ASIA-PACIFIC - There is a growing concern over the prospect of inflation rising too quickly in the main economies of Asia, but Aberdeen Property Investors believes the respective authorities have sought to tackle the issue pre-emptively and in a positive manner.

The global property fund manager is expecting strong GPD growth in the region in 2010 despite inflationary pressures bringing about the prospect of higher interest rates and upward movements in Asian currencies.

Aberdeen predicts interest rates will rise in Australia and India over the next six months, while China is likely to use non-monetary measures to cool growth, primarily by directing bank lending growth.

"Financial markets will worry for a while about the damage higher interest rates might do to growth," the fund manager said in its quarterly property report on Asia.

"However, it is a positive sign that the authorities are adjusting policy pre-emptively to dampen inflation and potential asset bubbles."

Although Aberdeen is forecasting strong growth this year, it is expecting a pullback in 2011 when the recovery in the US and Europe could well lose its momentum.

It said this would be compounded by local stimulus policies being phased out across Asia.

Aberdeen expects the annualised returns for prime real estate in Asia to reach 13% over the next five years.

The fund manager said the recovery had so far been limited to the prime sector through buyer preference, while the secondary market is expected to lag in its recovery by 12 months.

Any recovery in real estate market fundamentals are expected to be gradual so there is only a modest rental gains forecast this year.

"We favour emerging markets on a nominal return basis, and would be underweight semi-developed markets because of their relatively lower contraction over the recent downturn," API continued in its report.

"After being a casualty, rather than a driver, of the recent global recession, the region should outperform Europe and the USA. We anticipate steady returns over the next three years, after which they will fall back as global markets absorb higher interest rates, higher inflation expectations and lower overall growth contributions from the public sector," it added.