Fear of housing bubbles

THE International Monetary Fund’s (IMF) unveiling of comparative data on house prices underlines its concern over possible property bubbles in the financial system.

“Our research indicates that boom-bust patterns in house prices preceded more than two-thirds of the recent 50 systemic banking crises,’’ said IMF deputy managing director Min Zhu in a blog post.

With houses selling for more than four times the average household income, the IMF said the ratio in Australia was much higher than its historical average.

A 24-country comparison showed that Australian homes were behind only those of Belgium and Canada when judged by this measure, said the IMF on its website.

In order to prevent housing markets from overheating, the IMF recommends governments consider rules to rein in riskier bank lending, which Australia has so far avoided.

More than 20 countries had adopted “macro prudential’’ policies such as caps on low-deposit loans or debt-to-income ratios in recent years.

In view of this data, Australia should hear the alarm bells and undertake some pre-emptive measures related to risky bank lending.

In India, the infrastructure sector will likely get a major boost via the potential setting up of a US$4bil-US$5bil fund that will especially kickstart many road projects.

Japanese and Korean investors have shown interest to take part in the fund, said the Economic Times Now (ET Now).

The Indian government is working on a timeline of six months to set up the fund, said ET Now.

Many plans are cropping up in India where the new government led by the BJP has taken over.

When it materialises, this infrastructure fund will be a positive start to the sector that has lagged behind that of China.

The IMF has advised China to stick to its growth target of 7.5% and avoid further stimulus measures that will further stoke financial risks.

The weakness in the Chinese economy is its persistent reliance on debt and investments in areas like real estate to power its economy, said the IMF.

“Vulnerabilities have risen to the point that containing them should be a priority,” said IMF first managing director David Lipton in Beijing.

The economy’s lackluster performance has stirred speculation that the government may act more forcefully to shore up activity, even though Beijing has ruled out any big policy moves to counter short-term dips in growth, said Reuters.

China should heed the advice to be disciplined in managing its financial risks.

As the second largest economy, it has the responsibility to ensure a stable economy that will be a sustainable force to be reckoned with.

Columnist Yap Leng Kuen is saddened by the protests in Sao Paulo in the prelude to the World Cup.

BY YAP LENG KUEN