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The Bank for International Settlements warned that weakened fundamentals make Asian developers more vulnerable to shocks.
In the near term, financial stability risks associated with huge debts of property developers appear to be limited, Switzerland-based institution said. However, from a longer-term perspective, the sector's deteriorating fundamentals give reason for concern.
The agency cited that higher interest rates or lower property prices can make situation vulnerable. As most of the developers' debt is in the form of bank loans, higher market rates could quickly push up debt costs.
The experience of past crises has shown that higher interest rates, drops in property prices and exchange rate depreciation often occur concurrently, and that fundamentals can deteriorate quickly.
Moreover, falling returns on assets and declining interest coverage ratios could pose problems even in the absence of external shocks, the BIS added.
In the wider perspective, the BIS said a deterioration of the developers' financial health can have significant economic repercussions.
