Published April 14, 2007

Asia-Pac home prices roughly in line: IMF

Most countries not experiencing unusually rapid home price hikes


(SINGAPORE) The rapid run-up in housing prices across the Asia-Pacific of late may continue for some time yet, but by and large, prices have not gone grossly out of line with economic fundamentals, according to an International Monetary Fund (IMF) study.

Housing price data in 12 regional economies does point to pockets of 'potential concerns', but elsewhere the price rises are broadly in line with income gains, says a chapter on housing prices in the IMF regional economic outlook for Asia and the Pacific.

'While housing prices have been rising more rapidly than inflation, most countries in Asia are not experiencing unusually rapid housing price hikes,' the report says. 'For the 12 economies for which data are available, real housing price increases averaged 4.5 per cent during 2002-06, but the median was substantially lower, at just over 3 per cent.'

Three countries - China, India and New Zealand - saw real annual price rises of more than 8 per cent over the period, it notes. And in some cases - Hong Kong, Taiwan and Thailand - recent housing price increases follow extended periods of declines.

'In such cases, it is plausible that any rise in housing prices may be a welcome signal for increased investment in the sector.'

The study also found that housing prices have outstripped income gains in about half the cases, but have done so to a significant degree only in Australia and New Zealand.

And housing prices have been relatively tame compared with other asset prices, the report says, adding that apart from Australia and New Zealand, annual housing price hikes have been dwarfed by domestic stock market gains during 1999-2006. 'Of course, this alone does not prove that housing price gains are not problematic, since many equity markets have been quite buoyant.'

Across the region, Australia and New Zealand are the clearest cases where housing price hikes appear large, not just in real terms but also relative to rents or household incomes, it says. In several economies - notably China, Hong Kong, India and Korea - localised indicators point to significant price increases.

Asia's housing markets will likely remain on policy-makers' radar screens for some time, the IMF says.

'Housing prices have been rising more rapidly than inflation, and this may continue for some time as regional incomes grow and financial markets deepen.

'Moreover, as global liquidity remains abundant, the potential for large run-ups in credit and asset prices to affect overall inflation or financial or macroeconomic stability cannot be ignored.'

But at the same time, it is important to distinguish between potentially problematic housing price rises and those that are more localised or can be explained by real supply and demand factors, the report adds.