Housing market, risk surge in China

Prices soar as demand fuels rampant building

SHANGHAI, CHINA -- A housing-market meltdown may be wracking the U.S. economy and shaking the financial markets, but in Asia, the question is how to cool things down.

In China, South Korea, India and Singapore, housing prices are soaring amid strong economic growth and surging demand from developers and upwardly mobile families who want to upgrade their homes.

Of all of Asia's markets, China's is the hottest -- although the boom is creating problems there, too. Housing inflation is pricing some people out of the market, and authorities worried about excessive development are raising interest rates and taking other steps to curb lending.

Experts warn that many mortgages are risky, suggesting that Asia faces a property crisis. Some officials are pushing for changes to prevent the problems that are spreading in the U.S.

Demand is being driven by consumers such as Li Ruoning, 22, a public relations company employee in Shanghai -- just one of millions across Asia whose hearts are set on fulfilling the dream of owning their own home.

She borrowed about $40,000 from her parents in central China for the down payment on a 645-square-feet apartment just five minutes from her job.

What's more, Li, who is single, says she would buy another apartment as an investment if she had the money.

"I'm pretty sure that housing prices will not drop, especially with the best locations," she said.

Many Chinese families are already deep into speculating on property, a main driver of the surging prices that have Chinese authorities worried that a bubble might be forming. New apartments north of Shanghai's famous Bund waterfront are selling for a record $17,000 per square meter.

Yi Xianrong, a prominent economist at the China Academy of Social Sciences, a government think tank, is one of those sounding the alarm.

He contends that China's housing loans are riskier than those in the U.S., because he said most loan applicants give false information about their assets and income.

Because China lacks a comprehensive credit data system, borrowers often qualify for loans using false information, Yi says. He thinks the quality of property loans in China might be worse than the risky mortgages that are causing so much trouble in the U.S.

"I estimate that the large majority of mortgage holders would not meet the standards for even subprime loans," Yi said in an interview with the state-run magazine Oriental Outlook.

A collapse of China's property market would reverberate through the world financial system, although few experts think it would happen anytime soon.

The lack of reliable credit information obscures the level of risk, especially in China.

"It's hard to tell what the total exposure to real estate lending is. It's very difficult to judge until you have a price correction," said Nick Lardy of the Peterson Institute, a Washington think tank.

Given the demand for new housing across the region, a sudden correction in Asian property markets appears unlikely.

In India, where housing prices have been rising 30 to 40 percent annually in the past couple years and have remained firm this year, experts see fewer risks.

Families tend to rely more on personal resources, and banks have been steadily raising interest rates and cutting back on lending, which is modestly restraining development. A new credit score system is expected to help banks do a better job of managing risks.

"The Reserve Bank of India has been keeping a tight lid on banks' exposure to real estate," said Ritesh Maheswari, a credit analyst with Standard & Poor's in Singapore. "We don't foresee large-scale defaults."