Asian boom coming to an end

Asia is showing signs of its property boom coming to an end according to financial experts.

Inflation, particularly in India is affecting the property markets. Borrowing costs are rising, stock markets falling and buying power being eroded by high fuel and food costs.

The Asian Development Bank is warning that 20 years of economic progress is under threat and described inflation figures across Asia as 'alarming'.

In South Korea inflation has hit a seven-year high as a result of rising energy and food costs. In Vietnam inflation is more than 25% and the government has said the issue is the biggest challenge it faces. Singapore, Thailand, the Philippines and Indonesia are facing inflation rates of between 7.5 and 11%.

India's central bank has increased borrowing costs further after raising rates this week to 8.5%, the highest in more than six years.

'The property market may avoid the meltdown seen in the US, UK and Spain because of lower indebtedness and a housing shortage estimated by the government at 24.7 million units,' a spokesman said.

But lenders are not optimistic. Prices across India may drop as much as 15% in the coming months, said Keki Mistry, vice chairman of Housing Development Finance Corp, India's largest mortgage lender. 'Due to the state of the equity markets, many investors who would have bought a second or a third house are abstaining from doing so. Those who are looking to buy a house for self occupation will continue to buy,' he said.

And Gagan Banga, chief executive of Indiabulls Financial Services Ltd, said prices in some cities may fall as much as 20%.

'The real estate sector as a whole is under pressure because of rising input costs, and the increase in interest rates,' said R.K. Gupta, managing director of Taurus Asset Management in New Delhi. He predicted developers may be pushed into cutting prices in the near future.

However it is the smaller companies that are likely to suffer. 'The biggest developers, most of whom raised capital from share sales in the last two years, aren't at risk because they haven't borrowed from banks to purchase real estate,' Banga.

'If you don't have an interest meter running and you just raised capital, where is the question of going belly up? I don't see any systemic damage, or a large name disappearing into thin air, or going bankrupt. But the momentum has slowed down,' he added.

'Rising inflation could hit investment and corporate earnings, and destabilise governments in the region,' warned Rajat M Nag, managing director of the Asian Development Bank.

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