Hong Kong's Property Cycle / charts, comments

[peach]

Having read the ‘debate’ so far, Zbot69 is absolutely convinced of an impending massive crash in HK property prices. Of course, other than personal bias (which I agree with Zbot69 that there is no 100% unbiased argument), Zbot69 did quote some historical data, reasoning and observations to support his view. Although I agree with some of those, I must say that some of them are rather contradictory. For example, Zbot69, you assumed HK$ will also be pegged to US$. It might not be. HK government had in the past considered de-pegging. Also, from what you wrote, it seems that you are basing your economic outlook on (1) collapse of US$ (and hence the HK$ according to the peg); (2) hyper-inflation and (3) market finally taking its revenge on government manipulation.

 

Since you believe there would be hyper-inflation, where do you put your cash other than 100% in gold? Also, even with hyper-inflation, it is not always true that investing in properties would lose out as it depends on the mode of finance and timing of entry. If hyper-inflation would take place in a few years time, DrB could have used a minute percentage of his physical gold holding to pay off all the outstanding mortgage loans and net a huge gain (!)

 

Even when property is perceived as declining in value, people with savings could still be attracted to consider ‘investing’ in property because it might still be the relatively safer option and also ultimately, a house can be used and lived in or rented out (albeit when tenants play hardball in negotiating rent).

 

You had a point about the market being weak during 06-07 when the economy was doing extremely well but the other side of that argument is that given the recent correction down to the 2005-06 price level, there is not much bubble in HK property prices unlike in China, the West and Singapore. The CCI index 50-55 level can be more resilient since it is the equilibrium price level.

 

Finally, I cannot agree that if market is left to work without government manipulation, market would bring about equality of wealth and property ownership. Whether it’s up or down market, wealth disparity has always existed in Hong Kong, even BEFORE the ‘astronomical property inflation’ and ‘government manipulation’ that you mentioned of. HK is a very interesting place. There is huge disparity and inequality but in many ways there are huge opportunities unmatched elsewhere and this is why HK remains an attractive place because of the ‘HK dream’, if I may put it like that. It’s still a place that many can turn their fortune around. My ex-tenant came to HK 15 years ago from Fuzhou pregnant with a girl. She is now a manager of a small Japanese company with 100% job security, earns a good HK$23K monthly salary, studies after work for a further degree and had just bought a property costing HK$1.65m with a 30% deposit of her own savings.

 

And, to be fair, DrB did say that there would still be some downward adjustment to the HK property prices (see the other HK Property Thread). It is in the degree and time length of drop that DrB differs from you. You think below SARS level and a long recession, whilst DrB thinks we will get to 10-20% lower and then see what happens. Fair enough, DrB hopes for a turnaround, but he had always qualified and said that it’s a ‘might happen’. And DrB also cited historical data, reasoning and observations in support of his view.

 

To DrBubb, although there are sound supporting fundamentals such as high savings, non-bubble prices, less supply, efficient infrastructure (these are also the reasons why I thought the risk of investing in HK is far less than anywhere else), we cannot ignore the fact that we are now in extraordinary uncharted territories where traditional understanding may not work out (just see how many experienced investor got it wrong on HK properties starting with Li Ka Shing).

 

I think I have come to see why it was a mistake to think that HK could replicate what London properties did in the past decade. London also surprised me coz I already started feeling incredibly uncomfortable with what I read in the media as early as 2001/02 and advised friends not to buy. What happened to London was once in a lifetime – there had to be the coming together of EVERYTHING such as the right cycle, psychology, politics, and the cheap excessive credit & leverage etc, which is why the bursting of the bubble is also a once in a lifetime crisis. Therefore, I think for that shocking bubble to happen to HK again would take far longer than the normal rule of cycles. It will take generations to erase the painful memory of 1997 and this post 2008 tsunami, and a continuous spectacular rise of China in economic growth and position. But then, HK is still full of surprises and things always turn and move so much quicker than I have seen anywhere else in the world.

 

Personally, I think it would be a significant deflation in the medium term of at least 1-2 years. Most people on this forum are for hyper-inflation. Using traditional understanding, I can see their rationale – printing money eventually leads to inflation. However, in this current crisis, all that monies printed out of thin air has not managed to get into the economy to cause inflation. They are printed to service and repay debt rather than being spent or invested. Every company and person will try to pay down debt and that is why more money does not create the velocity required to bring about inflation. This is also why, without real inflation on the horizon, no central bank would have any reason to raise interest rate while the economy is still recovering – see Japan.

 

I think this is the fundamental flaw in the thinking of hyper-inflationist gold bug. There is however one thing that I think can make hyper-inflation happen. It is not the printing of money or central bank’s policies but, rather, unexpected social unrest and lose of confidence in the money system that brings about a disorderly inflation of ‘things’ when people are increasingly unwilling to part with real things in their possession for paper cash (in hand or in the bank), which in turn pushes the price of things to unprecedented level. Only when this kind of social disorder happens, which will be quite difficult to predict and prepare beforehand, would gold has its irreplaceable value.

 

Therefore, for me, I would only be prepared to hold 10-15% in gold as insurance for the worst, and aim to have 40-50% in cash spread out in different currencies to hedge against each other. I am not a trader, so my aim for the coming 1-2 years will be to preserve rather than grow. I will still keep some exposure in HK properties for I think even if it will to drop below SARS level, it should bounce back extremely quickly within a half year period or so to the equilibrium level.

 

And should that happen, the sad thing is that the wealth disparity mentioned by Zbot69 would still not be improved in any significant way because chances are only the rare few at the low income level would have the gut to get unto the property ladder timely enough.

 

[tor1976]

Having read the ‘debate’ so far, Zbot69 is absolutely convinced of an impending massive crash in HK property prices.

 

Thanks for your thoughtful response. There IS actually intelligent life on this forum. I'm surprised you found the thread. I've just realized these threads aren't listed on common searches.

 

I think "impending massive crash" rather overstates my position. I think Hong Kong home prices are going much lower. Whether that's this year, or next, or in two years, is anyone's guess.

 

 

Since you believe there would be hyper-inflation, where do you put your cash other than 100% in gold?

 

I agree owning property _outright_, free of bank obligations, mortgage debt or any other debt instruments is a perfectly fine way of protecting your money. I just wouldn't treat a property as some cash cow to be milked for "yields". I agree with you, this is not an investment environment. This is a wealth preservation environment, and property may at least retain the value of your money better than a bank, in the long run. If not that, at least you'll have a roof over your head... until you're forced to sell the roof to raise cash.

