When Is a Bubble not a Bubble?


"In China, prices are up 37% year-on-year."

So is Asia in the grip of a bubble or just enjoying a healthy reaction to excessive gloom and doom of the end of last year? That’s a good question that is taxing many both in the region and observing from afar. Frederic Neumann, Senior Asia Economist at HSBC in Hong Kong, is reported in the Financial Times as saying, "If left unaddressed, the current monetary set-up in Asia will ultimately blow a bubble of mind-boggling size, but so far the train has not left the station." He points out that the most spectacular price rises have been limited to pockets such as luxury flats in Hong Kong and the biggest Chinese cities, with increases for more mainstream properties remaining subdued. Even in China and Hong Kong, prices are well below the levels they would need to reach to match previous bubbles.

Nevertheless the article does state that luxury apartment prices in Hong Kong are now 30% above their low point in Q408, with prices up 14% just between Q209 and Q309 in some neighborhoods. Likewise in Singapore, prices for private homes rose 15.8% from Q209 and Q309. In China, prices are up 37% year-on-year. In fact property prices are rising across Asia but only Australia has taken the step of raising interest rates to cool demand.

However, in China, Zhang Xin, chief executive of Soho China, one of the country's most successful privately owned property developers, is reported as saying a property bubble was forming and was leading to rampant wasteful investment in the sector, undermining the country's long-term growth prospects. "Real estate prices should only go up because people want to actually use the space, but at the moment we can see more and more empty buildings across the whole country," Ms. Zhang said. "The rising prices are a direct result of so much money coming from the banks and the Chinese banks should be very worried."

So is Asia in the grip of a property bubble, may be not Asia as a whole—yet, but parts of it look troubling and China's principal dozen cities look troubling like property bubbles driven by a government desperate to generate growth in headline GDP but without the levers to control the allocation of funds efficiently.

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