Hong Kong property outlook - and Data Base

[drbubb]

LAND PRICES and other indications

(from AsiaX):

OTP:

My original post said:
"My best guess is we will see a drop of at least 30-40% over the next 3-5 years."

Are these guys copying me, after all these weeks?
(This must be why they pay me the big bucks... not !
But I used to be paid more than 99% of the folks reading this thread, probably.
For analytical and other efforts. Ah. those were the days!
And you get if for free. Why? Maybe someone can give me a good reason to continue.)

Hong Kong home prices could tumble 30 per cent through 2017 on deteriorating economy: UBS

UBS reported that downside risks exist in Hong Kong property market, mainly driven by several macro-factors, including liquidity, job market conditions, inflation, the HKD's relative strength, and interest rate hikes. Different from past down cycles that were triggered by global economic shocks, this round of price reversals should be caused by a deteriorating local economy. Therefore, the price drops may come more gradually and over multiple years. Although the market's focus is on mortgage rate hikes, the broker believed other factors are more important to property prices.

UBS pointed out that Hong Kong property prices have surged by 340% since 2003. They may recede 25% to 30% frown now to the end of 2017.

 

Greene King:
OFFTHEPEAK,
Any idea as to how land prices are doing? Developers who feel prices may be going down in the next two/three years will be reducing what they are prepared to pay for land coming up at sales or not buying at what they may perceive as high prices.

OTP:
thanks, Greene K.
I don't have any up-to-date data on HK Land prices, but I will watch the news reports in the Standard and elsewhere.

I think your argument makes good sense. So if the developers pull back, maybe that will be a sign that they agree with me and UBS and others that property prices are peaking,

Another thing to watch is Bank Valuations. But I do not find them very aggressive right now. I sold my own property for about 4-5% over the bank valuation, which I found irritatingly low.

[drbubb]

RENTS Face Pressure

 

Says article in today's SCMP (P1)... due to delivery of several major projects in Q4 and the resulting Supply pressure

 

+ First times since 2011 when new Supply exceeds Demand

+ 15,000 new properties to be completed in 2015, and 30,000 if one includes govt housing

+ Home prices could drop by 20% when interest rates start to rise

+ 5 -10% falls in both rents and home prices are expected in 2016

 

Before this pressure, rents at 50 Key Housing estates hit a record high of $33.56 psf,

but mo-on-mo growth slowed to 0.4%.

Thomas Lam of Knight Frank expects a 5% drop in rents in Q4 alone.

[Traineeinvestor]

A couple of reference points for HK property:

 

1. I rolled over a lease to an existing tenant at a 7% increase (slightly below the rate of inflation and below what agents were telling me I could get but it's better than having to find a new tenant);

 

2. we put the unit we were staying in while our home was being redecorated on the market on Saturday. We've already had three offers at close to our asking price. The high offer is 17% above the previous rental (set in mid 2013), probably helped by the opening of the HKU MTR station as well as the continued gentrification of Kennedy Town.

 

Only a couple of reference points but demand in Mid-levels looks pretty strong at the moment.

[drbubb]

A couple of reference points for HK property:

. . .

 

Only a couple of reference points but demand in Mid-levels looks pretty strong at the moment.

 

Hmm. Are we getting a two-tier market??

 

MORE SIGNS of a soft market in wednesday's SCMP

 

Rents are softening in the NT : down 10-15%,

thanks to growing supply.

 

There's a story of an owner in Fanling accepting a rent of $8,300 (for a lower floor flat under 400 sq ft) after failing to get the asking price of $10,000.

 

I think $10k is clearly too high, and maybe $9,000 or so per sf would be right for a lower floor flat, and it could be less, if in poor condition. So that's more like softness, rather than a 10%+ drop imho.

 

There's definitely some new supply coming in various non-prime areas, especially for the (popular) smaller flats

[Traineeinvestor]

After a bit of negotiation, two of the three people who were interested agreed to a rent level which is 18% above what the previous tenant was paying. The new tenant works for a bulge bracket bank and has been in HK for several years. Hoping to sign the provisional agreement on early next week when he gets back to HK. I strongly suspect that the MTR opening is the major driver of the increase.

