Potential housing bubble in Asia – Moody’s Analytics

Home prices could see correction in South East Asia, particularly if the rising trend continues for another couple of years, as capital has started leaving because of the tapering of the US Federal Reserve stimulus program, Moody’s Analytics has warned.

Moody’s Analytics warned that prices are still rising sharply despite capital exiting Asian economies.

“Property prices in Malaysia, Thailand and even Indonesia are still rising at a solid clip even as capital leaves the region,” it said. “There has been talk among Southeast Asian central banks of an emerging housing bubble that would be vulnerable as the Fed unwound quantitative easing.”

It said near‐term risk seemed low, but if house prices continue to rise in the next couple of years it could become a concern, and pointed out that Australia was also in a similar position, with house prices rising at double digits.

“Central banks in Southeast Asia and Australia have cited risks in the property sector, but haven’t gone beyond that. By contrast, the New Zealand central bank has implemented restrictions on high loan‐to‐value mortgages, and thus begun to cool the market.

“The challenge for all Asian central banks is that if the broader economy fails to improve enough to warrant higher interest rates, then these property markets, fanned by low interest rates, could inflate problematically. If so, capital controls or some other form of macro prudential action may be required.”