Bubble looming in Asia?


“Bubble” may be the word on everyone’s lips when talking about spiralling housing prices in China, Hong Kong and Singapore, but contrarians believe these fears are overblown and prices have yet to peak.

They point to savings-heavy Asia, a preference for bricks and mortar, low interest rates and a faster-than-expected recovery in Asian economies, led by China.

Fears of overheating have been fanned by media reports of crowds at property launches snapping up homes the minute they’re launched and the availability of easy credit.

“Act now to prevent a housing bubble,” read one headline in Singapore’s Straits Times newspaper this week, calling for banks to tighten lending.

Frankie Lee, head of property equities for Asia at Henderson Global Investors, says prices would continue to rise for a quarter or two, but less sharply, as the nascent economic recovery takes hold and boosts employment in these cities.

Bubble contrarians say housing prices, especially in Singapore and Hong Kong, remain affordable to their cash-rich citizens.

Tan Chin Keong, real estate analyst with UBS Wealth Management in Singapore, notes a typical Hong Kong homebuyer would need about 35% of their monthly income to service a mortgage at current prices, down from 70% a decade ago.

In Singapore, household debt is about 15% of total assets, while cash holdings alone exceed the total amount of borrowings, Mr. Tan says.

Variable mortgage rates in Hong Kong and Singapore are at or near 1.5%.

Hong Kong’s residential prices have risen by more than 20% this year, helped by a lack of new supply and low rates.

In Singapore, sales hit record highs in June and July, helped by low rates and increased confidence about its economy.

Chinese homebuyers are also flush with cash. Feedback from developers shows about 30% paid for their property in cash, while those who borrowed typically borrowed 50% to 60% of the property value.

Property consultancy DTZ cautioned clients, saying market bulls were looking at just one to two months of data and calling it a trend.

Nomura expects Hong Kong home prices to gain 27% this year and 12% in 2010.


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