 

As an aside, I rejected one offer from a mainland tenant because they refused to produce either a HKID card or a passport with a HK visa in it. They offered to pay three months' deposit, but it just wasn't worth the hassle of dealing with someone who couldn't prove they had right of abode in HK.

[drbubb]

Interesting.

"They offered to pay three months' deposit"

 

Would you have accepted 6 months ahead?

 

(I have had to do that, when I rent without a salary)

[Traineeinvestor]

I might have been tempted but after a series of phone calls this afternoon, I got the same asking rent from someone else without the potential headaches. Provisional agreement has been signed so we are back to full occupancy.

[drbubb]

ENTER the Dragon (Bagholders) ... Is this how excess supply will come in?

Exposure over profit
To do this, the new entrants are using a competitive bidding strategy, one that often eclipses their far more price sensitive local rivals. “Mainland developers are far more aggressive,” says Joseph Tsang, JLL’s Managing Director and Head of Capital Markets in Hong Kong. “They’re pursuing exposure over profit, and using their owned subsidiaries to win bids, build high quality stock, and muscle out the traditional Hong Kong players. In their eyes, Hong Kong is a lucrative brand asset, and a valuable stepping stone to other markets outside of China.”

“Developers from mainland China are expanding aggressively overseas because of the increasingly challenging business environment back home ,” Ma confirms. “They’re picking Hong Kong because the market is hugely attractive at the moment, and fits in well as part of a wider growth strategy.”

Mainland firms have proved keen to partner with smaller Hong Kong companies, matching their financial muscle with local expertise. This has kept capital flowing into Hong Kong, and provided a welcome boost for local businesses. The competition has also ensured an uptick in quality. Tsang notes that with more competitors, “local developers are becoming sharper in design, layout, and materials.”

But in a market like Hong Kong, it is pricing that receives the most focus. How will this arrival of new developers impact the market? ”We’ve not seen any impact on pricing yet as the mainland players are still very new to market,” says Tsang. “However, I’m certain we’ll see an impact in 2016 and 2017 once units come onto the market. What that impact is remains to be seen.”
==
> MORE: http://www.jllrealviews.com/places/all-change-in-hong-kongs-property-market/?utm_source=outbrain&utm_medium=cpc&utm_campaign=APPRNews

[drbubb]

Mixed message - New versus Old / High percentage finance vs Low

The article from Sunday's SCMP (pg.7) delivered a mixed message about property demand.

On one hand, there was a report that 95% of the properties in a new project (Eltanin Square Mile in Mongkok) sold out. These were small flats of 176-390 sf, priced at from $4.12mn to $7.29million. But demand and prices in the secondhand market were said to be weaker. What's going on here?

+ The new propeties came with up to 90% finance: 60% from the banks amd 30% from the developer. It is rare that anyone can buy a property in HK with just 10% down, so this is bound to appeal to many buyers. I reckon that most of the 30% from the developers is their profit margin; and so they are getting it later with interest, rather than taking a chance the property prices will fall

+ Secondhand prices are said to be soft, off 3-5% in the last month or so. And I would call that the "real market", away from financing gimmicks. But this degree of fall has not yet shown up (fully) in the Centaline index

+ Big agents are still predicting falls now "after a 12 years bull market", with Colliers predicting a 10% drop in 2016, and CLSA forecasting a 17% drop up to 2017.

=====

Note for Duracelll: that explanation for a 14 year upcycle came from Fred Harrison, in his book and told to me in person.

I'm not sure he really believes it himself. They rhythm is well establish, as is the 18 years peak to peak. 18 years after the 1997 peak would be this year, 2015. That's only 12 years up from the 2003 low. And I do see many signs of a possible rollover occuring now in HK prices.

