Asian policymakers, in an effort to prevent the growing real-estate values in the region from leading to another mortgage bubble, are now acting to rein in property prices.
Regulators in Hong Kong, South Korea and Singapore recently asked banks to tighten their lending standards. The central banks, which include the ones in South Korea and India, have hinted at their preparation to increase interest rates in the coming months.
Officials have been trying to apply the lesson that Chairman Ben Bernanke of the US Federal Reserve identified from the 2007 financial crisis, which is to control “excessive” leverage before it negatively affects the economy.
“Asset bubbles are something that authorities have to contend with quickly and not let run away,” said Southeast Asian economic research head Tai Hui. “Central banks are ready to take some of the wind out of the sails whether through interest rates or administrative measures.”
Hong Kong, which has the lowest mortgage rates in more than 19 years, saw a 26 percent increase of home prices this year, prompting bank officials to tighten luxury homes’ down-payment requirements. Last month, a one-bedroom apartment of 816 square feet situated in Kowloon district was sold for S$4.3 million (HK$24.5 million).
In Singapore, private-residential developers sold over 10,000 units during the first seven months of this year, much higher compared to 4,300 total units sold last year. Meanwhile, South Korea’s bank lending institutions expanded for seven straight months in August as this increase in home prices continued.
Stocks in some markets are also surging: Shanghai Composite Index in China has increased by 71 percent this year, as compared to the 25 percent profit earned in the MSCI World Index; while benchmarks from South Korea, Hong Kong, Taiwan and Singapore have all increased by over 50 percent.
Asset prices are also causing debates on whether to allow interest rates or to tighten the rules for several financial companies to hold back credits. Analysts said that a combination of such measures are more likely to be effective.
“The challenge for the central banks is whether you want to raise interest rates because asset prices could cause a relapse of what befell advanced economies,” said Chief Economist of Nomura International Ltd in Asia, Robert Subbaraman. “We’re starting to see kinds of quasi-type monetary policy through regulating prudential measures to try to lean against a rapid rise in asset prices.”
The Singapore government last month banned the interest-only loans for several housing projects. It likewise prohibited developers from absorbing interest payments for units that are still being constructed.