Asian Nations Impose Curbs to Slow Expanding Property Bubbles

June 17 (Bloomberg) -- From Shanghai to Singapore, policy makers are struggling in their efforts to curb property bubbles that threaten to derail the world’s fastest-growing region.

In China, home prices are surging at a record pace even after authorities set price ceilings, demanded higher deposits, and limited second-home purchases. In Hong Kong, where the government has pledged to release more land to cool prices, a site auctioned on June 8 fetched the most since the market peak of 1997. It’s a similar story in Singapore and Taiwan as prices defy cooling measures.

“Governments allow the property bubble to get so big and then try to use administrative measures to keep out speculators,” said Andy Xie, former Morgan Stanley chief economist for Asia-Pacific and now a private economist based in Shanghai. “It creates the risk of a very hard landing. The right thing to do is raise interest rates.”

The International Monetary Fund has cautioned that Asia’s booming home prices “pose risks to financial stability.” Governments in the region are turning to market curbs rather than raising interest rates -- at 20-year lows in some places -- in an effort to avert a U.S.-style property crash. While real estate prices have yet to respond, equity investors have: a Bloomberg index of 192 Asia-Pacific real estate stocks has lost 15 percent in 2010 versus a 1.5 percent gain for its U.S. peer.

“The property bubbles in Asia right now are reminiscent of the U.S. before the subprime crisis because they are both fuelled by debt when interest rates are too low,” Xie said.

Hong Kong had its first signal this week of a possible turn in the market, when billionaire Lee Shau-kee’s Henderson Land Development Co. announced that sales of 20 luxury apartments had been canceled, including a unit that would have set a world record price of HK$88,000 ($11,300) per square foot.

Lending Binge

China, while keeping interest rates steady, has restricted pre-sales by developers, curbed loans for third-home purchases, raised minimum mortgage rates, and tightened down-payment requirements for second-home purchases. The government is trying to peel back the effects of a $586 billion stimulus plan and $1.4 trillion lending binge that revived economic growth and sparked record property price increases.

China’s banking regulator this week said it sees growing credit risks in the nation’s real-estate industry and warned of increasing pressure from non-performing loans.

Risks associated with home mortgages are growing and a “chain effect” may reappear in real-estate development loans, the China Banking Regulatory Commission said in its annual report published on its website June 15.

While prices have yet to drop, sales volumes have. Property sales in Beijing, Shanghai and Shenzhen fell as much as 70 percent in May. China Vanke Co., the nation’s biggest publicly traded property developer, said its sales fell 20 percent in May from a year earlier. Guangzhou R&F Properties Co.’s contracted sales last month shrank 48 percent.

Cut Estimates

Property prices rose 12.4 percent in May, compared with a record 12.8 percent increase in April, from a year earlier, indicating price declines are not keeping pace with the drop in transactions. The value of sales last month slid 25 percent from April. The data series, covering 70 cities, began in 2005.

JPMorgan Chase & Co. analysts on June 8 cut their profit estimates for China’s developers by an average 9 percent in 2010 and 11 percent in 2011 on a “substantial slowdown” in sales.

China Se Shang’s Property Index has tumbled 28 percent this year, with 32 of 34 members declining, led by Shanghai New Huangpu Real Estate Co. and Poly Real Estate Group Co.

Hong Kong may increase sales taxes on some properties, is accelerating land auctions, and is scrutinizing developers’ sales techniques. Singapore plans to increase the supply of land for housing, has barred interest-only mortgages for uncompleted homes, and levied a seller’s stamp duty on some properties.

‘Regulatory Measures’

Taiwan’s financial regulator asked the bankers’ association to tighten lending procedures, while two state-owned lenders have raised mortgage rates and cut the amount of loans for buyers of luxury homes and property investors. Interest rates on the island have been at a record low since February 2009.

“The regulatory measures are not aiming to crash the whole property market, they are aiming to cool the speculative end,” said Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management (Asia) Ltd., which oversees $11 billion. Do is underweight Asian property in his funds and is looking to buy back into the worst hit Chinese property stocks.

Home prices in Hong Kong have risen almost 40 percent from the beginning of 2009, driven by interest rates at 20-year lows, lagging supply growth and buying from rich mainland Chinese. The risk of a property bubble remained in the city amid liquidity and low interest rates, Norman Chan, chief executive of the Hong Kong Monetary Authority, said May 20.

Ability to Pay

Potential home purchasers should consider their ability to pay before taking out mortgages, Financial Secretary John Tsang said June 9, a day after a residential site sold at a public auction for HK$10.9 billion ($1.4 billion), beating estimates.

In Taipei, home prices climbed 3.4 percent in May from April, Sinyi Realty Co., the biggest housing broker in Taiwan, said May 31. They have risen 29 percent to a record since September 2008 when the collapse of Lehman Brothers Holdings Inc. deepened the global credit crisis.

Singapore Sales

Private residential sales in Singapore rose to a nine-month high of 2,208 in April, the Urban Redevelopment Authority said, the highest since July 2009, showing the “resilience” of demand for new homes even after the government curbs, Li Hiaw Ho, executive director of CB Richard Ellis Research, said then. Sales dropped to 1,078 units in May.

There continues to be concerns over “excessive” asset- price inflation in emerging Asia, the Singapore government said May 20. If asset prices correct too sharply in China, it could have “negative spillover” effects on regional economies, Ravi Menon, permanent secretary at the Singapore trade ministry, told reporters the same day.

The failure to raise rates may allow the bubble to keep swelling, said Stephen Halmarick, Sydney-based head of investment-markets research at Colonial First State Global Asset Management, which manages about $135 billion.

“The lesson of subprime is that, if you let asset prices go too far for too long, the correction can be very damaging,” he said.