 

 

You had a point about the market being weak during 06-07 when the economy was doing extremely well but the other side of that argument is that given the recent correction down to the 2005-06 price level, there is not much bubble in HK property prices unlike in China, the West and Singapore. The CCI index 50-55 level can be more resilient since it is the equilibrium price level.

 

Well, the absence of a bubble doesn't negate prices falling further, or falling _much_ further for that matter. Now let's go back to _my_ metric. The Unequal Access to Purchase Property Index, according to which 50% of the population cannot even afford one home, while 35% of home owners own multiple homes.

 

What all the graphs and charts and numbers completely fail to take into account is that the _brunt_ of property buying-selling activity in the Hong Kong market is by _speculators_.

 

This financial crisis is about one thing, and one thing only. The death of debt. The only way the property market is going to move forward in any meaningful way, is when all property transactions become cash transactions. And the only meaningful way for that to happen, is for prices to go substantially lower.

 

Finally, I cannot agree that if market is left to work without government manipulation, market would bring about equality of wealth and property ownership. el would have the gut to get unto the property ladder timely enough.

 

Well yes, getting on the property ladder timely enough is one thing, but there's also the small matter of the million-dollar deposit.

 

The bottom line is, home prices are not affordable for the majority of people, and so prices are too high. I know the argument smacks of simplicity, but there it is. Either you make the bottom 50% of your population wealthier, or the home prices go lower. Whichever it is, but I just don't see the current situation perpetuating itself.

 

The Hong Kong property market is _not_ in any sort of equilibrium, and until it is, home prices are going lower.

 

[drbubb]

It's not all Doom and Gloom

 

"Mainland visitors help lift retail sales by 7.4 per cent"

SURE, there was some big help from the Lunar New Year holiday.

 

But still, how many here would have predicted that?

My point is: all surprises are not ncessarily to the Downside

[peach]

I'm surprised you found the thread. I've just realized these threads aren't listed on common searches.

 

 

Fyi, I normally use the 'View New Posts' at upper right hand corner to browse this forum, and this thread was rather active last week for the 'debate' between u and DrB. The main thread is 'Hong Kong Property'.

 

[drbubb]

...The main thread is 'Hong Kong Property'.

Hi.

I have posted a response to your excellent post there, BFS

 

[Haggis]

Well, the absence of a bubble doesn't negate prices falling further, or falling _much_ further for that matter. Now let's go back to _my_ metric. The Unequal Access to Purchase Property Index, according to which 50% of the population cannot even afford one home, while 35% of home owners own multiple homes.

 

What all the graphs and charts and numbers completely fail to take into account is that the _brunt_ of property buying-selling activity in the Hong Kong market is by _speculators_.

 

Well yes, getting on the property ladder timely enough is one thing, but there's also the small matter of the million-dollar deposit.

 

I'd basically agree with your line line of reasoning vis-a-vis declining home prices. My view is that there is a fairly shallow pool of higher income earners and wealthy individuals: Per the SCMP last week there are only 102,000 people in this town earning more than $60K per month (and that demographic is shrinking). On top of that there are the truly wealthy who have unearned / untaxed incomes far in excess but the fact remains that the 'wealthy' tranche of the HK demographic isn't really that large. Further, as you've pointed out 50% of the populace aren't in the game other than as tenants.

 

In an economic environment where the GDP, corporate earnings and the demographic of high earners are all shrinking what is the engine which will drive prices higher? If you don't accept the notion that property prices are currently fairly valued (and I don't) it would seem that the probability of long term sustainable price rises is pretty slim.

 

My observations of last years property fiesta were of higher income earners churning the market through bidding up 'investment' properties. These people largely didn't understand yields (and didn't care to) and were purely getting their oar in on rising capital values. Now their basic strategy has failed and they're stuck with the reality of declining capital values and declining rents. I think capital values are still too high as are rents. Rents for luxury flats are decreasing rapidly and this will eventually start to depress the higher end of the mass market as well.

 

This financial crisis is about one thing, and one thing only. The death of debt. The only way the property market is going to move forward in any meaningful way, is when all property transactions become cash transactions. And the only meaningful way for that to happen, is for prices to go substantially lower.

 

I differ with you on this one: I really don't see any scenario under which property transactions will become cash transactions. The bulk of properties require a 30% deposit which controls the gearing, and yes there are some 5% down deals on new-builds but they don't represent a huge amount of the transactions (I think there are only about 10,000 new-builds scheduled for completion this year). However, banks do seem to be lowering their surveyors estimates of property values which will effectively reduce LTV.

 

The bottom line is, home prices are not affordable for the majority of people, and so prices are too high. I know the argument smacks of simplicity, but there it is. Either you make the bottom 50% of your population wealthier, or the home prices go lower. Whichever it is, but I just don't see the current situation perpetuating itself.

 

The Hong Kong property market is _not_ in any sort of equilibrium, and until it is, home prices are going lower.

 

That's the ugly political underside of the property market here. You may as well rail at the presence of salaries tax and the absence of taxes on unearned income and capital gains. It's a market that's rigged and highly iniquitous but I really doubt it'll change anytime soon.

 

Cheers.

 

 

 

 

[tor1976]

I'd basically agree with your line line of reasoning vis-a-vis declining home prices. My view is that there is a fairly shallow pool of higher income earners and wealthy individuals: Per the SCMP last week there are only 102,000 people in this town earning more than $60K per month (and that demographic is shrinking). On top of that there are the truly wealthy who have unearned / untaxed incomes far in excess but the fact remains that the 'wealthy' tranche of the HK demographic isn't really that large. Further, as you've pointed out 50% of the populace aren't in the game other than as tenants.

 

In an economic environment where the GDP, corporate earnings and the demographic of high earners are all shrinking what is the engine which will drive prices higher? If you don't accept the notion that property prices are currently fairly valued (and I don't) it would seem that the probability of long term sustainable price rises is pretty slim.

 

This is exactly my point. Welcome to the loony bin. You may be unstable if you disagree with the property orthodoxy on this board.

