There are some lessons that should have been learnt from the 1996 property bubble and the link between the bubble and the effects Asian financial crisis that came shortly after that housing bubble.
Many Asian countries appeared to have learnt from that episode to keep bank lending in real-estate market low. If the lessons from 1996 have faded, there were reminders from the recent subprime crisis in the USA and what happened in Ireland.
Many Asian countries appeared to learnt the lessons well to contain the risks to financial system...but there are exceptions.
Hot property prices here 'worrying' [Link]
05:55 AM Dec 08, 2010
SINGAPORE - The Asian Development Bank (ADB) said yesterday that Singapore's fast-rising home prices are "worrying", as real-estate lending accounts for more than half of total loans in the banking system.
According to the latest issue of the ADB's Asia Economic Monitor, the share of property-related loans in total loans is as low as 9 per cent in South Korea, 15 per cent or less in Indonesia and the Philippines, and below 20 per cent in Hong Kong, Thailand and China.
At 51 per cent of advances, Singapore's banking sector's exposure to property is the highest among the nine major economies of East Asia, followed by 42 per cent in Taiwan and 38 per cent in Malaysia, ADB data showed.
The ADB report comes less than two weeks after the Monetary Authority of Singapore said in its annual Financial Stability Review that household debt has been growing at a faster rate in recent quarters - driven largely by housing loans which account for the bulk of household borrowing.
The study pointed out that Singapore had already taken steps to cool the property market, in line with measures adopted by other economies in the region.
As a result, the increase in home prices had started slowing in the third quarter in eight out of the nine East Asian economies, with Thailand as the only exception.
The ADB also called for greater cooperation among East Asian authorities on exchange rates, so as to reduce the volatility of currency fluctuations within the region and benefit the production network that spans East Asia. For Asean nations and China, Japan and South Korea, cooperation on exchange rates could also help "manage surging capital inflows to the region and better rebalance the sources of growth", the study said.
A single currency is not on the menu because "the recent debt crisis in the euro zone shows that stronger institutions than previously thought are required for monetary unions to function properly", the ADB said. Nor does it recommend that regional countries peg their currencies to one another's or benchmark their exchange rates to the "Asian Monetary Unit", the artificial basket of regional currencies first mooted by Japanese scholars.
East Asian countries could instead pick a reference currency from outside the region - either the US dollar, or a combination of the dollar and the euro - and then seek to maintain stability of their home currency's exchange rate against the reference unit.