China and Hong Kong, and many other markets in Asia including Singapore and India, face asset bubble threats, especially in the property sector, from strong economic growth and cheap money flowing in from the West driven by ultra-easy monetary policies.
"The mass-market segment in a few large cities such as Shanghai and Shenzhen, and the luxury segment in Beijing and Nanjing appear to be increasingly disconnected from fundamentals," the IMF said in the paper released on Friday, Dec 3.
"(Cooling prices) will require an increase in real interest rates, a higher carrying cost of homeownership (such as can be achieved by a broad-based property tax), and, in the case of China, broad financial market development to alternative investment vehicles to housing."
China handed out tough cooling measures in April, such as raising down payments and mortgage rates, and later unveiled a series of moves, including restrictions on purchases of second and third homes, and urging banks to restrain lending.
A trial of a long-awaited property tax is also in the works, with state media saying this week that the government might start levying it in the first half of 2011 at the earliest.
Some analysts said the series of tightening measures could see residential prices in China and Hong Kong remain flat next year, with more significant rises in 2012.
Hong Kong and some mainland Chinese cities have seen apartment prices rise by as much as 50% over the past two years, sparking worries of overall housing affordability.
In Hong Kong, demand from mainlanders and low mortgage rates — as the Chinese territory tracks US monetary policy because of the dollar peg — also fuelled sharp price rises.
"The authorities will need to rely solely on tight prudential standards as well as fiscal measures to help mitigate the asset price boom," the IMF paper said.
In late November, Hong Kong announced its toughest measures this year by applying a stamp duty of as high as 15% on apartments sold within six months of purchase, and tightening mortgage restrictions.
"It has only been two weeks so the results may not be very clear, but during this short period transactions have gone down by 80%," Hong Kong Financial Secretary John Tsang told reporters during a trip in Chile. "If this is anything to go by, I think it's pretty effective."
Analysts expect the value of transactions to fall by a third next year, compared with this year as some developers delay project launches and buyers are sidelined, watching to see whether there are more policies in the pipeline.
On Friday, the Shanghai stock market's property subindex was up 1.1%, outperforming the Shanghai composite index's 0.5% fall. In Hong Kong, the property subindex rose 0.5%, outpacing the Hang Seng Index's 0.1% gain. — Reuters