 

 

My observations of last years property fiesta were of higher income earners churning the market through bidding up 'investment' properties. These people largely didn't understand yields (and didn't care to) and were purely getting their oar in on rising capital values. Now their basic strategy has failed and they're stuck with the reality of declining capital values and declining rents. I think capital values are still too high as are rents. Rents for luxury flats are decreasing rapidly and this will eventually start to depress the higher end of the mass market as well.

 

I couldn't have said it better myself... and apparently didn't! There seems to be some major hang-up here in reviewing the Hong Kong property market with 1997 as a bench mark. This is natural considering its obvious towering dominance on any graph of the last 20 years... but let's consider the larger picture. Property prices in Japan have been falling since 1989. At one point _all_ the same arguments about Japanese property were interchangeable with the same kind of frothy maniac investment babble you hear from the speculators in Hong Kong today. Property prices in the US were in a 70 year bull market... that's not just going to rectify itself in a season or two.

 

What is the Hong Kong economy?

(1) Finance

(2) The managerial base for Guangdong manufacturing

(3) Logistics hub

(4) Conventions/ retail / tourism

 

Where are we at with this debt crisis? Essentially 3 of the 4 pillars of the Hong Kong economy are going to be severely impaired moving forward, and arguably all 4. The US consumer will not be resurrected. Once the bank failures have played themselves out, banking itself will _not_ be jumping forward with the same cheap capital flows that we have seen over the last 10 years.

 

And this doesn't even take into account that the odds are we are actually moving into a hyper-inflationary depression.

 

Quite frankly... I think all the talk of property appreciation is the babble of madmen.

 

And, as I've (fruitlessly) attempted to point out... by 2012 the energy crisis will come knocking very hard indeed, and if there's one "sophisticated" world city that is doing absolutely _nothing_ to address the impending energy crisis, it's Hong Kong.

 

Besides, after actually having lived in an energy efficient household with eco-friendly insulation, double-glassed windows, solar-heated water and wind-generated electric supply... these so-called "luxury" flats are barely a banana and tree away from chimpanzee dwellings. I can't _wait_ to see how these towering edifices of construction waste hold up when the squeeze is on. Not holding my breath.

 

Thx again.

[drbubb]

Haggis has posted here many times, and his view is respected.

He doesnt come here just to "stir the pot" with a bad attitude, as your earlier posts appeared to me.

There seems to be some major hang-up here in reviewing the Hong Kong property market with 1997 as a bench mark. This is natural considering its obvious towering dominance on any graph of the last 20 years... but let's consider the larger picture. Property prices in Japan have been falling since 1989. At one point _all_ the same arguments about Japanese property were interchangeable with the same kind of frothy maniac investment babble you hear from the speculators in Hong Kong today. Property prices in the US were in a 70 year bull market... that's not just going to rectify itself in a season or two.

Natural and obvious. It was the top of the 18 year cycle.

HK and Japan are not the same. Japan has been more-or-less ex-growth since its cycle peak in 1990.

Despite that, there have been some nice bumps up in Japanese property stocks into 2006-8. The cycle seems to have rolled over there again, and the stock market suggests pressure into 2011.

 

HK is very different, since it is part of China, which is now the only Big 4 economy that is still growing. HK is in the process of refocussing its economy away from the relationship with the US, towards a focus on China, and Asia- where it can find some growing customers.

 

I dont compare HK with the US or the UK. Both of those have recently (2006 and 2007, respectively) put in peaks of similar

(or greater) importance to those pf Japan in 1990 and Hk in 1997. Look at the historical charts and data and you will find

a rather interesting countercyclical pattern between US property and HK property. Maybe it has disappeared, but I doubt it.

The next few years into HK's expected 2015 cycle high will be an important test of that relationship.

 

What is the Hong Kong economy?

(1) Finance

(2) The managerial base for Guangdong manufacturing

(3) Logistics hub

(4) Conventions/ retail / tourism

 

Where are we at with this debt crisis? Essentially 3 of the 4 pillars of the Hong Kong economy are going to be severely impaired moving forward, and arguably all 4. The US consumer will not be resurrected. Once the bank failures have played themselves out, banking itself will _not_ be jumping forward with the same cheap capital flows that we have seen over the last 10 years.

 

I dont think that the financial needs of China are going to disappear. Rather, I expect them to grow, and HK to

take up a larger and larher role as a financial center for China, Asia, and also the whole world. The opening up

of some Rmb finance business in HK is new, and could be expected to grow fast. Watch for that. And HK has

always been good at reinventing itself when it needs to. If it sticks with the old business activities, and does nothing

new, then I would agree with you, it is likely to fade. Dont count it out, when it has just stumbled.

 

Quite frankly... I think all the talk of property appreciation is the babble of madmen.

 

And, as I've (fruitlessly) attempted to point out... by 2012 the energy crisis will come knocking very hard indeed, and if there's one "sophisticated" world city that is doing absolutely _nothing_ to address the impending energy crisis, it's Hong Kong.

 

It should do more- I agree.

But dioes it have to do more? HK already has the least reliance per capita on imported oil, thanks to its density, and the excellent infrastructure. The city could easily be a big winner in a Peak Oil future. That's one reason I live here.

 

But I dont think HK should stay complacent, and continue to do nothing to improve its energy efficiency

[Haggis]

Quite frankly... I think all the talk of property appreciation is the babble of madmen.

 

And, as I've (fruitlessly) attempted to point out... by 2012 the energy crisis will come knocking very hard indeed, and if there's one "sophisticated" world city that is doing absolutely _nothing_ to address the impending energy crisis, it's Hong Kong.

 

Besides, after actually having lived in an energy efficient household with eco-friendly insulation, double-glassed windows, solar-heated water and wind-generated electric supply... these so-called "luxury" flats are barely a banana and tree away from chimpanzee dwellings. I can't _wait_ to see how these towering edifices of construction waste hold up when the squeeze is on. Not holding my breath.

 

Thx again.

 

I think the energy angle is a vastly underrated aspect of this whole debacle. I'm pretty sure that the first signs of recovery will lead to some very hefty increases in the price of oil and will seriously dampen any growth. The worry is that although the warning bell was sounded over thirty years ago we've really done nothing to conserve energy. Fleet mileage standards for autos are long overdue - I like Top Gear as much as the next guy but who needs an SUV in Hong Kong, and why the government resistance to road pricing? I'd also question the pattern of development in North America which effectively makes a car a necessity for a huge segment of the population - how do you unwind that fiasco?

