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Asian Housing Boom Is For Real And So Are The Attending Economic Risks – Report

Seoul, South Korea @ Night | Photo Credit: Wikimedia Commons

The property market in Asia is generally in a boom mode but the trend also comes with underlying threats, specifically the likelihood of economic downturns if the observed house pricing fluctuations go unchecked. At the moment, “elevated housing prices,” is a cause for concern, a new report said.

The latest check on key Asian cities has indicated that housing prices have been on the upward trajectory, which normally is a good thing for developers and investors. However, the sharp increases seen in the last several years starting in 2000 also generated a cautious outlook on the part of economists.

Amidst the ongoing boom, which is true for both the general economy and the real estate sector in specific Asian nations, the Asian Development Bank (ADB) warned that the prevailing situation seems “detached from fundamentals.”

In its report, the ADB called attention on the rate of house purchase to rent in major Asian cities, described as alarmingly surging and even fluctuating.

“Because residential property is an increasingly important component of personal assets in Asia, housing price fluctuations can significantly affect households’ net worth and consequently their ability to consume and save,” the ADB report stated and per the news articles published by Property Report.

The financial group said “twin booms” are likely happen even as sustained growth appears to benefit a flourishing property market.

The Problematic Scenario Explained

ADB analysts said the housing boom in Asia is typically characterised by favourable credit conditions and government regulatory policies that in turn prompted home price gains. What follows next is high volume of capital inflows, which in reality can be labelled as volatile funds.

That’s because the same capital can take flight at the first sight of danger, which can come in the form of fiscal regulatory adjustments on the part of a host government. For most advanced economies, this is a normal occurrence, the ADB report said, adding that the boom can be easily disrupted by the spectre of fleeing cash.

“Housing prices that undergo sharp and sudden reversals tend to be associated with longer and deeper slowdowns,” the report said.

Asian Cities Of Concern

At present, such a scenario could play out in the following cities – Beijing, Hong Kong, Kuala Lumpur, Seoul and Singapore – all of which have been identified by the ADB as places where the ratio of price to rent saw sudden upturns from 2000 to 2017.

In Seoul, for instance, the housing market has become a turn off for the majority of home buyers. Inside the city, which is Asia’s more prosperous metropolis, home prices are proving to be mostly inaccessible to many.

A scan of available properties in Seoul will reveal that “a 50-square-metre home is unaffordable to all except the top 20 percent of the income bracket,” according to Property Report.