[drbubb]

(Added Fanling Centre - to the database)

 

 

(2015)

Apr- 04/30 : $9.150M: $7.710M : $13.57M: $9.620M : $4.690M: $7.640M : $8.350M: $3.490M : $11.05M : $7.320M

Aug- 08/15 : $9.190M: $8.040M : $14.00M: $9.960M : $4.830M: $7.650M : $8.360M: $3.680M : $11.81M : $7.650M

Oct- 10/31 : $9.050M: $7.950M : $13.41M: $10.11M : $4.930M: $7.650M : $8.360M: $3.720M : $11.84M : $7.650M : $3.920M
Area ==== : TKO-CHt: TK*TsW : TKT-CPk: TY-TVrd: TC-CrCs: TktLb30 : Tkt.Lb50: TktTm13 : Tkt-IsHV : PrspG*KC : Fanl.Ctr.
Tower / Fl. : Tw3-30C: Tw3-25C: Tw3-30C: Tw3-30C: T3-30C : Tw3-30C: T3-50C : TG13fl.5 : Tw3-30C : Tw3-28C : BlkF18-4 :

 

==========
Week : CCLI : CMMI : RobinPl / IslHarb: ParkAv: / C'ribC : TaikSh.: Fanling
Numb.: ( #1) ( #2,4): (---- #6) : (--- #7) : (--- #8) : (-#-3) : (-#-13) : (--#-5)
==== . .
11/01: 141.76 142.96: 17,226 /13,002: 13,219 /: 6,675 : 14,476 : 7,662 :
10/25: 142.98 144.05: 17,315 /13,171: 13,391 /: 7,047 : 13,947 : 7,749 :
10/18: 144.33 145.54: 17,339 /13,281: 13,503 /: 7,035 : 13,997 : 7,778 :
10/11: 144.61 146.10: 16,123 /13,117: 13,337 / : 7,050 : 13,989 : 7,746 :
10/04: 146.45 148.22: 16,168 / 13,179: 13,397 / : 7,062 : 15,181 : 7,773 :
09/27: 146.01 147.61: 16,173 / 13,265: 13,484 / : 6,514 : 15,101 : 7,772 :
09/20: 146.67 148.39: 16,180 /13,241: 13,203 / : 6,508 : 15,134 : 7,817 :
09/13: 146.92 148.61: 16,182 /13,270: 13,232 / : 6,519 : 15,119 : 7,833 :
09/06: 146.76 148.27: 16,196 /13,055: 13,368 / : 7,076 : 14,937 : 7,727 :
08/30: 146.78 148.27: 16,199 /12,963: 13,273 / : 7,577 : 14,923 : 7,708 :

====

> Historical : http://202.72.14.52/p2/cci/SearchHistory.aspx?tab=2

=======
Centaline index announced yesterday: CCLI: 141.76 - 0.85%

Home prices shaky after hitting a record high - SCMP, pg. A3

Official price indexup 9.9pc this year though softening market will be evident next month

+ Sept's index from RVD climbed 0.22 in Sept. to a record 305.9.
And the Rental index was up 0.28 to a record 177, up 6.5 pc since the start of the year
+ Ricacorp's data slowed some slowing in Sept. with the average price of small flats below 430 sf, down 3.6 pc in Kowloon, and 4.1 pc in the N.T.
+ Inventory of unsold homes rose to the highest level in 15 months, at 7,176. With sales down 22.6 pc in October to 3,300 units, that's a 2.x month surplus
+ Investment banks are now predicting falls of 30 percent up to 2017. Meanwhile a govt tender failed for the first time this past week, in Tsing Yi. Barclay's says prices are now 2.7 percent down from a mid-September peak

[drbubb]

Too many agents, Too few transactions

 

Make-or-break days for agents

Esther Yu / Thursday, November 05, 2015

 

Excerpt

 

According to Land Registry data, 2,035 transactions were recorded in the secondary home market in October down 23.5 percent from 2,661 deals the previous month.

The 2,035 secondary sales represented a 35 percent decline from 3,132 transactions in August, and a 52 percent drop from 4,271 deals in July.

However, Centaline, the biggest local real estate agency employing more than 4,500 agents, said it has no plans at present to lay off staff, hoping instead to reduce headcount and overheads through natural attrition.