 

Don't get me started on the quality of design and construction of Hong Kong buildings. Most of it is appalling and in any Western country the developers would likely face lawsuits galore. Here people seem happy to drop $10 or $20 million on complete crap. I lived in a 'luxury' flat when I first arrived in HK and this thing had wall unit aircons with the cord swagged across to the plug; single glazed windows with no solar film; and the wind whistled through the huge gaps between doors and aircon openings. I literally halved the energy bill in my own flat by installing a central VRV aircon unit and double glazing. We're not just wasting energy; Our air is toxic because we're effectively burning coal to cool the environment. How short sighted is that?

 

And then there's the Central Library.....

[Haggis]

It should do more- I agree.

But dioes it have to do more? HK already has the least reliance per capita on imported oil, thanks to its density,

and the excellent infrastructure. The city could easily be a big winner in a Peak Oil future. That's one reason I live

here.

 

But I dont think it should stay complacent, and continue to do nothing to improve its energy efficiency

 

Virtue is its own reward - but I think we also need to address energy issues for the sake of the environment. The air quality here is dismal. Though I expect one upside to the economic mess will be that the closing of so many factories in Guangdong will actually improve the air in the short term.

[surfdude]

Yes, the air is terrible in Hong Kong but I have noticed a significant improvement this year when compared to a few years ago. Not sure is this is due to the warm fresh air we experienced from the south in the warmest February recorded in history in HK. Certainly when the cool air comes from the North it carries the pollution from the factories.

 

As for locally produced pollution, this is a problem in Hong Kong and I started a thread on it on the GEI-N thread. CLP is going to begin retrofitting one of the plants at Castepeak which should signifcantly reduce Carbon dioxide and Nitrogen Oxide in the air. Retrofitting is set to begin at the end of this year.

[peach]

I think the situation of HK property market is not so simple. The fact that 50% of the population cannot afford to buy one property does not negate the possibility of a price rise. There is the other 50% and my hunch and experience is that just this other 50% alone might be sufficient for the game, from start to finish (!)

 

In many ways, HK is always the rich men’s game. I am surprised at how well the sale of the new property Shining Heights (next to Metro Harbour View in Tak Kok Tsui) has been – the building is a single building, not much transport and infrastructure nearby. But developer used the strategy of luxury branded kitchen and bathroom and huge sizes starting from 2 bed 700 sq ft to 3/4 bed 1300 sq ft @ $4.5 to 5.5k. People who had bought are quoted in the news as buying two large units to combine into one. Those people involved some rich groups from Guangdong, and a few celebrities from HK. They all said they are buying for investment. It is no small sum, all involved over HK$10 million (though developer is providing 80% loan facility) – who are they going to sell to in the future? This is a game between the rich – they fight each other out basically, in my view! And for this matter, DrB is right that the fact that HK has the most number of US$ millionaires per capita is not a factor to be ignored

 

As to CCI index of 55 as equilibrium price, I consider it equilibrium because it had been tested several times to hold well at the 55 level, which translates to 30-33% range in the affordability index. This means an average person uses 1/3 of his/her income for mortgage payments which does not feel that out of balance. In UK, it had been over 2/3 of income to service mortgages when prices reached the peak.

 

Of course, the figures assume the standard 70% mortgage, but I think, as Bubb points out, one must not under-estimate the amount of savings HK people has. The figures taken from survey and news reports might not reflect the true picture as Chinese is usually quite secretive about their money. From my experience in HK, I must say that I am quite shocked by the amount of monies the ordinary people can accumulate – e.g. many of my ex-tenants, they have significant cash invested in shares and funds, and also, the older generation has a lot more savings than one might think – I remember reading in the news in 2001 that a secretary and her single mother has accumulated savings of nearly $1million and they were thinking at the time whether to enter the property market. Even minibus driver, I once read a law case that the driver has a stable monthly income of over HK$20K which did surprise me. My buyers have all being young first time buyers under 25 with the deposit monies gifted by parents – a norm in the Chinese culture (and this is in the traditionally low income areas such as the far out places in Tuen Mun!).

 

Judging from the calls and offers I have been receiving, many user-buyers are entering the market now at this CCI level as they consider it affordable and reasonable. From this level, it might go much lower but losses from this level would be a lot more bearable than the CCI at 74 or 100. So, 55 is an attractive level for user-buyers especially when not everyone is a 100% bear. For some, the chances for upside and downside from this 55 level may be a 50/50 or 40/60 probability and it therefore makes sense to settle down now. So, 55 can prove to be more resilient but for some shocking events again such as collapse of a couple more institutions like Lehman in the coming years which appears to damage the confidence and outlook in HK far quicker and deeper than in the West where those institutions are based.

 

I know we are dealing with a very severe crisis that even Buffet said he never seen it before. But governments all over the world are working incredibly hard to avoid the mistake made during the Great Depression and Japan, and the Chinese stimulus, so far, the data are getting more positive. It is therefore not entirely a one way bet downward, which is why I have decided to keep one foot in until the picture is clearer or until I can no longer afford to.

 

As to the unequal access nature of HK market, it has always been like this from day one, since the fishing village was parted to UK.

 

Please see my other reply to Bubb at HK Property thread.

 

[Haggis]

Interesting. I did read your other post as well.

 

I will add though, that whilst people here do have money they are very shrewd with it. In my business I find the spendthrifts tend to be the expatriates. You'd be amazed at how many highly paid individuals have a negligible net worth.

 

Anyway, after receiving a number of calls from various estate agents, I decided to put my flat on the market about 4 weeks ago to test the waters. I have a signed tenancy agreement which would give a prospective purchaser a 7% yield if they chose to proceed, and the tenancy agreement was revokable if they wanted vacant possession. The flat has just been extensively renovated with high end fittings, finishes and fixtures. It has a lovely terrace. If I may say so myself, it looks great!

 

In the past 4 weeks we haven't even had a nibble. Not a call. Nada.

 

The point being, that even with respectable fundamentals there is no action in the current market because sentiment is sooooo bad. My experience is that in a normal market people in this town view a 7% yield as quite respectable - people were accepting yields of 3-4% only a year ago! What this tells me is that the market is now looking for more traditional metrics vis-a-vis yields. I'm guessing that I'd need to price for a 10% or greater yield to shift the flat. Rents are going down so the only way to align with that kind of yield would be to lop 30% off the price. Which puts the price at about 50% of peak pricing which is just a little under my renovated cost.

