By Toni Waterman | POSTED: 25 Oct 2013 22:55 | CNA


In the past few years, Asia’s real estate market was flooded with investors banking on interest rates staying low for a long time.

With US tapering likely pushed back into next year, low interest rates will probably be around even longer, tempting investors to rack up even more debt.

Rock-bottom interest rates have made real estate an attractive investment. Home prices in Singapore have risen 33 per cent since 2009, while in Hong Kong home prices have more than doubled.

Both countries’ interest rates closely mirror that of the US, which could mean that the longer tapering is delayed, the more the credit bubble could expand — and more people could find themselves over-extended.

Capital Economics’ Asia economist, Daniel Martin, said: “The trouble is that the credit to households has just been growing so rapidly — it’s not just the level of debt that these economies have.

“When we see economies running into trouble, it’s normally because the ratio of credit to income has gone up so rapidly.”

Household debt to GDP stands at 75 per cent in Singapore, up from 55 per cent just three years ago and 45 per cent in 2005, according to Standard Chartered.

It is even higher elsewhere — 77.5 per cent in Thailand, 80.5 per cent in Malaysia, and 88 per cent in South Korea at the end of March, according to Bank of America Merrill Lynch.

Mr Martin said household debt has not reached crisis mode yet because policymakers in Singapore, Hong Kong and China have done a good job implementing cooling measures like increasing stamp duties and requiring bigger down payments.

But with interest rates set to remain low well into 2015, Mr Martin expects central banks to have to tighten lending standards again.

He said: “Singapore and Hong Kong will probably go down this route because credit growth is growing so rapidly and they don’t really have any control over local interest rates.”

On the commercial side of things, real estate transactions are also soaring regionally — up 25 per cent year-to-date — due to low interest rates, reaching US$89.6 billion at the end of the third quarter, according to Jones Lang LaSalle.

Megan Walters, Jones Lang LaSalle’s Asia capital markets head of research, expects demand to continue as interest rates remain low.

Japan, China and Australia are the standouts. According to Jones Lang LaSalle, year-to-date transactions in Japan total US$29.5 billion, up 69 per cent year-on-year.

In China, volumes grew 34 per cent to US$16.6 billion and in Australia, investment activity in the third quarter grew 17 per cent year-on-year and 25 per cent on a year-to-date basis to US$4.9 billion.

Ms Walters said: “We’re seeing a strong demand from pension funds and insurance funds to move their money into real estate markets, away from bond markets where they were getting very low yields.

But unlike the household loan to value ratio, Ms Walters said regional commercial real estate debt remains relatively low and stable at roughly 50 to 60 per cent.

– CNA/ec