In contrast, Midland Realty, another leading property agency, said some branches under its banner may shut down if their landlords do not cut rents when their leases expire.

Facing such dire straits, Hong Kong's 37,272 licensed agents will have to devise new strategies - for in such a highly competitive marketplace, only the strong can survive.

 

+ With 37,000 agents, at the 2,035 rate - that's less than one secondhand sale per agent per year ( actual : 0.66 per agent per year)

 

> http://thestandard.com.hk/news_detail.asp?we_cat=16&art_id=162879&sid=45510472&con_type=3&d_str=20151105&fc=7

[drbubb]

CYCLICAL FORECASTING - has worked well in property markets

 

But many do not think that way

 

Q: (from G.K.)

I agree sentiment is important but surely to drop 30% there must be economic rationale behind such sentiment. Since possible market peaks around September very little has changed economically - rate raise may be more likely however I believe the impact will be nominal and already allowed for (they have been due to rise for months). The increasing developer supply has also be discussed for months. And if anything the economy has improved if you look at China share prices.
I still believe that if land sale prices do not fall by a large amount and/or unemployment starts to rise any fall will be limited.

 

A:

G. K.,
I do not forecast the way that you were taught to forecast.
The traditional way is not very effective. Wait and see how my forecast works out.

For me, markets move in cycles and patterns, and they can be observed in historical charts. The main driver is sentiment, and the cyclical "learning process" that is going on, as sentiment changes. The traditional guys, who are less accurate, will pin the fundamental "reasons" to the market moves after they happen. To me, they are working with backwards logic, and my approach is forward looking. So don't ask me for "my" reasons, since we can all identify them later, after the fact.

Like anyone, I can speculate what the bearish factors might drive the market lower. And my starting point would be to look at the massive gap between Prices and Rents. Prices are up 205.9% to an index level of 305.9 since 1999, and Rents are up just 77% to 177. If Prices backtrack to where rents are now - and return to their historical 1999 ratio to rents, they would fall by 42.1% (177/305.9= 57.9% ) - if rents stay where they are now.

So you can ask: Why have Prices climbed so much more than Rents:
+ Interest rates have fallen to ultra-low levels, the lowest in history
+ Supply has been constrained, and only now is rising faster than demand
+ Mainland China buyers have been big buyers since the 2003 low, but less active since the cooling measures were introduced - but many still become Hong Kong ID holders and buy when they can without paying the extra tax. That's a source of extra demand, and things could happen to turn some of these mainland owners into sellers.

So any of the these three factors might change in a negative way, or all three, and these adverse changes would undermine the property bull market, and bring prices back towards their historical relationship to rents.

[drbubb]

And so it begins...

Weekly drops in Hong Kong of over 1% !

That's what we saw in the "bad old days" of late 2008

Week : CCLI : CMMI :
===== Leading: MassMkt
PEAK: 146.92 148.61:(09/13)
Chg-: -5.93% : -5.72% :- since the peak
12/06: 138.22 140.11:
Chg-: -1.14% : -1.03% :- latest week
============
> http://www1.centadata.com/cci/cci_e.htm

 

Where's the Bubble biggest?

 

 

Hong Kong property Will bubble finally burst in 2016?

Nikkei Asian Review-3 hours ago

HONG KONG -- A slump in home sales on the eve of a U.S. Fed rate hike ... Home mortgage rates will rise due to the Hong Kong dollar's peg ...

The official home price index in October fell for the first time in 19 months. Transactions fell in the second half of the year to their lowest level in recent years, after the Chinese stock market rout in summer.

The secondary home market has almost dried up as buyers have adopted a wait-and-see attitude. Developers are offering attractive mortgage discounts as a last-ditch effort to shed inventories and lure homebuyers into the primary market.

Despite some signs of vulnerability, a dominant view is that retail residential prices will remain resilient in 2016, then fall more sharply in the next few years.

Property consultancy Jones Lang LaSalle expects home prices next year to slide 0-5%, which largely aligns with DTZ/Cushman & Wakefield's forecast of a mild drop of 5-8%.

