Soaring property costs affect investors in Asia
Soaring property costs affect investors in Asia
SINGAPORE (AFP): Soaring property costs have eroded the benefits of cheap labor in developing Asian countries and left some banks dangerously reliant on real-estate lending, according to a regional business consultancy.
"As soon as foreign direct investors start showing real interest in a country, rents and prices for any property they might want to use start going through the roof," the Political and Economic Risk Consultancy Ltd. (PERC) said.
"The pattern has happened in China, Vietnam, India and, most recently, in the Philippines. At some point in the future, it will probably happen in Burma, Cambodia and North Korea," said the report, received here Monday.
It added that whatever the political system, Asian businessmen and officials seem to fall back on real estate as a "quick source of cash," often resulting in two markets existing side by side -- one for locals, another for foreigners.
"High property rents and prices alone are enough to erode many of the competitive advantages some of Asia's developing countries hope to secure through their relatively low labor costs," the report said.
"Real value for the dollar does not exist. The pace of property development in emerging economies has been too slow to satisfy the growth in demand from international companies," it added.
PERC warned that many banks in Asia had grown "fat and lazy" after relying too much on property-related businesses, and some institutions had become "over-exposed and vulnerable to sharp corrections in the market."
"A crunch period in Thailand could be imminent," it warned. PERC also said a real-estate boom can inhibit growth in other economic sectors, but "all indications are that this Asian love affair with property will continue, if not intensify."
"The urban population of East Asian developing countries will jump to more than 1.2 billion in the next 25 years from 500 million at present, necessitating huge additional expenditure on housing," it said.
"Meeting such housing needs could emerge as one of the region's most serious policy challenges," it added.
Regional property experts say rents and property prices have escalated most sharply in emerging economies in Asia where supply of office and factory space, as well as expatriate housing, has not kept up with explosive demand.
A regional real estate conference held recently in Singapore was told that Beijing overtook Tokyo this year as the most expensive place to rent luxury housing, with Vietnam's Ho Chi Minh City a close third.
Average monthly rent for luxury housing in Beijing averaged US$80 per square meter (10.76 square feet) in May, according to property consultants Brooke Hillier Parker.
This compared with $62 in Tokyo, $60 in Ho Chi Minh City, $55 in Hanoi, $52 in Bombay and $50 in New Delhi.
The least expensive cities for high-end housing rentals were Bangkok at $13. 50, Kuala Lumpur at $13 and Colombo at $8 -- all cheaper than Phnom Penh's $20.