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Corn+Soybean Digest

Is The Next Sub-Prime Lending Mess In Asia?

“Money floats around the world attempting to find a place to get lost.” This was a quote given to me by a Montana rancher back in the early 1980s. How correct he was! Bubbles and booms occurred in the Middle East in the 1970s based on oil. Next, Japan experienced a housing and stock market bubble in the 1980s due to the refinement of automotive and manufacturing processes. The next to step up to the plate were the Southeastern Asian Tigers, followed by the U.S. in the dot-com and real estate bubbles. Now the boom is in commodities and Asian and global real estate.

Let’s examine the bubble in real estate in China and other Asian countries. In India, prices of homes have been increasing 30-40% annually in recent years. In China, home price inflation hit a new monthly high of 9.5% in October with prices in Beijing rising by nearly 18%.To compound this, many loans made in residential and commercial real estate are based on low documentation or falsified credit data. Much speculation is taking place, similar to the “flipper” in the recent real estate boom in the U.S. Some waterfront property is now selling for $17,000/sq. meter. China lacks comprehensive credit data systems; however, in their defense, a 30 percent down payment is often required and the Chinese government is backing low-income loans.To you agricultural producers reading this and wondering how this would affect the price of wheat, corn or soybeans: Should the U.S. and North America go into recession slowing these emerging economies, then the bubble will burst on Asian real estate and worldwide commodity export prices. Where would be the next boom? One can only guess!

Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.

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