There are strong signs of a property bubble in Asia, with Australia, Taiwan and Korea looking the most overvalued, Erik Lueth, Senior Regional Economist at RBS Global Banking and Markets told CNBC on Tuesday.
"For these three countries we can say that they are more highly leveraged than the U.S. was at the outset of the subprime crisis." he said.
According to Lueth, Asian leverage as measured by household and corporate sector debt, increased from 210 percent of GDP in 2002 to 250 percent of GDP in 2010. That compares with the U.S. rate of 180 percent at the height of the subprime crisis.
In his report, Leuth points out that Australia ranks the highest among Asian countries in terms of valuation, leverage and bank exposure. In 2010, Australia's real estate loans accounted for close to 60 percent of total bank loans. That was up from around 45 percent in 2000. By contrast, the proportion of real estate loans in China was around 20 percent last year, one of the lowest in the region.
However, Lueth said there are mitigating factors that may not necessarily lead to an abrupt correction and that the risk of a banking crisis in Asia looked "remote".
"The point is that the Asian banking sector is among the best capitalized in the world. Also the quality of capital is much higher than usual."
Despite vulnerabilities in Australia, RBS notes the downside risks are still small, as the "commodity boom could sustain valuations for many years to come".