 

I'm not actually looking to sell, but I find the change in sentiment dramatic and revealing. Last year no one bothered with yields. This year they mean everything.

 

 

 

 

[Haggis]

Yes, the air is terrible in Hong Kong but I have noticed a significant improvement this year when compared to a few years ago. Not sure is this is due to the warm fresh air we experienced from the south in the warmest February recorded in history in HK. Certainly when the cool air comes from the North it carries the pollution from the factories.

 

As for locally produced pollution, this is a problem in Hong Kong and I started a thread on it on the GEI-N thread. CLP is going to begin retrofitting one of the plants at Castepeak which should signifcantly reduce Carbon dioxide and Nitrogen Oxide in the air. Retrofitting is set to begin at the end of this year.

 

Being a sailor I watch the weather like a hawk and I think you're right that the clean air was largely due to the SE winds. I also think that with a lot of factories closed, or operating at reduced capacity, we're hopefully in for a decent summer. Likewise the downturn in construction - you'd be amazed at how much stuff a construction site throws up.

 

That's good news about CLP but we still need conservation policies to reduce overall energy needs. I'd like to see some minimum building standards applied with respect to energy efficient aircons and double glazed windows.

[tor1976]

I think the energy angle is a vastly underrated aspect of this whole debacle. I'm pretty sure that the first signs of recovery will lead to some very hefty increases in the price of oil and will seriously dampen any growth. The worry is that although the warning bell was sounded over thirty years ago we've really done nothing to conserve energy. Fleet mileage standards for autos are long overdue - I like Top Gear as much as the next guy but who needs an SUV in Hong Kong, and why the government resistance to road pricing? I'd also question the pattern of development in North America which effectively makes a car a necessity for a huge segment of the population - how do you unwind that fiasco?

 

You hit the nail on the head again my friend. I was in Europe for an extended stay last summer and was flabbergasted by the advances in energy-efficient living. They're 20-years ahead of Hong Kong. But it's not just Europe. Japan, Korea, Singapore... everywhere there are energy/water/environment/waste conservation efforts _well_ underway.

 

So AGAIN.... to reiterate... yes Hong Kong wealth concentration blah blah blah finance center all good and well, but when it comes to any kind of _vision_.... good grief this place is pathetic. But again, it just goes to show what a cozy little racket the political leadership has going here. If the "free market" were allowed to function properly at all, I imagine home prices would be considerably lower, and the quality of living considerably higher. Ah sweet dreams, yes I'm well aware. Spanish property will be looking very good indeed once this has played out. Just biding time.

 

Don't get me started on the quality of design and construction of Hong Kong buildings. Most of it is appalling and in any Western country the developers would likely face lawsuits galore. Here people seem happy to drop $10 or $20 million on complete crap. I lived in a 'luxury' flat when I first arrived in HK and this thing had wall unit aircons with the cord swagged across to the plug; single glazed windows with no solar film; and the wind whistled through the huge gaps between doors and aircon openings. I literally halved the energy bill in my own flat by installing a central VRV aircon unit and double glazing. We're not just wasting energy; Our air is toxic because we're effectively burning coal to cool the environment. How short sighted is that?

 

When I first arrived in Hong Kong I was utterly perplexed by the shoddiness of all the alleged "luxury" dwellings hither and yon. Visited a friend on Peak Road who lived in some ungodly 50 million place courtesy of his company... same same la.

 

Then when I realized it had nothing to do with the workmanship perse... the shoddiness of the flats is a direct result of the property monopolies exercised by the developers. Once a developer has acquired the lease on the land, they can do as they see fit, and since _all_ land ownership in Hong Kong is a result of monopoly, the results are self-explanatory. Which also explains the dynamics of the market. If I were a developer, I'd do the very same... build the most outrageously expensive pad for the cheapest prices I could using the lowest paid workers and the flimsiest materials... wham-bam-slam... seaview, balcony, "modern WESTern" kitchen, KAching... another filthy few million profit. No wonder the property guys are all tycoons, and no wonder dollar-for-dollar NO one in the world pays more for less than Hong Kong millionaires. My retired grandmother on government pension lives in a house with more advanced fixtures than these guys, so it's all rather a joke to me.

[tor1976]

I think the situation of HK property market is not so simple. The fact that 50% of the population cannot afford to buy one property does not negate the possibility of a price rise. There is the other 50% and my hunch and experience is that just this other 50% alone might be sufficient for the game, from start to finish (!)

 

This is the beauty of a market. You don't have to convince _me_. And at any rate, you won't, but by all means, if you see an opportunity, I say jump in with both feet at once and enjoy the ride.

 

In many ways, HK is always the rich men’s game. I am surprised at how well the sale of the new property Shining Heights (next to Metro Harbour View in Tak Kok Tsui) has been – the building is a single building, not much transport and infrastructure nearby. But developer used the strategy of luxury branded kitchen and bathroom and huge sizes starting from 2 bed 700 sq ft to 3/4 bed 1300 sq ft @ $4.5 to 5.5k. People who had bought are quoted in the news as buying two large units to combine into one. Those people involved some rich groups from Guangdong, and a few celebrities from HK.

 

Quite plainly what you're spelling out is a Ponzi scheme. You rely on a constant stream of fresh capital to prop up the assets of the players in the game who keep offloading on the new guy. It's unsustainable.

 

 

Of course, the figures assume the standard 70% mortgage, but I think, as Bubb points out, one must not under-estimate the amount of savings HK people has. The figures taken from survey and news reports might not reflect the true picture as Chinese is usually quite secretive about their money. From my experience in HK, I must say that I am quite shocked by the amount of monies the ordinary people can accumulate.

 

This is a circular argument, and it's precisely the point I've been making. Regardless of how much money some people have, others have precious little. Your anecdotal evidence only confirms what I've been saying. The moneyed classes are swapping properties amongst themselves and hoping for a never-ending tide of fresh new money and limited new development to keep prices high.

 

I know we are dealing with a very severe crisis that even Buffet said he never seen it before. But governments all over the world are working incredibly hard to avoid the mistake made during the Great Depression and Japan, and the Chinese stimulus, so far, the data are getting more positive.

 

I find the data from China far from convincing. Let's talk again next spring and see where we stand. As for Japan... it's in the worst downturn economically perhaps since the end of the Second World War. And its demographics are a nightmare. Unless Japan starts importing _masses_ of Chinese (which I suspect will be an emerging trend over the next 10 years), Japan's future is far from sunny.

