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Fears of US style property crash persist in Asia

Policymakers are worried that excessive exuberance could push property prices far above their real value, only to crash and bring down with them banks that lent money too freely and individuals who borrowed beyond their means.

‘It is better to pre-empt a bubble than wait for it to get serious and have to take more drastic measures,’ said Singapore Prime Minister Lee Hsien Loong. Singapore was one of the countries hit by the 1997/1998 Asian financial meltdown that followed a property crash that resulted in a swathe of unfinished projects across the region and troubled banks.
  While Asia is now leading the global economic recovery, officials are determined to avert another crisis. Low interest rates, strong demand and speculation have pushed property prices in many Asian cities higher, in some cases surpassing peaks reached in 2007.

‘The risk of an asset bubble is quite high in certain economies such as China, Hong Kong and Singapore,’ explained Yang Liang, head of Southeast Asia research at property consultancy Jones Lang LaSalle.

A bursting of that bubble could ‘potentially derail economic growth, especially if banks and other investment houses are overly exposed to those sectors’, Chua said.
In China, property prices in 70 major cities hit a 21 month high in January despite a tightening of lending, requiring buyers of second homes to put up a down payment of at least 40% and higher interest rates on property loans.

In Singapore, where housing prices have been heating up since last year, the government has put extra duties on sellers who flip a residential property within a year of buying it and buyers are also now limited to borrowing up to 80% of the property’s value, instead of 90%.

In Hong Kong, one of the world’s most frenetic property markets, authorities are fretting about a surge of speculative money since late 2008. From April stamp duty for sales of flats worth 20 million Hong Kong dollars or more will increase from 3.75% to 4.25%.

Australia’s central bank increased interest rates earlier this week in the face of a solid increase in mortgages significant increases in real estate prices over the last 12 months. Average house prices in Sydney rose 12.1% in 2009 and 18.5% in Melbourne.
Some believe the measures will work. But Simon Vinson, head of Asian property at AMP Capital Investors, said he did not see the overall Asian market overheating. ‘It’s really only been the residential market that has experienced strong price growth. Commercial markets remain less buoyant. The rise in residential property prices is just a retracing of some of the losses suffered by the sector during the global downturn,’ he said.

Analysts also point out that unlike their counterparts in the West, Asian banks are not over exposed to the property market. ‘Banks in Singapore, China and Hong Kong have been managing their risks quite well as the respective monetary authorities provide strict instructions on banking operations,’ said Chua Chor Hoon, head of Southeast Asia Research at property consultancy DTZ.
Chua of Jones Lang LaSalle said that in Asia the share of mortgages as a proportion of total bank lending is still within healthy levels