International Monetary Fund warns of property bubble in Asia Pacific region
The Asia Pacific region, including Australia, is not immune from a potential property bubble, according to a report by the International Monetary Fund.
While the IMF found 'no evidence of systematic bubbles' in the near term, it was concerned that if current economic conditions persisted, asset bubbles in the region could form in the medium term, fuelled partly by an element of speculation in the market.
‘As typically happens in housing bubbles many purchasers may have been buying in the expectation of price appreciation, rather than simply for dwelling purposes,’ the report says.
Property markets in the region were quick to rebound late last year after the global financial crisis, in stark contrast to other parts of the world. The resurgence, initially facilitated by unprecedented economic stimulus measures and slashed interest rates, has been further spurred on by a surge of investment in the region, attracted by prospects for strong growth and appreciating currencies.
Low interest rates in major advanced economies in North America and Europe have also been vital as investors looked overseas for a higher return on their money.
In Australia property prices have increased 13% due to interest rate cuts and the extension of the first time buyers grant and even the prospect of increased interest rates ahead has not dampened the demand.
China this week ordered developers not to take deposits for sales of uncompleted apartments without proper approval and barred them from charging ‘abnormally high’ prices, as the latest effort to prevent a property bubble as prices soar in Hong Kong and on the mainland where property prices in 70 cities jumped a record 11.7% in March.
Developers must make public all apartments available and prices and start selling within 10 days of getting pre-sale approval, the Ministry of Housing and Urban Rural Development said in a statement. It said developers that artificially create supply shortages would face fines.
The focus on developers’ sales tactics adds to curbs on loans for third home purchases, increased down payment requirements and higher mortgage rates announced in the past week.
A new survey shows that Hong Kong property is the least affordable among the world’s major cities. Research for the South China Morning Post found buyers in Hong Kong pay more than 10 times their annual income to buy a flat, the most of 272 metropolitan cities and earning it a ‘severely unaffordable’ rating along with Sydney, London and New York.
But while China is often touted as a possible candidate for a potential asset bubble, IMF figures show Australia’s house price-to-income ratio is one of the highest in the region, second only to India.
The IMF report says that Australia’s house prices were at elevated levels compared to incomes or rents and said booming property markets throughout the region presented a threat to financial stability.