Low interest rates and easy money are in danger of creating a new property bubble – in Asia.
Prices plunged in 2008. But markets are recovering surprisingly quickly. Private home prices in Singapore rose by 15.9% in the third quarter. Hong Kong housing has almost retraced all of last year’s 20-30% slump. In India, DLF, the country’s largest developer, claims it took just two hours to sell out a new 1,250-apartment development, even although prices were raised by 30%.
Before the bust, Asia didn’t see the manic levels of property investing that the US or Britain did. It’s a bit misleading to talk of Asian residential property as a single market, but broadly speaking, prices at the peak weren’t in bubble territory. Sure, there was speculation in some parts of most markets. But the crash didn’t leave huge sections of the population in negative equity. The worst hurt by the fall were developers in countries such as China and India, who built too much too quickly at too high a price.
But it’s precisely because Asia never had a property bubble that it’s vulnerable to one developing now. Property remains reasonably priced. Investors remain unscarred. And there’s an established fondness for property as an investment in Asia.
For now, governments are likely to prevent a mania taking hold. In general, Asian countries aren’t keen on excessive property speculation and often impose lending controls, such as caps on how much buyers are allowed to borrow. China did this to pop a developing bubble in 2008, and similar moves are taking place or being considered in Singapore, Korea and India. Even in Hong Kong, where the authorities rarely intervene in the market, the central bank has warned lenders that their current aggressive competition on mortgage rates is not sustainable.
All this suggests that prices will be kept under control for now. But this is an early sign of one of the biggest problems that Asian governments will face over the next decade. As the West remains sluggish and investors chase growth in Asia, foreign money will flow into stocks, property and other assets in the region, making bubbles more likely. Of course, as we’ve been pointing out regularly in MoneyWeek (see: How to profit as wealth and power head East), this flow of cheap money from West to East is also something that investors can take advantage of.
• Cris Sholto Heaton writes MoneyWeek Asia, MoneyWeek’s free weekly email on investing in Asia – you can sign up for MoneyWeek Asia here.