Less optimistic is UBS, which expects home prices to tumble more than 25% in the next two years. Knight Frank echoes the view, adding that the housing market is entering a three-year downward cycle. They expect the cumulative fall in prices to reach 30% by 2018, with an initial fall of 5-10% next year.

 

==
> more: http://asia.nikkei.com/Markets/Commodities/Will-bubble-finally-burst-in-2016

They aren't bearish enough IMHO.
I think we could see 15% +/- 3% down from the top, before a good bounce

[drbubb]

(from AX)

WHERE"s the Hong Kong Property Market now? Is the 6.5% drop in the CL index accurate?

 

"I track it too (the Centaline Index), for the same reason. But I don't think it's even an indicator, there's simply no way of knowing if prices are rising or falling, because there are no accurate prices. No one is making a market any more..." - LGMV
"There is still a market however it is difficult to know what the 'market' price is. I think one of the best way to ascertain the future direction of the market are the land sales. " - GK

I see it differently than LGMV.

There's a market price for actual transactions, but it is BELOW what Centaline is now reporting. The evidence for this is very clear... but you need to apply some analysis.

The market is "dead" in most of Hong Island: especially Mid-levels and other places that LGMV is watching. Why? The sellers will not come down in price. So Centaline goes on reporting something close to last-done in their market index - examples follow:

Week : CCLI // RobinPl: Tregun : Dynast : Clovell
PEAK: 146.92 / 17,339*: 20,203 : 26,737 : 26,597 / (09/13, exp. R.Pl, Clov.)
12/13: 137.30 / 17,050 : 19,664 : 26,220 : 26,152 /
Chg-: -6.55% / -1.67% : - 2.67% : -1.94% : -1.67% :

Average drop in ML: -1.99%

I wonder if any of those ML's sellers think they can actually get those prices, just 2% below the peak? Maybe a few will, and there might even be a transaction or two near those levels. But I doubt that there would be many.

If you want to see the REAL market, you need to look at where there are the most transactions, where there is genuine liquidity. The best place to look is the really huge estates like Tai-koo Shing. This will shock some:

Week : CCLI // Taik.Sh
PEAK: 146.92 / 15,119 / (09/13)
12/13: 137.30 / 12,721 /
Chg-: -6.55% / -15.87% :

Maybe those last done prices were panicky sellers. I cannot believe that the whole market is yet really 15-16% below its September peak. But I am pretty certain that the real market is closer to what we are seeing in TKS than in ML.

As more transactions happen, we will see who is right

[drbubb]

: update : forecast

HISTORY: Prices up Fivefold
Low was June 2003 : with average price of HK$ 1,941 per sf, gross
High was November 2015 : at HK$10,487 (per Midland Realty)
Prices hit a peak in mid-September, before retreating 6%, says Centaline,
and are still up 4% for the year

Supply/Demand balance points to price falls
+ Transaction volume in November was just 1,891 - the worst monthly figure in 20 years
+ Interest in selling is rising - with potential sellers up 15% to 1,197 among 11 major estates
+ Viewings were down 20% week-on-week - Buyers are willing to wait for lower prices

=== ===

 

Bearishness in the SCMP seems to be increasing

(12/21) : Owners cut prices amid sluggish home sales
+ Cuts of up to $1 million, to speed up sales
+ 282sf home at Golden Lion Gdn in Tai wai, sold at $2.73mn, lowest price of the year
+ North point: Braemar Hill Mansions 1,105sf: price cut from $20.05mn to $19mn
+ North point, Healthy Gdns: price reduced from $6.6mn to $6million
+ Though owners cut prices by 5-10%, few buyers were biting. They want a bargain
+ Interest in selling is rising - with potential sellers up 15% to 1,197 among 11 major estates;
Meanwhile, viewings dropped by 20% week-on-week

