Huge house price rises prompt intervention by Asian governments

House prices in Singapore, Hong Kong, Taiwan and China surged strongly during the year to Q2 2010.

Singapore had the highest increase among all countries surveyed by the Global Property Guide. House prices were up 34.03% over the year to end-Q2 2010, the highest recorded year-on-year increase in the country since 1995.

Hong Kong followed with an increase of 21.42% over the year to end-Q2 2010, a huge improvement over last year's price decline of 6.96%. Taiwan's house prices were up 11.51% over the same period. Residential property prices in Shanghai, China rose 5.78% during the year to end-Q2 2010. China has reported strong price rises since mid-2009.

The region's strong economic growth, low interest rates and increases in foreign demand fuelled skyrocketing house prices in these four countries, stoking fears of a property bubble. In June the International Monetary Fund warned that "the booming Asian real estate markets may pose risks to financial stability."

Governments have responded by implementing anti-bubble measures.

Singapore, Hong Kong, Taiwan and China have tightened credit supply by lowering the loan-to-value ratio. Singapore and Hong Kong have also increased land supplies. China increased the down payment requirement for second-home mortgages to 50%. Taiwan raised its interest rate to 1.375%, from a record-low of 1.25%.

Unlike their neighboring countries, Thailand, Indonesia and the Philippines' property markets performed poorly. Political unrest in Thailand took its toll. In Q2 2010, Thai house prices were down 4.83% from a year earlier. However, Thailand's house prices recorded an impressive 10.49% gain during the three months to end- June 2010.

Prices of condominium units in Makati, Philippines dropped 4.85% over the year to end-Q2 2010, while in Indonesia's 14 main cities, prices were down 1.42% over the same period.

North America – snail's pace recovery, declining home sales

US house prices fell 3.31% over the year to Q2 2010 (FHFA figures), but rose in the last quarter by 0.42% (seasonally and inflation-adjusted)—the first quarterly increase since Q2 2009, and the highest since 2007.

However, the American housing market is braced for a possible fall next quarter. Existing home sales slumped to 3.83 million units in July 2010, down a record 25.5% from last year, after the home buyer tax credit expired. Furthermore, unemployment has remained high, at 9.5% in July.

In Q2 2010, Canadian house prices were up 1.47% compared to Q2 2009, but rose only 0.07% during the latest quarter, as Canada also struggled with declining home sales. The Canadian Real Estate Association reported a quarterly decline of 13.3% in national home sales activities in Q2 2010, due to stricter mortgage regulations and expectations of an interest rate hike.