From Hong Kong to Malaysia, property markets set to decline: IMF

Asia's property markets are poised for a sharp fall in prices, with higher interest rates making housing less affordable for average buyers, a study published by the International Monetary Fund warns.

From Hong Kong to Malaysia, the study points to flattening home prices in Asia, following a property boom that surged with the onset of the COVID-19 pandemic. This could lead to corrections as a downturn looms.

In addition to the risk of significant corrections in a number of markets, the earlier jump in housing prices in many Asia-Pacific countries also raises concerns about affordability. The report highlights that in 2021 in South Korea, for example, inflation-adjusted housing prices rose by around 20%.

Over the same period, Japan and Singapore saw increases of around 10%, while China and Thailand saw housing prices climb by around 5%, before signs of deceleration appeared in parts of Asia this year. The withdrawal of monetary stimulus amid high inflation is now weighing on prices.

Tighter financial conditions are ratcheting up borrowing costs and, as a result, housing demand has started to cool, with market corrections already underway in some economies, the report notes. Interest rates on home mortgages are set to rise further, with the U.S. Federal Reserve lifting interest rates by half a percentage point this week.

America's central bank has set the tone in the global monetary tightening, with a series of three-quarter-point rate hikes earlier this year. It has tried to stave off a sharp rise in inflation as economies opened up with the easing of the pandemic and Russia's invasion of Ukraine fueled rocketing food and energy costs.

Central banks elsewhere have followed the Fed's lead, taking financial institutions with them. Lenders have jacked up interest rates for home loans, raising worries about affordability in Asia as homeowners grapple with higher repayments.

"Our study basically indicates that in order to alleviate, or address, housing affordability, governments can provide targeted, for example, mortgage insurance or mortgage guarantees," Kenichiro Kashiwase, co-author of the IMF study, said at an online briefing on Thursday.

The study notes that the Asia-Pacific's boom and bust cycles in the housing market have "marked impacts on the broader economy."

Price increases during the pandemic, underpinned by low mortgage rates as central banks eased monetary policy, are now being reversed. This creates the conditions for sizable price misalignments and a greater risk of price declines in the future. The drops could be on the order of 5% to 20% in some countries, the paper warns, with rising interest rates adding to the risks.

"The current phase looks like another turning point for many countries, with the post-pandemic house price surge now increasingly at risk of reversing in the context of slowing growth and rising interest rates," Krishna Srinivasan, director of the IMF's Asia and Pacific department, said Thursday at an online briefing to discuss the report.

"As we look towards 2023, we see once more that the global environment is fragile, with storm clouds on the horizon," he added. "We expect 2023 to be worse than 2022. Inflation is still uncomfortably high and financial conditions are tight, so things are looking pretty not so good."