 

Finally, I not only disagree with the assumptions on "gov'ts learning from their mistakes" during the Great Depression, I think it's in fact completely opposite. Not only are they repeating all the same mistakes, they're making a whole bunch of new ones.

 

Ah, but it's good to see the sunny disposition of the average investor in Hong Kong. Shorting the market has never been easier.

 

The bottom's in the bottom's in!

 

Please consider your investments wisely my friend. This is a once-in-a-lifetime occurrence, and getting it wrong could cost you dearly.

 

Good luck.

 

 

[drbubb]

Some really great points made here - But few of them relate to the 18 Year Property Cycle (topic of this thread!)

 

So what I am going to do is RESPOND TO THEM on the other thread.

Link: http://www.greenenergyinvestors.com/index....0463&st=460

 

I want to leave this thread here for mainly discussing the Property cycle, rather than out ongoing debate on HK Property.

 

I was asked WHY DID YOU MOVE THE HK PROPERTY THREAD ?

A fair question, and here's my response:

 

I moved the thread ... because I want to build up the GEI-N section, and give it more of appeal to attract people based in Hong Kong, or interested in what goes on here. I expect that the GEI-N section will be more oriented towards business opportunities, and face-to-face networking (over time), than the Main scetion of Global Edge. It hasnt yet developed to the point where my vision becomes clear. But I will keep trying. And having the HK Property thread in the GEI-N section, could provide a key magnet to build interest in Local HK Networking,

 

I expect the next logical step will be to organise a face-to-face networking event, and/or at least a GEI-N conference call on Skype for those who are interested in Hong Kong specifically.

Anyone interested in that?

 

 

=== === (what is below this line is temporary, it will be moved to the other thread) === ===

 

=2/

Yes, the air is terrible in Hong Kong but I have noticed a significant improvement this year when compared to a few years ago. Not sure is this is due to the warm fresh air we experienced from the south in the warmest February recorded in history in HK. Certainly when the cool air comes from the North it carries the pollution from the factories.

 

As for locally produced pollution, this is a problem in Hong Kong and I started a thread on it : here. CLP is going to begin retrofitting one of the plants at Castlepeak which should signifcantly reduce Carbon dioxide and Nitrogen Oxide in the air. Retrofitting is set to begin at the end of this year.

If the government can bring out a sustained improvement in air quality, it will help HK's long term competitiveness

 

=3/

In many ways, HK is always the rich men’s game. I am surprised at how well the sale of the new property Shining Heights (next to Metro Harbour View in Tak Kok Tsui) has been – the building is a single building, not much transport and infrastructure nearby. But developer used the strategy of luxury branded kitchen and bathroom and huge sizes starting from 2 bed 700 sq ft to 3/4 bed 1300 sq ft @ $4.5 to 5.5k. People who had bought are quoted in the news as buying two large units to combine into one.

. . .

As to CCI index of 55 as equilibrium price, I consider it equilibrium because it had been tested several times to hold well at the 55 level, which translates to 30-33% range in the affordability index. This means an average person uses 1/3 of his/her income for mortgage payments which does not feel that out of balance. In UK, it had been over 2/3 of income to service mortgages when prices reached the peak.

 

Of course, the figures assume the standard 70% mortgage, but I think, as Bubb points out, one must not under-estimate the amount of savings HK people has. ..

Judging from the calls and offers I have been receiving, many user-buyers are entering the market now at this CCI level as they consider it affordable and reasonable. From this level, it might go much lower but losses from this level would be a lot more bearable than the CCI at 74 or 100. So, 55 is an attractive level for user-buyers especially when not everyone is a 100% bear.

Interesting comments on Shining Heights. It is a short walk from where I live near Olympic, and in the "wrong" direction. We went to see it. My GF knows about kitchens, and she was impressed saying, "they are better than One SilverSea", and she thinks this will appeal to young and trendy with money- and there are still many like this in HK. The so-called "Sky Club" (at 550 feet) will also highlight the panoramic views, while helping people to forget that they are actually living in a grotty part of TKT.

 

What you say about the CCI-55 level rings true, especially as I am seeing transactions picking up from that support level, all across HK, including CC. What we need now, to get a decent rally in property is: a upwards thrust in the stock market, and banks getting more competitive again in their lending. I do think that a rally in HK stocks is likely soon. But even a continuing rally just in China may help, because if mainlanders are making good money, some of that will come into the HK property market.

 

I think the impact of the big stock price falls in Chinese stock on HK's property market have been under-estimated. I think that many Chinese bought new HK properties to flip them (especially in buildings like The Long Beach, OneSilverSea and maybe La Rossa), and then when Chinese stocks collapsed, they had to quickly sell or rent them. This helped to speed up the HK property collapse, since properties like LB had their final closings in Oct.2008, just after the crisis hit.

 

If analysts missed the negative impact of China stocks, they may also be missing the positive impact.

 

= 4/

I will add though, that whilst people here do have money they are very shrewd with it. In my business I find the spendthrifts tend to be the expatriates. You'd be amazed at how many highly paid individuals have a negligible net worth.

 

Anyway, after receiving a number of calls from various estate agents, I decided to put my flat on the market about 4 weeks ago to test the waters. I have a signed tenancy agreement which would give a prospective purchaser a 7% yield if they chose to proceed, and the tenancy agreement was revokable if they wanted vacant possession. The flat has just been extensively renovated with high end fittings, finishes and fixtures. It has a lovely terrace. If I may say so myself, it looks great!

 

In the past 4 weeks we haven't even had a nibble. Not a call. Nada.

I agree that the expat sector has been hardest hit, particularly on the luxury end. I dont think that many expats are looking for those HK$8-10 mn flats anymore. If they are buying, they may be doing some "downsizing" in areas like Tung Chung, where they can buy a nice 2BR flat for arounf $2mm, and a 3BR for around $3mn. I don't think it is easy to find buyers with complicated schemes. The best way to sell, especially in times like this, is to make your price cheap (in $ per sf terms), then the buyers will find you. With the scheme you mentioned, it sounds like you are trying to use an above market rental to extract an above market sales price. I wonder what your agents are telling would-be buyers about this opportunity?

