Although leverage is lower now than in 1996-97 during the region’s previous bubbles and a price slump is less likely and less dangerous, said analysts, there is a real possibility of a crash.

“We have two main concerns. One is that a new shock in the world economy could lead to a violent correction, with Hong Kong the most at risk. The other is that prices could continue to rise faster than incomes, creating increasing vulnerability. We emphasise that housing, like most markets, must always be expected to cycle,” said Standard Chartered’s analysts lead by John Calverley.

He added that the key special factors which will affect Asia now are low interest rates and mainland China money. “In our opinion, it is risky to rely on interest rates remaining low. In practice, sharply higher rates could pull property prices down quickly. We expect US rates to normalise gradually over the next several years, but rates could move up more quickly. Rates could also move up more rapidly in Asian countries even if US rates stay low." 

Already, he said Hong Kong mortgage rates have moved up much faster than expected in recent months owing to tighter Hong Kong dollar liquidity.

The bank expects measured real rates in Asia to rise in coming months as the spikes in oil and food prices drop out of inflation indices. However, the trend over the next several years could still be for real rates to remain low or negative in Hong Kong, Singapore and China, as wage growth stays strong or even accelerates, while interest rates are held down by easy monetary policy at the Fed.

The bubble-o-meter is a screening model compiled by a team of analysts based on house-price growth, mortgage debt growth and real interest rates.

Using a scoring system calibrated by looking back at prior bubbles, including Hong Kong in 1997 and the US in 2006, Standard Chartered identified whether countries are low, medium or high risk. Any country which sees house prices rise more than 40 per cent faster than per capita incomes over five years, combined with mortgage lending outstanding up more than 30 per cent over three and with real interest rates of -2 per cent for three years or more will receive the maximum score. The bank said it views a score above 10 as not necessarily a bubble, but worthy of closer investigation.