(12/22) : Home prices trending down after 12 years of increases
+ Expected Fed rate rises and China's slowdown are denting confidence
+ Experts are forecasting price falls of 5% to 30% in 2016
+ Prices for new launches are down as much as 20%, with more cuts expected (on fresh supply)
+ Owners are reluctant to cut, but sliding rents may force more realism
+ Hemera keys are now available, and as owners offer these flats into the market this has driven rents are down to $19.50 psf, a new low. Hemera is in LOHAS Park. In Nov 2015 the average monthly rents in LOHAS was $22 per sf (Centaline), so these new flats on top of the MTR station are offered at more than 10% below the market price
+ Louis Chan Wing-kit of Centaline expects prices to fall 15% by end Q1-2016
+ JLL was the least bearish, expecting a drop of just 5% in 2016

[drbubb]

Viewings picking up as buyers investigate possible bargains

As I mentioned above, I saw a large sign from Centaline in front of the Regentville shopping mall at Fanling. Being a curious guy, and having some friends who tell me that want to buy when prices have come down, I thought I would ask for more information. One friend has a special interested in Fanling Center, because it is next to the MTR station, so I asked about that project. It is not very close to the mall, so he had to check his computer. I also asked the agent to tell me about one or two other flats, if he thought they were particular bargains. He had keys to two nearby flats, so I he allowed me to have a viewing, just a short walk away.

Before commenting on what we saw, it may be interesting to repeat what he told me about the overall market. He said that viewings were starting to pick up in recent days. The market is down 5-10% from the peak, and sellers are cutting prices. So now that CL can advertise the lower asking prices, potential buyers are looking to see how could a bargain they might get. The ones he showed me were those where asking prices had recently been cut by a large percentage.

Belair Monte : $3.98 mn (452, 629sf) : $8,805, net / $6,327, gross : 2BR, high floor
- this building was developed by New World, and is now over 16 years old. The flat was freshly painted, and bright, with light and windows on three sides. Some of the fixtures were showing their age, but would not cost much to replace.

 

Green Code : $6.00 mn (511, 681sf) : $11,742, net / $8,810, gross : 2BR +den, high floor
- a new development completed in 2014 by Henderson Land and a partner, the flat we saw had never been lived in.

I liked view from the high floor looking out towards a farm and some rolling hills in the distance

 

Both flats represent reasonable value in relation to the current market IMHO, since the Belair flat I saw was on a high floor, and was just 3.5% above the recent CL indication of $6,110 for the estate. And the GC flat was also a high floor and -12% below original asking price of $6.8 million. And looks 5% above the recent average price ($8,368 psf, grosss) of this attractive modern project. No guarantees from me on future market direction, but I think my views are well known. The good news is that for those who have been waiting to buy, are now beginning to see some lower prices on some decent properties. There may be some room for negotiation, to pick these high floor flats up at a discount to average prices.

This post is not intended to be an advert.

But I did promised the agent (Koen) that I would put a link to his blog into my Forum posting, if I wrote one. So here it is:
http://hk.centanet.com/findproperty/2h-HK/Home/AgentDetail?sid=S-520531

He hinted there would be some room for negotiation. So if you are interested, or maybe want to have a viewing, please feel free to contact him. His language skills in English were limited, but he has a colleague who speaks excellent English.

[drbubb]

Here is ONE of several possible scenarios that would fit my Cycllcal concept.

I have simply tacked the price action from 1997 to 2001 onto the prior peak.
These are HKD per SF (Gross) prices in Taikoo Shing:

The Drop is 33% from about $15,000 psf to $10,000 psf.



Remember: Just One of several possible scenarios.
The drop in the first 12-18 months (if that's how long it lasts) may not be so steep.
And the following rally might be different

I will plan to revise this scenario, or add another one to it, when I have sufficient info to do so.

[drbubb]

A new way of examining the Centaline Indices reveals much

 

I did some hours of work looking the Centaline Index, and the sub-indices for different estates in HK, and I found the results very revealing of what I call the "true" state of the HK property market.