 

They way I see it is that there are alot of flats on the market at just above market prices. And there are only a handful of buyers. When a buyer is ready to buy, he tries to get one of the sellers to come down to his level. If he is likely one will drop his price and give him a below market deal. If he agrees to pay market, then one of the sellers gets lucky (maybe the one with the nest decorated flat, or highest floor, or best view.) That seller gets done, and the others sit there awaiting the next serious buyer. A stock market rally or a rate cute may help put cash in people's pockets and bring more buyers in, and allow the sellers to start getting properties sold without needing to move their prices down. When we see that, some sellers will raise prices, hoping the market will follow them higher. The extent of the stock market rally may determine whether new higher prices will stick.

[drbubb]

THIS PART from the other thread WAS talking about cycles

I think I have come to see why it was a mistake to think that HK could replicate what London properties did in the past decade. London also surprised me coz I already started feeling incredibly uncomfortable with what I read in the media as early as 2001/02 and advised friends not to buy. What happened to London was once in a lifetime – there had to be the coming together of EVERYTHING such as the right cycle, psychology, politics, and the cheap excessive credit & leverage etc, which is why the bursting of the bubble is also a once in a lifetime crisis. Therefore, I think for that shocking bubble to happen to HK again would take far longer than the normal rule of cycles.

If HK is headed into the explosive part of the 18 year cycle once this correction is out of the way,

I think it may surprise people how far that might carry the market by 2015 (or so) when the 18 year cycle is next due to peak.

 

I could see some big positives - take these as "possible" influences, not what I necessarily expect to all come together simultaneously:

====================

+ A vibrant and growing mainland China economy, with fortunes being made quickly, and Chinese businessmen looking for Trophy properties in HK,

+ HK maintaining its low-tax status, a sharp contrast to mainland China, and rapacious tax-grabbers in the US and Europe,

+ Hong Kong growing has a global financial centre, making it a strong rival, seeking to best (a diminished) London and Hong Kong,

+ Rising oil prices, giving HK a competitive edge over most cities, with its fine no-car-needed infrastructure,

+ The most-central parts of HK, like central & midlevels, and West Kowloon finished with their build-outs, with little space for new projects,

+ HK emerging as the financial part of the "World Mega-city", including Guangzhou, Macau, Shenzhen, Zuhai, and Foshan,

+ HK's banks & new foreign banks entering the HK property finance sector with aggressive lending. Their confidence will be enhanced if

the present crisis, has only a small further dip to go, rather than a long SARS level washout

 

If these themes all reach fruition around 2015, you could see an incredible boom in HK Property

[tor1976]

Prospective shoppers beware...

 

All the fanciful blather and wishful thinking aside, the direction of the market is exceedingly clear.....

OR, as the esteemed journalist spells out in as many words... the Hong Kong property market is a Ponzi Scheme, with artificially inflated home prices at its center, and a steady need for new money to keep the bubble blowing THE essential ingredient to feeding the need for artificially high prices.

 

In the context of the debt crisis, one can only come to ONE conclusion.

 

The market is going decidedly lower.

 

Hang Seng on track to test lows

http://www.marketwatch.com/news/story/Focu...Seng/story.aspx

 

== ==

 

(Edit: If you want to read the rest of this long post,

You can find it on the Main Hk Property thread, which is where I would like to suggest we continue

this debate):

http://www.greenenergyinvestors.com/index....=920&st=460

[drbubb]

Prospective shoppers beware...

 

All the fanciful blather and wishful thinking aside, the direction of the market is exceedingly clear.....

OR, as the esteemed journalist spells out in as many words... the Hong Kong property market is a Ponzi Scheme, with artificially inflated home prices at its center, and a steady need for new money to keep the bubble blowing THE essential ingredient to feeding the need for artificially high prices.

 

I think the flaw in your thinking has been pointed out by myself (and others),

and even market action seems to show that Buyers returned when CCLI hit 55. It is 59 now, about 8% higher.

 

(in edit)

I will post this entire post on the main HP-Property thread.

Link: http://www.greenenergyinvestors.com/index....=920&st=460

I would appreciate it if you would continue posting there !

[Haggis]

I agree that the expat sector has been hardest hit, particularly on the luxury end. I dont think that many expats are looking for those HK$8-10 mn flats anymore. If they are buying, they may be doing some "downsizing" in areas like Tung Chung, where they can buy a nice 2BR flat for arounf $2mm, and a 3BR for around $3mn. I don't think it is easy to find buyers with complicated schemes. The best way to sell, especially in times like this, is to make your price cheap (in $ per sf terms), then the buyers will find you. With the scheme you mentioned, it sounds like you are trying to use an above market rental to extract an above market sales price. I wonder what your agents are telling would-be buyers about this opportunity?

 

Nope, your assumptions are dead wrong: It isn't a 'complicated scheme' which relies on 'above market rental to extract an above market sales price'. You've put words in my mouth then 'rebutted' what I didn't say in the first place.

 

This unit is in the same price range as your TC units, and as stated, it would give a prospective purchaser a 7% yield. If there were any prospective purchasers the agents would be telling them that there is a newly renovated flat, in a highly desirable area (Pacific Place 3) which would obtain a yield of 7% based upon a rent which entirely consistent with the market in that area.

 

If you'd been less dismissive you may have twigged to the point of my post: There are no buyers at current prices. There aren't even tire kickers which I find truly amazing. Prices have to come down. Or something magical has to happen...

 

 

They way I see it is that there are alot of flats on the market at just above market prices. And there are only a handful of buyers. When a buyer is ready to buy, he tries to get one of the sellers to come down to his level. If he is likely one will drop his price and give him a below market deal. If he agrees to pay market, then one of the sellers gets lucky (maybe the one with the nest decorated flat, or highest floor, or best view.) That seller gets done, and the others sit there awaiting the next serious buyer. A stock market rally or a rate cute may help put cash in people's pockets and bring more buyers in, and allow the sellers to start getting properties sold without needing to move their prices down. When we see that, some sellers will raise prices, hoping the market will follow them higher. The extent of the stock market rally may determine whether new higher prices will stick.

 

There are about 5000 transactions a month. That's less than a third of last years volume. There zero speculative interest in the market. In the absence of speculative frenzy, prices need to reflect fundamentals regarding rent and income. The implication that there is some independent 18-year cycle which somehow places Hong Kong on a completely unique economic trajectory is unrealistic. I've read Harrisons book and I suspect even he would be shaking his head at the notion that a market as small as HK would somehow buck global events in the pursuit of an abstract cycle. In fact, my reading of his theory would infer that this market displays every characteristic of a market in the downleg of the cycle. I'd be amazed if prices weren't lower at year end.

