Consultant in the UN Office of Information and
Communication Technology (OICT)
“Will the price increase continuously?” People who have paid attention on real
estate like to ask questions like that, especially in those “over-speculation” markets
in Southeast Asian region: Bangkok, Hanoi, Manila, and even Phnom Phem and
Sihanoukville, all you can name it. Not surprisingly, those cities are benefited
from so-called “Belt-and-Road” program initiated by Chinese government, and
numerous investments (associated with huge debts) have flew into these regions
and abnormally stimulated the price of local properties. Of course, it has also
created impressive economic growth in the short-term. However, can the real estate
price increase forever in those Southeast Asia megacities? The answer is both easier
and more complicated than it appears at first glance. The easy response is “No, it’s
not going to grow forever”. Instead, at certain points, the asset price inflation must
be self-corrected back to the mean value. On the other hand, “when this property
bubble is going to burst” is the complicated one. It has to consider multiple factors
including micro & macro economics, monetary & financial policy, and other “black
swans”, for example the trade war or natural disaster.
Like any other market under the capital manipulation, the real estate market in
Southeast Asia is also supposed to follow the free competition, and its prices are
determined by basic economic rule: supply and demand. If we take house as the essential in one’s life, then the housing price should correlate with the inelastic
demand from, for example the population growth or urbanization and migration.
But the problem is that the demand never comes from such simple reason. The
built-in greedy and rent-seeking behavior always lead the risky situation (e.g.
housing prices are too high) to even worse. House itself is not just an essential
with intention to be lived or possibly be rented out, but it’s more like financial
commodity which allows people to invest and earn capital gains like in the stock
market. In this way, the more the demand surpasses supply, the more the prices will
increase. The interesting question will be: what makes demande strong in some
In global and historical context, the over-printed money (or quantitative easing
if you prefer a formal term) has driven this crazy trend of investing in real estate
and other derivatives since decades ago. If we measure the US dollar M2 supply
(coins and currency in circulation and savings deposits in banks) according to
the latest statistics, it almost reached 15 trillion globally by June 2019. Compare
with the money supply in the early 1990s, the total value was only 1.6 trillion.
Once all money pumps into the market, the inflation problem becomes another
headache for most governments and policy makers. It will be very dangerous if
the consumer price index (CPI) uncontrollably increase while the public is very
sensitive to their daily consumption (e.g. food, transportation, and entertainment).
In order to keep stimulating economic growth by flooding more money in the
market, it needs a “pool” to absorb these surplus capitals without the terrible
effect on people’s necessities (e.g. serious inflation). Thus, at the time around
2000, financial innovation and physical property seemed to be that good pool. The
former can be referred to those derivatives (created by elites in Wall Street which
tried to “securitize” everything in our life); the latter is real estate - combining with the low-interest rate and easy mortgage policy (central bank also encourages
commercial banks to lend more money), it further motivates people to buy houses
and the "warming" real estate market can generate extra asset value in real without
pushing inflation in other consuming goods (or at least not that much).
To be fair, the risk behind crazy housing price is the rampant debt and credit
abuse in such real estate market, especially in those financially fragile households
and the countries have inappropriate monetary policy. Indeed, to some extent,
every country has implemented expansionary policy since 2000, or even since the
1970s - after the US President Nixon tore apart Bretton Agreement which allowed
all sovereign money could be backed by national credit, instead of something with
intrinsic value like gold or silver.
It’s not surprising that the housing bubble bursts have happened several times
in the past, and it should happen again in the future due to “the governments and
people have never learnt anything from history” (the statement was made by
The tragic death of property prices can be seen in Japan (1990s) and the US
(2008), and there were actually some signals before the comprehensive crash.
For example, rents had softened from peak levels, uncertain mortgage rates,
even the inventory was slowly creeping higher while rents were flatlining, etc.
These are relatively useful indicators to check if it needs to start worrying about
the market again. From the macro perspective, the debt level and flows may be
another interesting reference to observe, specifically, the domestic household debt
and private debt. We can put public debt (government debt) aside for a moment
because, ideally, the government should have unlimited debt-paying ability through QE or other fiscal operations. However, the private sectors should always
be responsible for their own solvencies and no one is going to save them from
bankruptcy. Hence, we can use debt-to-GDP ratio to assess if that certain “pool” (i.e.
real estate market) still has room for hot money inflow and credit levage, or the
bubble is almost reaching its limitation, and then burst will destroy a large amount
of wealth and cause continuing economic malaise.
To conclude, mainstream economists consider that having the debt-to-GDP
ratios of 150% in the private sector (household and corporate) is a dangerous level
and the coming downturn of asset prices and economic crisis are highly possible.
Here we share the top one by the survey in the beginning of 2019: Japan, with its
population of 127,185,332, has the highest private debt in the world at 221% of its
GDP, while the US is about 150%. The idea that many people (even institutions)
consider housing to be expensive but still expect the prices to continue to rise could
be irrational, it just needs to take a look at some basic economic figures and the
overall demand & supply.