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AS concern mounts over ballooning property prices in major cities around the world, Tokyo appears to be the least in danger of a boom and bust. But analysts fear that the Bank of Japan's super-easy monetary policy is creating a runway for a steep take-off that will lead to a crash.
This comes amid a warning by rating agency Standard & Poor's that rising levels of mortgage-based financial leverage in Asian households could create risks for local banks.
The sharp spike in property values has been less visible than the surge in stock and bond markets in many parts of Asia because property transactions are less transparent. But this is precisely what makes the boom more threatening, say analysts.
After the mega-crash in Japanese land and property prices following the collapse of the bubble economy two decades ago, real estate has been a quiet sector compared with other markets such as China, Hong Kong or Singapore.
But this could be about to change dramatically, said former Goldman Sachs (Asia) vice-president Kenneth Courtis.
Despite having got their fingers burnt, banks are back in the mortgage market and are being pushed by the Bank of Japan (BOJ) to lend more.
"With short-term interest rates at zero and long- term rates being driven down by an unprecedented monetary blitzkrieg launched by the (BOJ) with the aim of generating inflation, investors have been scrambling to take on as much Japanese real estate exposure as they can," Mr Courtis told The Business Times.
"In major metropolitan areas, prices are up sharply. In core Tokyo, prices for new, freehold residential real estate are up 22 per cent over the past year. That still means that valuations are but a quarter to a third of what they were at the peak 23 years ago, (but) I expect a further upward move in prices."
Given that the summer Olympic Games are due to be held in Tokyo in 2020, property prices could receive what some analysts describe as a "steroidal boost" - starting well before the games are held.
In fact, this is already happening. At projects close to the proposed Athletes' Village, the first 800 or so units that went on sale in August were snapped up.
Buyers expect BOJ governor Haruhiko Kuroda's pledge to double the monetary base over the next two years to push up real estate prices, said Ryo Hashimoto, head of condo sales at Skyz Tower & Garden, an apartment building near the Athletes' Village.
The "quanto easing in which Japan is currently engaged is simply gigantic", said Mr Courtis. "Japan today is pumping new liquidity into its financial system at three times the rate relative to GDP that the US is doing."
He is not the only one to call attention to rising prices. In Tokyo, the average price of new condos jumped nearly 10 per cent in the year ended June 30 to 686,000 yen (S$8,643) per square metre, said the Land Institute of Japan.
Land prices are on the rise again in the major cities after slumping 85 per cent in the wake of the bubble economy crash, leaving banks with US$1 trillion of bad loans, according to Global Property Guide.
In the year ended June, the average price of land in Tokyo rose 5 per cent to 204,500 yen psm.
Japan is by no means alone in experiencing property-price inflation. "From China to Canada and London, fast-rising property markets are haunting the global economy again, five years after the US subprime mortgage bubble burst and triggered the worst financial crisis since the 1930s," Reuters said in a global survey published last week.
It noted, however, that "except in a few cases, the warning signals are flashing amber, not red, and several countries have acted to cool overheating markets".
Still, it added, "the confidence of policymakers that they can avoid another generalised boom and bust could be tested if central banks keep pumping out nearly free money to support economic growth by encouraging investment in riskier assets, such as equities and property".
Meanwhile, Asia's increasing household leverage - mainly from rising mortgages - could be risky for Asian banks'creditworthiness, according to an S&P report last week.
The report evaluated asset quality of banks in six economies: Malaysia, Thailand, Singapore, South Korea, Hong Kong and China. It noted that while banks in Asia have been operating under favourable credit conditions resulting from healthy economic growth for a few years now, a structural weakness appears to be emerging in some economies.
"Rising household debt fuelled by rapid loan growth and easy monetary conditions could weaken the credit quality of banks in Asia," said S&P credit analyst Ivan Tan. "Potential asset bubbles and imbalances are building up in some countries, and could put the banks at risk."
Malaysia, Thailand, Singapore and South Korea have the highest household debt in Asia, S&P noted.