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 FT 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 the fourth quarter of 2008, with prices up 14% just between the second and third quarter this year in some neighborhoods. Likewise in Singapore, prices for private homes rose 15.8% in the third quarter from the second, the first such rise in more than a year. 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.
Frederic Neumann may be right about Asia in general but in China, Zhang Xin, chief executive of Soho China, one of the country’s most successful privately owned property developers, is reported in a differentÃ‚Â FT article 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 and in every real estate segment, 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. My colleague Lisa wrote about this and posted a video clip about a whole city called Ordos in northern China built over five years but still uninhabited because the properties were too expensive for ordinary people to buy. As Ms. Zhang went on to say, “In Manhattan, they have vacancy rates of 10-15 percent and they feel like the sky is falling, but in Pudong (the central business district in Shanghai) vacancy rates are as high as 50% and they are still building new skyscrapers.
So is Asia in the grip of a property bubble, may be not Asia as a whole yet, but parts of it are looking worrying and China’s principal dozen cities are looking worrying like property bubbles driven by a government desperate to generate growth in headline GDP but without the leavers to control the allocation of funds efficiently.