ST : 'Bubbles forming' in Asia's property markets

Sep 17, 2010

'Bubbles forming' in Asia's property markets

By Jessica Cheam

EXUBERANCE in the Asian property sector is hard to rein in once the market has accelerated, says a real estate expert.

And despite government cooling measures, the inflow of money from the United States and Europe into Asia might continue to fuel property prices, said Mr Beat Lenherr yesterday.

Speaking at a forum held by the National University of Singapore's (NUS) Institute of Real Estate Studies, he said property bubbles were developing in Asian markets such as Singapore and Hong Kong, where there are 'elements of exaggeration... and it doesn't make sense to buy in terms of rental yield or expected capital gains'.

Risk aversion shown by investors towards the US and Europe was leading to 'money just flowing into Asia', said Mr Lenherr, the global chief strategist at asset management firm LGT Capital Management. He has more than 20 years of experience in the real estate industry.

'Domestic sentiment will be fuelled by this confidence, and we see this tendency towards excesses.'

Singapore's private home prices surged 38.2 per cent in the year to June, exceeding the historical peak of 1996. Public resale flat prices jumped 3.8 per cent in the second quarter, the eighth straight quarter of record-breaking prices since 2008.

Three rounds of cooling measures have been introduced by the Government over the past year; the most recent round, on Aug 30, saw tightening of financing and certain home ownership curbs to dampen demand. But Mr Lenherr said it remains to be seen whether such moves will be effective, as 'money has a way around the measures'.

Speaking on the topic of whether Asian property markets will derail economic recovery in 2011, he said a market fall could be triggered by a number of factors, such as external economic headwinds, a change in the interest rate environment and stronger government controls such as capital gains tax.

Such a trigger could lead to a market correction of 30 per cent to 50 per cent in property prices, he said.

Other panel members at the forum - held at the Shangri-La Hotel - agreed that bubbles could be forming, particularly in larger markets such as China and India, where high-end residential prices have spiked in tier-one cities.

But they disagreed on whether the bubbles were on the verge of bursting, and whether they could derail economic recovery in the same way that the US sub-prime mortgage crisis did in 2008.

Professor Joseph Gyourko, director of the Wharton Real Estate Centre, said this was highly unlikely because Asia's households were not over-leveraged in the way US households were and the region's banking sector was more robust.

The dean of the NUS Business School, Professor Bernard Yeung, noted that the Chinese government was taking steps to rein in the market, and was addressing supply problems.

GIC Real Estate regional head for Asia Goh Kok Huat said India was 'messier around the edges', compared to China, but that it still presented huge growth opportunities.



Risk aversion shown by investors towards the US and Europe is leading to the inflow of money to Asia, fuelling property price rises, says an industry expert. -- PHOTO: REUTERS