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Wednesday, September 1, 2010

Key Asian markets strike early to ward off property bubble

Key Asian economies fearing a US-style housing market bubble are taking fresh measures to curb runaway property prices as the region leads the global rebound from recession.

High domestic liquidity, cash-rich foreign investors and low interest rates have stoked demand, with prices for some sectors in Hong Kong and Singapore surpassing peaks seen in previous property booms.

China is also trying to rein in buyer exuberance by tightening credit and imposing other regulations that make it tougher to buy and sell property.

"On the whole, this is good news because this is a potential problem area and regulators are acting early on it," said Deborah Schuler, senior vice president and group credit officer for financial institutions with Moody's Investors Service, told AFP.

"These are people who believe you should not wait for bubbles."The International Monetary Fund said in a report in June that booming Asian real estate markets "may pose risks to financial stability as banks are increasingly vulnerable to a price correction".

"In addition, because the majority of mortgage loans in Asian economies carry floating rates, the widely anticipated rate hikes in the region may increase the burden on household balance sheets," it added.

Singapore on Monday introduced new regulations to curb "flipping" -- buying condominium units on easy credit and reselling them for a quick profit even before the property is built or opened for occupancy.

A typical three-bedroom suburban apartment of around 100 square metres (1,100 square feet) that will be ready for occupancy in only two or three years now costs at least a million US dollars in Singapore.In Hong Kong, a similar property can cost twice as much.

"We think that if we do nothing, there's going to be a bubble," Singapore's Minister for National Development Mah Bow Tan said.

"And when the bubble bursts, not if but when it bursts, there will be severe implications for individuals as well as for the economy as a whole," he said.

Singapore's latest measures are aimed largely at buyers who have at least one outstanding mortgage.The minimum cash downpayment was raised from five to 10 percent of valuation, while the maximum amount a bank can lend was capped at 70 percent, down from 80 percent.

The balance can be taken from a buyer's pension fund."This round of tightening appears to be the most draconian," said CIMB bank analyst Donald Chua.

In Hong Kong, the territory's richest man Li Ka-shing snapped up in August two prime residential sites at prices well above market estimates.

On Tuesday, another developer paid 165 million US dollars for a plot of prime land in the teeming Kowloon district.Hong Kong announced in August it would further increase land supply and tighten mortgage lending on top of previous measures announced last year.

Home prices in the Chinese territory have surged nearly 45 percent from their trough at the end of 2008.Mainland China's property prices rose at a slower pace in July, suggesting policy measures to cool the sector may be having an impact.

Beijing has tightened restrictions on advance sales of new developments, introduced curbs on loans for third home purchases and raised minimum downpayments for second homes.

The measures will help prevent "drastic fluctuations" in the market, Agricultural Bank of China chairman Xiang Junbo said Monday.

Asian economies have outperformed their Western counterparts in recovering from the global slump that started in late 2008.

"In Asia in general, there are strong capital inflows because of the strong recovery in Asia and the disparate performances between the Western and Asian economies," said Ho Woei Chen, an analyst with Singapore's United Overseas Bank.

Colin Tan, head of research and consultancy at Chesterton Suntec International in Singapore, said more cooling measures may be necessary.

"The liquidity problem is a global one. In Singapore, we are only starting to tackle this problem," he wrote in local newspaper Today.

"Believe me, this is just the beginning."


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