When US consular officials in Mumbai bought a chunk of real estate for a new building in the city's then cheaper midtown area four years ago, they thought their troubles were finally over. The location of their existing premises in exclusive but crowded south Mumbai meant they had to pay heavily to house staff within a reasonable commute from the office.
What they did not count on, however, was Asia's great property boom.
Midtown land prices in India's financial capital began rising steeply and, with top-end rents doubling annually, the consulate faces the same problem even before its new offices are built. "There are rental apartments which we had considered premium at Rs300,OOO ($6,800, £3,500, euro5,200) a month - these now go for Rs600,OOO," says Anjeli Hazari, a Mumbai estate agent catering to expatriates. "It's a very erratic, very volatile market."
Across large parts of Asia, the same pattern is being repeated. The rapid growth of the region's economies, led by China and India, is inflating property prices. The trend has sent national regulators scrambling to try to put a lid on the market, in part by seeking to curb bank lending to the sector. But few believe they will be able to achieve much more than a damping of the worst excesses of a phenomenon some see running for years.
"We've got asset booms around the region and it's pretty much uniform. There are very few countries where you don't see it, whether it's in equities or in the property market," says Tim Condon, chief economist at ING in Singapore.
It is not just the parts of the region undergoing industrial development that are experiencing the surge. Jones Lang LaSalle, the property consultancy, estimates that Tokyo prime office space rose 63 per cent in value last year while residential rental prices were up 28 per cent. This provides further evidence that Japan is putting behind it the long period in the doldrums that followed the bursting of the country's 1980s asset bubble. Japanese property stocks in February hit levels not seen since the 1980s and shares in Mitsui Fudosan, the leading developer, surpassed a lifetime high.
Those gains came as many pension funds increased their allocations to property. Last month, the prices of Japanese real estate investment trusts also hit a record high, underlining investor confidence that property prices will keep on going upward. "Foreign investors have played a role in this sharp upsurge, but we believe the main reason is an inflow of funds from individual investors through investment trusts," says Yoji Otani, real estate analyst at Credit Suisse in Tokyo. "The retirement of baby-boomers is likely to spur further growth."
Such rapid rises might please investors but they are worrying the region's policymakers, who are concerned that asset price inflation could cause political difficulties and threaten financial stability. Concerned that another "mini-bubble" could be forming in its property market, Japan's Financial Services Agency is to tighten lending to real estate funds.
In South Korea, housing is set to dominate domestic political debate this year, ahead of a hotly contested presidential election to be held in December. Citizens are incensed at the idea that speculators are pricing families out of the market. "My husband and I have been trying to buy an apartment in south-east Seoul and we started with a budget of Won300m ($320,000, £164,000, euro244,000)," says Ju Eun-hwa, a 31-year-old government official. "But prices turned out to be more expensive than we thought."
The South Korean capital showed price rises of almost 20 per cent last year, according to figures compiled by HSBC. The government has imposed a slew of administrative measures - such as tighter lending criteria for home buyers and restrictions on land and apartment prices - in an attempt to cool the property sector.
Elsewhere, high-end apartment values in the Makati district of Manila were up 38 per cent last year and in Singapore were ahead by 34 per cent. Rents rose by a similar margin. Indonesia, which has not attracted the same interest from foreign investors, has still experienced a resurgence thanks largely to a fall in interest rates. In important Chinese cities such as Shanghai, luxury flat prices were soaring at more than 50 per cent annually until the government brought in measures over the past two years that have taken some of the heat out of the market. Cooling efforts in China have included a capital gains tax on property sales and higher down payments for mortgages.
Some say these measures have had their desired effect. According to Jonathan Anderson, Asia economist at UBS, China's 6.0-7.0 per cent increase in house prices last year was slower than the increase in incomes. "The authorities have done a pretty good job because they managed to focus on specific markets without hurting the aggregate property market," he says.
But no matter what authorities do, economists believe the rise in prices can at best be slowed. With Asian economies growing rapidly, people have to put their money somewhere. In China, the calmer property market might have had the effect of simply transferring the potential bubble to stocks. From 2001 to 2005, property was the asset of choice for higher returns. But after Beijing's efforts to slow property investment, there was a flood of retail money into the mainland stock market, which surged 130 per cent last year. Indeed, the authorities are investigating reports that people have used money from mortgages to buy shares.
Economists say that underlying the property boom are deep structural changes in the way the world is doing business. Asian countries led by China are manufacturing more of the world's goods, while those such as India are taking over more of the world's backoffice services. This is driving phenomenal economic growth in the region, which Sun Bae Kim, head of Asian economic research with Goldman Sachs in Singapore, forecasts will reach 8.0-8.5 per cent this year.
These forces mean Asia is sucking in ever greater amounts of the world's export earnings and investment. To control the appreciation of their currencies in the face of these fund inflows, Asian central banks are buying dollars and investing them in instruments such as US Treasury paper. In the process, they are pumping up the supply of money in their own economies while simultaneously suppressing yields in the west. The net effect is that domestic Asian investors are flush with cash while their western counterparts are looking to move money into the region's higher-risk markets to achieve a better return.
Foreign private investors have been flocking to the region. There are at least 50-60 specialised private equity funds with average capital of $250m-$300m looking to invest in Indian property, according to Tanaji Chakrabarti of Knowledge Centre, Trammell Crow Meghraj, in New Delhi.
"The days of China and India risk, even Vietnam risk and to a certain extent Pakistan risk, they are gone," adds Michael J. Thompson, Asia Pacific chief executive with Cushman Wakefield, the property consultancy. "Institutional investment funds are demanding riskier but higher-yielding returns. "
Across Asia, companies have been quick to spot this trend. Indian developers have been listing on London's Alternative Investment Market while several Chinese developers are looking to list stock in Hong Kong this year.
Still, economists say that in many countries there is no reason for panic. The cycle is in its early stages and many regulators, having been chastened by the explosion of previous bubbles, are showing signs of maturity in being able to manage the worst excesses.
Even in outlying economies such as Communist-ruled Vietnam, while prices are rising again, no one is expecting a repeat of the excesses of the last boom in 2001-02. "Before, a property could be bought and sold seven times before the house was actually built," says Tran Quyet Thang, chairman of Refeco, a Vietnamese property developer. "Now it is difficult. Property development regulations have got stricter. Before you can sell, you have to do something - site clearance, infrastructure or build some houses."
"There are going to be skirmishes in the next year or two as central banks try to manage the asset cycle but my sense is that this has got a lot further to go," says Mr Kim of Goldman in Singapore. "Strong asset prices are going to help underpin strong demand because people will feel better about their lives. I think you will measure this in years, not a few quarters."
For prospective buyers, and tenants too, in cities from Seoul to Mumbai, that is not what they want to hear. "You're paying what used to be the price of the flat as the deposit and then you pay the rent on top of that. It has become extremely expensive," says one home hunter - Colvyn Harris, chief executive for India of JWT, the advertising agency. If even top expatriates such as Mr Harris and American consular officials find it daunting to secure somewhere adequate to live in the region's teeming mega-cities, what hope for ordinary local businessmen and their employees? In Mumbai, the price of office space jumped 72 per cent last year. The increasing cost of both business premises and accommodation in India is leading to a flight away from the metropolises.
Call centres and information technology companies, the industries that kicked off the country's economic boom, are moving to smaller, cheaper cities of which few outsiders might have heard. The property bonanza, there as in China, looks likely to mean that many of those lesser regional centres will soon have their names rise to international prominence.