Inflation ends global housing boom
The fallout of the high cost and low availability of housing finance triggered by the United States subprime mortgage crisis, coupled with increasing inflation and further rises in interest rates, has heralded an end to the boom in global residential markets.
That is the view of online property research house Global Property Guide, which reported last week that 13 countries in which dwelling price indices were regularly published saw prices rise during the year to March, while 21 countries saw prices fall in real terms, after adjusting for inflation.
The turnaround in the fortunes of the residential market in Kiev, the capital of Ukraine, captured the corrosive effects of inflation on real housing prices. For the year to March, Global Property Guide said dwelling prices in the city surged 18.22 per cent in nominal terms, but after inflation was factored in, real prices fell by as much as 6.36 per cent.
Ukraine's inflation rate for the year to December was 16.6 per cent, but had accelerated to 31.1 per cent by last month.
Nine other countries in the survey also posted falls in real property prices after adjusting nominal prices to take rapidly rising inflation into account.
In Shanghai, Hong Kong and Singapore, residential prices showed impressive growth in real terms ranging between 28.47 per cent and 21.56 per cent, largely supported by strong economic growth - although inflation expectations in these markets are also on the rise.
Analysts and economists generally believe the fundamentals of the Asia-Pacific region will stay strong, however, and the outlook remains positive despite the global economic slowdown.
It is estimated that aggregate output in Asia-Pacific excluding Japan will expand 6.9 per cent this year, or about 2.5 times greater than the increase projected for global output, according to business research firm Economist Intelligence Unit.
However, Jane Murray, the head of research Asia-Pacific at Jones Lang LaSalle, believes the region will not escape unscathed from the subprime fallout.
'The global slowdown is expected to chiefly affect the Asia-Pacific region through slower international trade channel and a knock-on effect will be felt in the rest of the region, particularly Southeast Asia due to intra-regional trade links,' Ms Murray said, adding that inflation was also becoming a growing threat for the region's economy and property market.
The inflation rate in Singapore accelerated to 6.6 per cent in the first quarter from 1.6 per cent in the same quarter last year, and has increased the likelihood of interest-rate rises and tightening monetary measures.
Meanwhile, the People's Bank of China continues to lift reserve ratios for mainland banks, which in turn will hurt the property market.
'With global financial markets interconnected, the world's economies tend to move together,' said Prince Christian Cruz, an economist of Global Property Guide, which monitors housing prices in 34 countries. 'The synchronicity was observed with the global housing boom. Never before in recorded history did so many countries experience so much house price growth all at the same time.'
Now, he warned, a global housing market slowdown might also be synchronised as inflationary pressures prompted central banks to raise interest rates.
In Hong Kong and the Gulf, where currencies are pegged to the US dollar, he said central banks must follow US interest rates unless they chose to repeg their currencies.
