This came out on the July 6, 2013 issue of The Brunei Times. Click here for original story
Housing ownership curbs protect Brunei real estate market
In Brunei, the housing market is still largely a domestic play
and the rise and fall of interest rates does not change demand as
quickly or dramatically as in other markets in Asia. Picture: BT file
Saturday, July 6, 2013
THE move to limit ownership of residential property to locals caps
foreign investments in the segment but also protects Brunei from
fluctuations in the real estate market, a property expert said.
In an email interview with The Brunei Times recently, Dr Chua Yang Liang, head of research for Southeast Asia at global property consultancy firm Jones Lang LaSalle, said that the Sultanate's housing market was "relatively stable" because of limitations set by the government.
Under the law, only Bruneians can own landed property in the country. Foreigners and permanent residents can only hold properties under strata titles or long-term leasehold rights. Last month, most banks stopped granting housing loan applications from permanent residents and foreigners to reflect the edict.
"While the long-term lease structure has effectively made the housing market available to foreigners, nevertheless, it is still fairly limited and has capped the level of investment in the domestic housing market," Chua said.
"Equally, this has benefited the domestic market as it does not have that destabilising effect that speculation brings as can be seen by the number of anti-speculation policies that governments in Hong Kong, China and Singapore have put in place to cool down their housing markets," she added.
Speculation is the practice of engaging in financial transactions and turning around to profit from fluctuations in the market value of the products.
Chua noted that the Brunei property market "is generally less transparent compared to other mature Asian countries such as Hong Kong or Singapore".
"However, it is also ...not overly affected by the effect of hot money floating around in Asia," she said, referring to money that flows quickly out of markets that give little returns into those offering the highest yields.
Chua also said that because the residential real estate market in the country was driven largely by people buying homes for their own use rather than as investments, changes in interest rates for housing loans are not likely to have an immediate and direct impact on demand.
The Autoriti Monetari Brunei Darussalam (AMBD) in March imposed a maximum effective interest rate or annualised profit rate of not more than 4.5 per cent per annum on housing loans, as part of efforts to enhance the financial infrastructure and inculcate sound financial management among debtors.
"In Brunei, as the housing market is still largely a domestic play, the rise and fall of interest rates may not change demand as quickly or dramatically as you expect unlike other markets in Asia. Investment demand (here) is fairly limited."
Data from the International Monetary Fund (IMF) which were sourced from the Department of Economic Planning and Development show no foreign direct investments coming in for real estate, renting and business activity in 2011. In 2009 and 2010, the sector saw $3 million in foreign direct investments per year, while in 2007 and 2008, it logged $2 million in foreign direct investments per year.
Chua, however, said that while there was little interest among regional developers to enter Brunei's residential real estate market, "if domestic demand in Brunei was to enjoy a sustained rise, then this might arouse interest among domestic developers".
Reflecting strong demand for housing, mortgage has the second biggest share in the loan portfolios of commercial banks in the country, after personal loans. The latest data from the central bank which are cited by the IMF show that mortgage totalling $1.326 billion accounted for 26 per cent of the $5.09 billion in loans extended by commercial banks in 2011.
The share of mortgage in the banks' loan portfolios has been increasing over the past three years, from 18.6 per cent in 2009 and 23.6 per cent in 2010, data show. As of the third quarter of 2012, mortgage made up 27.1 per cent of the total loans extended by commercial banks. The Brunei Times
In an email interview with The Brunei Times recently, Dr Chua Yang Liang, head of research for Southeast Asia at global property consultancy firm Jones Lang LaSalle, said that the Sultanate's housing market was "relatively stable" because of limitations set by the government.
Under the law, only Bruneians can own landed property in the country. Foreigners and permanent residents can only hold properties under strata titles or long-term leasehold rights. Last month, most banks stopped granting housing loan applications from permanent residents and foreigners to reflect the edict.
"While the long-term lease structure has effectively made the housing market available to foreigners, nevertheless, it is still fairly limited and has capped the level of investment in the domestic housing market," Chua said.
"Equally, this has benefited the domestic market as it does not have that destabilising effect that speculation brings as can be seen by the number of anti-speculation policies that governments in Hong Kong, China and Singapore have put in place to cool down their housing markets," she added.
Speculation is the practice of engaging in financial transactions and turning around to profit from fluctuations in the market value of the products.
Chua noted that the Brunei property market "is generally less transparent compared to other mature Asian countries such as Hong Kong or Singapore".
"However, it is also ...not overly affected by the effect of hot money floating around in Asia," she said, referring to money that flows quickly out of markets that give little returns into those offering the highest yields.
Chua also said that because the residential real estate market in the country was driven largely by people buying homes for their own use rather than as investments, changes in interest rates for housing loans are not likely to have an immediate and direct impact on demand.
The Autoriti Monetari Brunei Darussalam (AMBD) in March imposed a maximum effective interest rate or annualised profit rate of not more than 4.5 per cent per annum on housing loans, as part of efforts to enhance the financial infrastructure and inculcate sound financial management among debtors.
"In Brunei, as the housing market is still largely a domestic play, the rise and fall of interest rates may not change demand as quickly or dramatically as you expect unlike other markets in Asia. Investment demand (here) is fairly limited."
Data from the International Monetary Fund (IMF) which were sourced from the Department of Economic Planning and Development show no foreign direct investments coming in for real estate, renting and business activity in 2011. In 2009 and 2010, the sector saw $3 million in foreign direct investments per year, while in 2007 and 2008, it logged $2 million in foreign direct investments per year.
Chua, however, said that while there was little interest among regional developers to enter Brunei's residential real estate market, "if domestic demand in Brunei was to enjoy a sustained rise, then this might arouse interest among domestic developers".
Reflecting strong demand for housing, mortgage has the second biggest share in the loan portfolios of commercial banks in the country, after personal loans. The latest data from the central bank which are cited by the IMF show that mortgage totalling $1.326 billion accounted for 26 per cent of the $5.09 billion in loans extended by commercial banks in 2011.
The share of mortgage in the banks' loan portfolios has been increasing over the past three years, from 18.6 per cent in 2009 and 23.6 per cent in 2010, data show. As of the third quarter of 2012, mortgage made up 27.1 per cent of the total loans extended by commercial banks. The Brunei Times
