Asia Staked Too Much On High Priced Real Estate
"Last chance for the yen?" (Asian Business, July 6) underscores one fact: The leading Asian economies may become the Humpty Dumpties that lost their balance by perching on high-rise buildings. The Asian success story hinged on providing world-class goods at world-beating prices. Underlying this phenomenon was the ability to keep ahead of Western manufacturers--an ability increasingly threatened by U.S. productivity gains. Hence, Asian investment turned toward a "product" that was outside the U.S. competitive capability: domestic real estate.
But by operating on too grand a scale, there were severe diseconomies: overcapacity, excessive risk-taking, and moral hazard (expectations of governments bailouts)--leading to asset bubbles that burst. The olden days of catering to sophisticated Western markets may be ending, but the golden days of catering to domestic markets, with their potentially large volumes, lower purchasing power, and simpler needs (no more expensive high-rises, please), may be just beginning.