I was looking to see if my idea that smaller estates were had been adjusted downwards less than the large estates - and the was definitely true. The data backs this up:

: Bellwether ------------ : 2014ye : -Peak- : - Last- : vsPeak : Twrs :
: Centaline Index*---- : 132.45 : 146.92 : 135.83 : -7.55% : index peak 9/13
: Mei Foo S.Ch- : K- C. : $8,103 : $9,153 : $8,462 : -7.55% : 99-t : early peak: 4/05
: WhampoaGdn : K-HH : 10,925 : 12,774 : $9,700 : -24.1% : 88-t : early peak: 6/28
: Taikoo Shing- : HK isl. : 13,301 : 15,181 : 12,283 : -19.1% : 61-t : peak: 10/04
: City One, Sh.- : NTE . : $9,896 : 11,250 : $9,661 : -14.1% : 52-t : peak: 9/06
: HengFaChuen: HKisl. : 10,447 : 12,663 : 11,005 : -13.1% : 48-t : early peak: 7/26
: Laguna City--- : K- C. : $8,509 : $9,937 : $8,524 : -14.2% : 38-t : peak: 9/13
===================
Average 5 Big Est.s--: 10,534 : 12,204 : 10,222 : - 16.2 % :

Other, indicative
: LOHAS Park-- : NTE . : $6,296 : $7,284 : $6,624 : -9.07% : 50-t : Dec. Ave.; not in CCLI index
: Park Avenue-- : K- W. : 12,582 : 13,569 : 13,207 : -2.67% : 09-t : peak: 8/09
: Caribb.Coast - : NTW. : $6,141 : $7,577 : $6,519 : -14.0% : 13-t : p: 8/30; Tracks LHP?

The Centaline index was down only 7.55% since the peak, and the average drop of those 5 large estates was -16.2%. Look at Taikoo Shing with 48 Towers. Somewhere in all those flats, someone will need to sell, and so they will have to find a buyer. Hence we got a -19.1% drop to $12,283 since the Peak at $15,181 (10/04). Other estates may have fewer transactions, and maybe no transactions in the last few weeks, or transactions that happened only when buyers were willing to step up. So those estates seem to be reported down much less.

I also discovered that some big estates (like Mei Foo Sun Chuen, Whampoa Gardens, Heng Fa Chuen) peaked well before the Centaline index peaked in mid-September. So they provided an excellent early warning.

The bottom-line here is that it may be more important to follow the prices reported for the large estates than the small ones, or the overall index. Otherwise the agents may sucker you-the-buyer into paying too much. Or as a seller, you may have unrealistic ideas of value.

 

(Note: I prepared this for a meeting, of my property discussion group, and so shall post this at that thread too.)

(Some of my points here are debatable - So if you read this data differently, please: BRING IT ON. Discussion is welcome.)

[leviathan]

Kudos to your call on HK property Dr B - I think the developer shares and pressure on HK$ recently imply the property market is in for a bigger correction than we have seen so far.

 

However, I suspect this will be a smaller fall than the 18 year cycle would typically see and what happened post 1997 in HK. The existence of property cooling measures that can be removed have limited the speculation in the market, most people aren't over leveraged and I don't expect IR's to rise sharply. This was the experience in London post 2007 where the market fell 20% before rallying. This is the level at which I would expect cooling measures to be progressively removed from.

 

If this is the case HK property would not represent good value compared to shares but given long run IRs that may be where equilibrium will be re-established?

 

Shares in HK now starting to look good value to me over the long term.

 

Lev

[drbubb]

Perhaps swapping a Hong Kong flat for this residence :

Glin Castle, Glin, Co. Limerick

might suit a large family or one with regular guests?

 

http://www.rightmove.co.uk/overseas-property/property-53084078.html

 

I have already done a Swap

 

I sold my 550sf flat in HK for just over 7-figures, in USD

 

And invested the PROFITS in three flats in Makati, Philippines, totaling : 22+59+28= 109 S x 10.73 = 1170 sf

and a house in Philadelphia (1300sf), rented out, and yielding 11%+ pretax

 

(so 550sf, became : 2,470sf, that's + 349% sf, most of which will be rented out after completion)

 

And had enough left over to buys some gold.

