Both residential and office prices have risen rapidly over the last few quarters in many Asian economies. Important valuation measures suggest that current prices are not supported by either incomes or rents especially in China and Singapore. The risk of a downward adjustment has obviously risen, not least due to recently introduced administrative measures to cool property prices. Even though we consider price declines likely in the course of the next few quarters in those overheated urban areas, it is important to note that for three reasons we do not expect that this adjustment will cause a new serious crisis for those economies or even the global economy: first, price increases since 2007 are still lower than the rises seen prior to the Asian crisis. Second, with fewer debt-financed property transactions and prudent regulatory moves the residential property markets in Asia are facing a lower risk of rising delinquencies. Third, many medium and long-term trends like urbanisation and household formation are still intact, backing medium-term demand growth. Therefore we conclude that a Japan-style scenario is unlikely for the countries covered in this study. Having said that if other macroeconomic risks materialise - like slower global and regional growth or faster-than-expected rises in inflation and sharper monetary tightening - real estate markets are unlikely to be able to keep the overall economy afloat. Also, while administrative measures introduced to date appear to be well-targeted and reasonable, there is a risk of future overshooting. Most observers of Asian real estate markets focus on residential markets, neglecting the fact that some Asian office markets are also already starting to show initial signs of overheating. Caution is advised, as Asian property - both residential and commercial - markets are prone to strong cyclicality along an upward trend.

Eoin Treacy's view We all have a tendency to apply lessons we have learnt from our most recent personal experience to other similar, albeit different, situations. Investors have taken a decidedly ambivalent attitude towards some of Asia's highest growth markets at least in part because property prices have risen quickly and they fear that a bust similar to those seen in the USA and across Europe will envelope much of Asia as well. However, while such views cannot be completely discounted, Asian regulators have been more vigilant than their Western counterparts. Sub prime, Alt-A, home equity withdrawal and 100% mortgages are pretty alien concepts in Asia and debt levels are generally considerably below those in the so-called developed world.

This does not mean that property prices cannot come down, they can and the Chinese have been actively pursuing a correction. However, the fact that monetary and fiscal authorities are acting to contain property market excesses before they attain true bubble proportions is a net positive for the long-term health of the respective economies. Of particular interest in this report is the favourable rating given to Indonesia Malaysia and Korea. These countries have also been home to some of the better performing stock markets over the last 18 months. Neither their stock markets nor property markets currently exhibit manic characteristics but this could change as the relative attractiveness of these markets is more fully appreciated by investors over the coming decade. Asia remains a prime candidate for a bubble to develop over the coming decade but this would require a country or countries to allow one to form. Right now regulatory, monetary and fiscal authorities are alert to the dangers of a loose attitude toward financial market excess. This makes monitoring the economic governance increasingly important as these markets continue to attract investor interest.