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Mr. Malhar S Nabar and Mr. Ashvin Ahuja

on the experience of Hong Kong SAR, a currency board economy, in its attempt to cool down the property market and limit related systemic risks to the banking system through active use of LTV caps and, increasingly, government-initiated land sale policy. The main findings are as follows. Across the broader sample as well as in the subset of economies with pegged exchange rates and currency boards, the use of LTV caps tends to have a decelerating effect on property price growth. In addition, both LTV and DTI caps slow the growth of lending to the property

International Monetary Fund. European Dept.

crisis has shown, much of the pre-crisis growth in the booming euro area economies was driven by finance, real estate, and construction with inflation showing no obvious sign of overheating. These activities declined substantially after the crisis. In light of this, Borio and others (2013) propose a statistical method to draw on information on other variables that are likely to capture financial cycles, such as real credit growth, property price growth, and real interest rate, to estimate “finance neutral” potential output. This section will extend their methodology

Mr. Ashvin Ahuja, Lillian Cheung, Gaofeng Han, Mr. Nathan Porter, and Wenlang Zhang
Sharp increase in house prices combined with the extraordinary Chinese lending growth during 2009 has led to concerns of an emerging real estate bubble. We find that, for China as a whole, the current levels of house prices do not seem significantly higher than would be justified by underlying fundamentals. However, there are signs of overvaluation in some cities’ mass-market and luxury segments. Unlike advanced economies before 2007-8, prices have tended to correct frequently in China.Given persistently low real interest rates, lack of alternative investment and mortgage-to-GDP trend, rapid property price growth in China has, and will continue to have,a structural driver.
International Monetary Fund
Various indicators place Cyprus’s banking system soundness ahead of emerging countries but behind advanced economies. This report discusses financial sector stability in Cyprus, using a combination of accounting-based and market-based indicators, and stress tests. Cypriot commercial banks are weaker than their counterparts in Greece and also less stable than cooperative banks in Cyprus. Credit risk appears as the main source of risk in the banking sector, with demand for real estate slowing, declining property price growth as well as Cyprus’s high household indebtedness.
Mr. Ashvin Ahuja, Lillian Cheung, Gaofeng Han, Mr. Nathan Porter, and Wenlang Zhang

banking sector to the real estate markets highlight the importance of using early warning measures of misalignment, like the one we develop, and the potential impacts will only grow over time. Given the awareness of China’s authorities of the risks excessive property price growth poses and their experience in containing them, the likelihood of financial instability precipitated by a housing price bust seems small. 3 However, China’s property markets will continue have a strong underlying propensity for rapid price growth owing to structurally low real interest rates