Slow down the real-estate sector

INFLATION DRAGS DOWN ASIAN MARKETS

Asian property markets, though still relatively unaffected by the credit crunch, will soon be affected by inflation and higher interest rates, because of rising food, fuel and other commodity prices, warns the Global Property Guide.

The Global Property Guide is an online property research house.

Many Asian economies have recently experienced residential realestate price surges such as China (Shanghai) where the housing price increased 35.43 per cent, Singapore by 31.18 per cent, Hong Kong by 24.95 per cent, the Philippines by 15.15 per cent, Japan by 8.40 per cent and South Korea by 3.08 per cent.

Meanwhile, most analysts said the key rates might be raised next month if inflation continues to be above the official targets.

Fears of interest- rate hikes rose in several Asian countries, particularly in Indonesia and China.

High interest rates affect housing markets in two ways, namely, discouraging investment and consumption, causing the economy to slow down, thus reducing people’s willingness to spend on housing.

They also discourage borrowing for housing loans.

“ The situation is unfortunate because most Asian housing markets have not yet fully recovered from the effects of the 1997 Asian financial crisis,” Cruz said.

“Even with strong house price gains last year, property prices in Asia are still below their pre-Asian crisis peak levels.

Despite the 31-per-cent nominal rise in the overall residential property price index, Singapore’s prices are still about 10 per cent to 20 per cent below their pre-Asian crisis peak level in real terms,” he said.

“In the Philippines, even with the 15-per-cent increase in condominium prices in 2007, it is still about 47 per cent below its peak level in real terms,” Cruz said.

The housing markets most likely to be affected by monetary tightening seem to be China, India, Singapore, the Philippines and Thailand, which have experienced the largest increases in inflation.

“ With global financial markets interconnected, the world’s economies tend to move together. The synchronicity was observed with the global housing boom – never before in recorded history did so many countries experience such house price growth at the same time,” he said.

“ The housing market slowdown may also be synchronised,” he said. “Inflationary pressures are likely to cause Asia’s central banks to raise interest rates and slow down their housing markets,” Cruz said.