Rising residential property prices in Asia could lead to mini real estate bubbles and government stimulus packages may be withdrawn to cool down markets, it is claimed.
Central banks and finance ministries in several countries including China and Singapore are discussing how to stop the upward price trend. Hong Kong is particularly affected as the price of luxury property soars, up 30% from the peak of 2008.
In Singapore residential property prices have soared 15.8% in the third quarter from the second, the first such rise in more than a year. Demand is so high that potential buyers are queuing for hours before new launches and there are even claims that some have left blank cheques with their property agents to fill out as they are so desperate to secure an apartment.
And in China average prices are up 37% from last year. The latest analysis from Credit Suisse shows that most major cities in China have seen property prices rise by between 26 and 96% in new home sales in the last 12 months.
The China Banking Regulatory Commission wants to reduce leverage at developers that bought land at inflated prices and at large state-owned companies that have entered the property market. There are concerns that some developers have borrowed too much, threatening to cause an increase in delinquent debts should property prices collapse. Action is already being taken. In Singapore the government has shut down bank lending programmes that allowed buyers to defer mortgage payments on uncompleted developments. If this doesn’t work other measures may be considered.
The central bank in Hong Kong has warned that low interest rates are not sustainable and it has increased the required down payment on real estate costing more than $2.6 million by a third, to 40%.
Australia has increased interest rates as property prices have soared. Residential property prices in Australia increased 3.7% in September to a six year high. Interest rates have now been increased twice in the last two months in a bid to keep a real estate bubble at bay.