Asian countries seek to rein in property prices
By Robert Cookson in Hong Kong

Published: October 5 2009 17:11 | Last updated: October 5 2009 17:11

Asian central banks and regulators are moving to curb rising property prices, in a sign they have adopted a more aggressive stance on pre-empting asset bubbles.

Singapore and South Korea in the past month have tightened rules governing loans to the property sector and Indian media report that the country may soon follow suit. China and Hong Kong have also warned banks to avoid imprudent lending to homebuyers.

Rising Asia-Pacific currencies spark concern - Oct-05Yen surges after Tokyo signals no intervention - Sep-28Asian property withstands the global storm - Aug-07“This is a positive, albeit tentative, sign that Asia has learnt from the experience of the west,” said Rob Subbaraman, chief Asia economist at Nomura. “It is prudent to lean against the formation of asset price bubbles.”

Property prices in several Asian countries, especially Hong Kong and Singapore, have risen sharply in recent months, sparking concern that record low interest rates are fuelling unsustainable speculation in asset markets.

In moving to tackle rising property prices, Asian authorities appear to have drawn on lessons from the calamitous housing market collapse in the US and other countries.

The property meltdown in the west has been widely blamed on a theory of monetary policy – championed by Alan Greenspan during his tenure as chairman of the US Federal Reserve – that sought to clean up bubbles after they burst, rather than prevent them forming.

Unlike many western counterparts, Asian central banks and regulators have taken action throughout the past decade to curb speculative flows into particular sectors, especially property.

But the recent moves are particularly significant because of widespread concern that emergency interest rate cuts over the past year – combined with unprecedented liquidity injected into the global financial system – may have set the stage for explosive asset price inflation.

In Singapore, where private home prices rose 16 per cent in the third quarter from the previous quarter, the government last month moved to “pre-empt any speculative bubble from forming” by abolishing two bank lending schemes that had allowed buyers to defer mortgage payments on uncompleted developments.

South Korea’s financial watchdog took similar steps in September, tightening the rules on how much homebuyers can borrow relative to their income. More strikingly, the country’s central bank, which meets later this week, has indicated that it is prepared to lift interest rates to curb the mortgage boom.

“We believe property price inflation is the Bank of Korea’s main policy worry,” said Tim Condon, ING’s chief Asia economist.

In India last week the Economic Times cited an unnamed central bank official as saying it might increase the amount of capital institutions must hold against commercial real estate loans to “ward off another bubble and to ensure high credit quality”.

In Hong Kong, where mortgage rates are at their lowest level in 19 years, the central bank last month issued a rare warning to lenders that the rates were not sustainable. Mainland Chinese buyers have been flooding into the territory to snap up properties, and prices have soared close to last year’s highs.

In mainland China, government officials have been increasing pressure on banks to avoid imprudent lending into the property and stock markets.

Asian authorities were likely to introduce more ad hoc measures like these in the coming weeks, Mr Subbaraman said, as they allowed them to target bubbles without raising interest rates, which could stifle growth.

But he added: “As long as Asian economies continue to recover, it’s not long before we’ll start to see rate hikes as well.”