8/8/2019 IMF: Global Financial Stability Report, Apr 2010

http://slidepdf.com/reader/full/imf-global-financial-stability-report-apr-2010 1/2

http://www.imf.org/external/pubs/ft/gfsr/2010/01/pdf/text.pdf

IMF flags 'bubble trouble' in AsiaMany property markets overheating and correction fears loom;Singapore sees big share of new bank lending going into real estateBusiness Times, 22 Apr 2010

The International Monetary Fund warns that residential real estate markets in East Asia are over-

heating and that by some measures, valuations are stretched.

I n its just-released G lobal Financial Stability report (April 2010), the IMF notes that since the

second half of 2009, housing prices - especially at the high-end of the market - have rebounded

quickly in China, Hong Kong, South Korea, and Singapore as well as Australia and New Zealand. I n

many markets, prices now exceed their 2008 peaks.

8/8/2019 IMF: Global Financial Stability Report, Apr 2010

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The rebound has been mainly driven by 'unprecedented policy measures to mitigate the impact of the

global financial crisis and the ensuing return of risk appetite'.

M ortgage rates are at historical lows as central banks around the globe have cut policy rates.

Real estate loan growth has been revived. So has the proportion of real estate loans to total bank lending, which in Singapore was close to 80 per cent in Q4 2009. This is the highest among themarkets highlighted in the report. I n percentage terms, year-on- year, the real estate loan growth has

picked up most sharply in China.

Governments in China and Korea introduced housing-related tax breaks in late 2008 to help boosttheir property markets.

Capital inflows have further fuelled property price increases, particularly in Hong Kong andSingapore.

I n Singapore, foreigners and companies accounted for 12.5 per cent of the third-quarter home purchases in 2009, compared with 8 per cent in the previous quarter.

The F und cautions that by some measures, housing valuations are stretched. Although the average

price-to-income ratio has risen modestly, in some markets - notably, China, Hong Kong, Singapore

and Korea - price-to-rent ratios are 'elevated'. I t adds that many purchasers have been buying 'in the

expectation of price appreciation, rather than simply for dwelling purposes'.

The region's booming real estate markets may pose risks to financial stability in the future, according

to the IMF . Banks are 'increasingly vulnerable' to a price correction. M oreover, as most mortgage

loans in Asian economies carry floating rates, 'the widely anticipated rate hikes in the region will

increase the burden on household balance sheets'.

The F und acknowledges that governments in the region have taken measures to cool real estate

markets, including tighter requirements on mortgage lending, increased land supply, and the

reimposition of higher transaction taxes, such as stamp duties.

In Hong Kong, the average loan-to-value ratio of new mortgage loans has dropped significantly from

its peak in June 2009, and banks in mainland China have started to tighten their mortgage criteria. I n

response to such measures, the growth rates of transaction values have declined, including in

Singapore.

However, the full effects of the cooling measures 'are still to be seen in the coming quarters', says the

F und. I t also suggests that governments may need to fine-tune their policies 'to maintain a delicate

balance between leaning against housing bubbles and ensuring a solid economic recovery'.