 

The remaining capital went into a HK-quoted property share with a good yield (more than rent would have acheived)

and in HKD deposits

[drbubb]

Weak Rents, Falling Prices - reports the SCMP

Economic Woes take toll on Leasing
"Rents at blue chip estates are falling faster than prices"
Rents are down 16% at Taikoo Shing, and are also weak at other estates as middle class families cut their rental budgets in anticipation of a weaker economy. Recent news of pay and hiring freezes at banks and brokerage firms are adding to the deteriirating sentiment

Yuen Long to see biggest growth in new flat supply
Eleven new projects - comprising a total of nearly 4,200 flats are due to be launched in coming months. The secondary market is nearly dead as agents focus on new properties - which are more lucrative for them

SHKP released the first batch of 108 units at Twin Regency in Yuen Long at an average of HK$11,360 per sf, about 15 per cent lower than Cheung Kong Property's Yucci Square. After a discount of 11%, prices are HKD10,138 psf. And the cheapest flat costs $9,372 psf - that's 299 sf at $2.8 million

[drbubb]

(From AX) : link

 

"OK so nothing scientific but based upon the sentiments expressed, short to mid term confidence in the local market, among those present, has evaporated. I did not hear one opinion that prices won't fall further..."

- GDEP

I think that the Bearish consensus might last for some years.
With some early birds buying dips, until we eventually see a Low, in 2019-2020
Or whatever.

At some stage, there will be a good rally, perhaps lasting a year or so - but followed by new lows. That's the usual pattern

- OTP

[leviathan]

Bounce seems to be happening/coming in HK property. I base this on

 

- Sizeable bounce in HK developer stocks such as HK12 Henderson which seems to have retraced around half of its falls since the market started heading down in August 2015

- Signs from China that monetary policy has got considerably looser again - and that has spilled over into property eg Shenzen market reportedly up 50%

- Stabilization and modest rises in HK centadata coming in last two weeks after CNY

- Overwhelmingly bearish sentiment in commentary pieces etc in the press and on forums such as Asia Expat and Geoexpat

 

To draw a parallel with the London market I know well I think we are at the March 2009 moment for HK property - does the money printing in China put a floor under the market as govt intervention did then in London {see the call made by the Berkeley Homes Chairman in early 2009 at the time where he was a lone voice calling the bottom against almost every other commentator calling for further falls} or does the market continue downwards after a dead cat bounce.

 

The contrarian in me is calling for a sizeable bounce now based on a London 2009 onwards repeat {ie HK is half an 18 year cycle behind London} and the Chinese have plenty of scope still to ease monetary policy probably through interest rate reductions and easy money some of which will find it into HK property market like 2009.

 

Any which way this is either bull trap time on the bubble diagram before a full on crash comes or its a London 2009 redux where authorities propel prices further into the stratosphere to multiples that become harder and harder to reconcile.

 

I'm sticking with my HK property because its easy to manage from afar, in a market with good tenants and tenancy agreements, its a secure jurisdiction to invest in, its in a strong currency and the debt is now paid off. If I did sell then I think I would invest mainly in oil shares given we are getting close to historical inflation adjusted lows in the oil price

 

But equally I may just be about to miss the last chance to get out - we should know within a couple of months

 

Lev

[drbubb]

"Bounce seems to be happening/coming in HK property. "

 

It is possible.

But I think it will be short-lived, and mainly in the Developer stocks, rather than the physical property market

 

Let's watch it, and see how it develops

 

This week's Index is in favor of your thesis

 

Centa-City Leading Index]

131.76

0.76 %

[leviathan]

That's the best thing about market IMO namely that there are no certainties only probabilities, history and mean reversion to guide us.

 

There is one scenario which could happen which would be very bad for HK property - namely a steadily improving US economy where interest rate rises happen steadily and progressively without crashing global stock markets and causing policy responses. In that scenario which the bond market doesn't consider the most likely answer at the moment - I think HK property is done and we will get the full blown crash many commentators are calling for only and the removal of the property cooling measures will be too late to make a difference.