Japan and Italy are likely to register the biggest pullback in home prices next year, reflecting key shifts in market fundamentals in the economies, according to Fitch Ratings.
New condo prices in Japan are forecast to drop by 2 per cent next year as demand from foreign investors peters out after the Summer Olympics in Tokyo, it said. In Italy, growth near stall-speed and double-digit unemployment rate are likely to restrain home prices in cities including Rome.
Fitch forecasts nominal home prices to fall only in the two countries in a global housing and mortgage outlook in 24 countries across five continents, according to a December report published last week.
Japan's success in winning the rights to host the next Olympiad has caused an oversupply of flats in the secondary market amid a surge in demand for accommodation, Fitch said. Investment demand from non-residents is expected to deflate after the event finishes in August, it added.
"The second-hand supply now exceeds the supply of new condos," Hitoshi Hibino, a structured finance analyst, said in the report. Domestic buyers are also going after second-hand properties, thus compressing prices for new condos, he added.
Besides the Olympics factor, Japan's housing market outlook is also tied to the nation's long term demographic trends, Hibino said. An ageing population plus shrinking households are likely to pressure home prices in future, particularly in rural areas left behind by the changing make-up of the economy.
An aerial view of Japan's national stadium for for the 2020 Olympic Games in Tokyo. Photo: Jiji Press/AFP
Japan had 8.46 million vacant homes in rural areas in 2018, or 13.6 per cent of stock, according to Housing and Land Survey data. In Okutama, about 82km west of Tokyo, authorities are giving out homes for free to attract new residents, according to news reports.
"Rural areas should have some downward pressure overall because of depopulation" trend, said Tetsuya Kaneko, head of research at Savills Japan.
Fitch forecasts Japan's gross domestic product to grow at a slower pace in 2020 while unemployment ticks up. That could weaken household income and mortgage loan performance, it said.
"Younger borrowers of 30 to 40 years old are purchasing new homes at higher prices and their household debt-to-income ratios are higher than for senior borrowers," Hibino said. This makes them more vulnerable to an economic downturn, he added.
In Italy, Fitch predicts a 0.5 per cent decline in nominal home prices in 2020 and 2021 amid a stagnant economy. There will also be growing disparity in prices among major cities, a trend also noted by UBS AG in a report published last month.
Some regions in Italy are performing better than others, most notably, in northern Italy and Milan which have recovered better from the recession, according to Gunnar Herm, head of research and strategy at UBS Real Estate unit.
The polarisation in capital growth between the prime segment and the whole real estate market in Italy has been increasing faster than elsewhere, he wrote.
Italy's home prices fell 0.2 per cent year on year in the third quarter of this year, according to Knight Frank. Some regions like Sicily and Tuscany are offering homes for a token one euro in an attempt to revive the local economies, according to local media reports.
Italy slipped into a recession in 2018. Fitch forecasts the economy will edge up 0.2 per cent in 2020, the weakest among 13 European economies it tracked in the December report. Home prices and mortgage performance remain vulnerable to a slowdown, it added.
"Fitch Ratings sees limited room for banks to further reduce mortgage rates in the short term given their weak profitability," analyst Nicola Selvaggi said.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.
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