Asia’s Peak Housing Precipice

The IMF’s latest global house price reference showed Asian markets still leading the post-2008 surge, with credit-GDP ratios in many countries at multiples of the region’s financial crash 15 years ago. China and Hong Kong top the worry list, with three-quarters of mainland investors surveyed pointing to “unsustainability” after major cities reported a 20 percent annual jump through November despite minimum down payment restrictions and local government additional land supply. Non-bank and provincial lenders have joined the main state banks as funding sources with ICBC publicly warning of a non-performing asset spike across the array of property and associated categories. In Hong Kong values have doubled the past five years, with the residential component up 25 percent in 2012. By mid-decade experts predict a 30-50 percent correction similar to the post-Asia crisis, as stamp duty increases and tighter mortgage limits since 2010 have proved ineffective. Bank credit to GDP has almost tripled to 300 percent as real estate speculation is stoked by formal and informal cross-border channels evading Beijing’s cooling attempts. Rival offshore center Singapore ranks just behind in expense with a 40 percent climb since 2009 in the face of capital gains tax and specific borrower debt to income deterrents. The Monetary Authority just cautioned that higher global interest rates could send the portion of overleveraged households to 15 percent, with many also buying in nearby Malaysia, where prices in the capital have soared 60 percent over the period. Rater S&P recently downgraded the outlook on major banks due to the outsize consumer debt burden as the latest budget doubled the minimum non-resident purchase requirement. Home and credit card lines are also at 80 percent of GDP in Thailand, and the Yingluck government was just forced to call new elections as farm and auto credit incentives are under criticism for hiking public debt. In Indonesia and the Philippines personal lending has also spurted at a double-digit annual pace from a low base. In the former the central bank has raised interest rates heading into 2014 elections, and in the latter it imposed a 20 percent real estate exposure limit which is widely circumvented with remittance-based transactions.

In Korea with household debt nearing 300 percent of GDP authorities have focused on administrative measures and the new Administration’s first budget fulfilled a campaign pledge of temporary payment relief. In India bank and housing finance facilities are at one-tenth of output as the Finance Ministry prepares to recapitalize state-owned units and open the sector to greater domestic and foreign competition. With inflation again at 10 percent monetary policy will tighten and although opposition candidate Modi is the election favorite in early soundings his commercial and residential building approaches are unclear but would involve reduced bureaucracy. In developed Asia Australia was criticized both by the IMF and OECD for 20 percent overvaluation while media “bubble” citations have also burst the record set during the last decade’s mania.