby’s International Realty’s global offices, more than 60% said inventory is low or very low in their regions.
“We are seeing homes on the market longer than last year and an increase in the number of price adjustments, but we are also seeing fewer homes come to market,” says Deirdre O’Connell, chief executive officer, Daniel Gale Sotheby’s International Realty on Long Island, New York.
According to August 2022 data from Realtor.com, in the top 5% of the market, the number of properties with price reductions was up by 95% on average.
Buyers have become pickier, Wilder says. “They now want homes that are turnkey, but sellers are sticking to their guns in hopes that they’ll get those spring prices.”
What Lies Ahead: Lessons From Past Market Corrections
After a real estate boom, the prospect of a slowdown can feel daunting. But lessons Afrom past downturns show there are potential upsides to market stability after a period of unsustainable growth. That is particularly true for buyers, who enter 2023 with increased bargaining power after cutthroat competition, bidding wars, and record prices.
The move toward a slower sales pace and stabilizing prices heralds a shift that is part of the housing market’s natural cycle, says Corey Burr, senior vice president, TTR Sotheby’s International Realty, which has offices in Washington, D.C., Maryland, and Virginia. “I’ve done this all day every day for 35 years, so I’ve seen upswings at the peak of what the market can be, particularly 2005 to 2007 and also at the very end of the 1980s. And I’ve seen market lows, which lasted through the 1990s, and which went from 2008 to 2013,” he says. “I personally subscribe to a theory that real estate runs in 16-year cycles.”
Sales of new-build homes fell and construction stalled in 2022, at the same time that sales of existing homes dropped and mortgage applications hit a 22-year low, according to the Mortgage Bankers Association and the National Association of Realtors. But housing vacancies remained at historic lows heading into 2023, according to census data. Mortgage underwriting remains tight, negative equity is nearly nonexistent, and the majority of loans are fixed-rate products, all of which suggest a fundamentally healthy market.
Inventory Continues To Shape Market
Lessons from the past suggest the outlook for 2023 may be more positive than some might think. ” I’m not anticipating the free fall that we experienced in 2008,”
Burr says. ” It’s going to feel like it’s getting cold very quickly, but the incredible peak that the real estate industry was on for over a two-and-a-half year period was nearly unprecedented.
Anything but that scenario is going to seem like a strong cooling off. “According to the National Association of Realtors, in October 2022, 64% of houses were still selling within 30 days. “It’s still a very strong market, historically,” he says.
Shortage of inventory is one factor helping to bolster home prices. “We’re still seeing a supply-and-demand issue, and that ultimately is going to push the market,” says Shen Schulz, senior global real estate advisor and associate broker, Sotheby’s International Realty – Malibu Brokerage. “There may be a slowing in the number of units, but the prices are maintaining a strong valuation. “Some price corrections are expected as part of “the normal balancing of scales,” he adds, but “if somebody really does want to make a change, either sell their home or buy a new one, they will become used to the higher interest rates and business will slowly improve.”
In Colorado, for one, an expected slowdown has yet to materialize. “Given the reversal in the interest-rate market that has occurred, one would expect prices to soften and inventorytorisesteadily.Contrarytothat expectation, inventory remained static from August 2022 through October 2022,” says Josh Behr, principal, LIV Sotheby’s International Realty in Denver. Though inventory later in 2022 slowly fell by about 10%, continued migration from other states means that prices are likely to remain “somewhat steady” in 2023, he adds.
Luxury Market Driven By Sentiment
Some high-net-worth buyers may rely more on feelings than numbers when it comes to purchasing a home in an uncertain economic climate. “When you move into the luxury spectrum, what you’re finding is the vast majority of homes are selling with no mortgage. The buyers can afford it. It isn’t whether or not they can buy something, it’s whether they feel like buying something,” Huskey says. “The luxury market is largely driven by sentiment and a perception about what is occurring in the future.”
The inflection point that restores confidence may come very soon. “We’ve seen inflation come off its peak. We’ve seen mortgage rates start to stabilize. We’ve seen employment continue to be strong, “he says. Once buyers see progress on bringing down inflation, “it’ll then be easier for companies to continue making their quarterly earnings potentials, and at that point, people start to feel good again.”