 

[tor1976]

I think the flaw in your thinking has been pointed out by myself (and others)................

 

 

You poor poor dear. I MUST do apologize... actually, that wasn't my post at all. I had--very clumsily apparently--cut and paste a segment from a Marketwatch.com report by correspondent Craig Stephens. Please feel free to direct your remarks toward him for having THE NERVE to dare to suggest *GASP*... that the property market may very well be heading............. dare we say it.............................................. lower.

 

 

 

http://www.marketwatch.com/news/story/Focu...DD422D806B9A%7D

 

 

CRAIG STEPHEN'S THIS WEEK IN CHINA

 

Where is Hong Kong's stimulus?

 

Focus on Cathay's results this week, as Hang Seng on track to test lows

By Craig Stephen

Last update: 12:56 p.m. EDT March 8, 2009

 

HONG KONG (MarketWatch) -- The Hang Seng Index looks to be heading for a re-test of November lows just south of 11,000 points -- not a big surprise, as digesting a horrible earnings season was always going to painful and we are just getting started.

 

Last week Peter Lee Ka-ki, vice chairman Henderson Land, one of the biggest property developers, said the impact of the global financial downturn may last five years and that cutting staff or wages cannot be ruled out.

 

Deflating property bubble

 

Indeed, it looks as if Hong Kong is lining up for a re-run of a painful deflationary asset cycle. Property prices have now fallen at their fastest pace in 10 years.

 

The nightmare scenario is a repeat of a decade ago, when property prices fell 60%, and consumption collapsed along with government revenues.

 

If there is a plan this time, it appears to be to slow the deflation of the property bubble.

You might expect to find bargains in a recession, but the government has stated it won't cut land prices.

 

The thinking is, this will keep property supply tight at a time when new building starts are at a ten-year low. However, this will bring other problems, as it will kill any development that might add to housing supply, even if that brings much-needed jobs.

The old Kai Tak airport site lies unused after a decade and the multi-billion dollar West Kowloon Cultural Development appears to have lost momentum. Bridges and tunnels are okay, but property developers find the sums for other projects won't add up unless land prices fall.

 

Currently, just about all policy in Hong Kong is subservient to land price. Vested interests who support the status quo range from developers to banks to the legions of well-paid civil servants, meaning this will be hard to change.

 

While in many countries around the world, the generational economic crisis is forcing major policy re-thinks, in Hong Kong the reverse is happening. The list of consultations recently put on hold or moth-balled includes those introducing a minimum wage, a competition law and political reform that might allow people to chose and vote out the government.

Everyone you see is too busy focusing on the economy. That means joining the government and hoping something or someone else's stimulus package will stop the property and stock market falling too far.

 

Perhaps the best advice is to steer clear of domestic plays on Hong Kong economy. That is not the way to play China's stimulus.

 

End of Story

[Member100]

WHY NOT just post on the other thread - unless it's about CYCLES?

 

Okay. On re-reading, I see this part does talk cycles:

You might expect to find bargains in a recession, but the government has stated it won't cut land prices.

 

The thinking is, this will keep property supply tight at a time when new building starts are at a ten-year low. However, this will bring other problems, as it will kill any development that might add to housing supply, even if that brings much-needed jobs.

 

Currently, just about all policy in Hong Kong is subservient to land price. Vested interests who support the status quo range from developers to banks to the legions of well-paid civil servants, meaning this will be hard to change.

 

Hey, doesnt that completely support the cyclical idea?

The government is dedicated to holding the market up. It felt the pain of the drop in 2000-2003,

and therefore will not release land at cheap prices. That may keep the price up, until demand absorbs

the limited supply, and allows the price to push back upwards, keeping the up-phase intact.

 

[drbubb]

Prospects for China's Property Market in 2009

 

Speaker: Mr. Alva Y H To

Director, Head of Consultancy, North Asia DTZ / 23 March 2009, 12:30-14:00, HKGCC Theatre

 

In order to help investors build a more comprehensive understanding of the property market in China, HKGCC has invited Mr. Alva To from DTZ to present a review and forecast of the residential, office and retail markets in the Mainland.

 

An interesting talk, backed up by some very good charts.

The one I liked best was showing the timing of certain large mass transit projects underway in:

Shenzhen and Shanghai (2012), Beijing (2015), ang Hangzhou (201?)

 

It is hard for me to imagine the property markets fall much from current levels, as those mass transit projects move towards competion.

 

Alva To's own forecast was that prices would tend to stabilise in 2009-2010, and then start moving higher in 2011. He didnt want to say too much about the possibibility of prices rising sooner, thanks to the mass transit projects, but he did agree with the point in my question that these projects would help. He said that HK's property market soared in the early-mid-1990's as HK's MTR system was built out. (Note: My own thinking was that money that was previously "wasted" on slow and expensive transport, could now go into property, as the mass transit expansion is finished.)

 

The chart for Shenzhen look to me that prices had fallen back to a support level, and could rally from there.

 

Today's column by Tom Holland in the SCMP had some interesting charts

"No Recovery in sight yet for China's property developers", it was called.

But I dont think his charts necessarily supported his arguments. What they did show was some deep falls, but not necessarily why prices should go on sliding. (But then, Tom does tend to see things in China from the bearish standpoint.)

 

"Good, bad, and ugly" - he called the charts, from which I derived this data

========

Four Cities=== : Price Change : Jan-Feb Sales : Time to clear

Shenzhen ....... : - 34.0 % yoy : +169 % yr-o-y : 11 months

Guangzhou ..... : - 13.9 % yoy : +61.1% yoy... : 12 months

Beijing ............ : - 13.8 % yoy : +27.5 % yoy... : 21 months

Shanghai ........ :+ 14.3 % yoy : - 4.3 % yoy ... : 8 months

 

Meantime, we are seeing this price action:

 

China Overseas (HK:688) ... update

 

Soho China (HK:410) ... update : Daily-2yrs

 

Here's Tom Holland's conclusion: "Although credit conditions for cash-strapped developers have eased, sales volumes have picked up and share prices have bounced, real recovery in the mainland property market remains a distant prospect."

 

My response to him: "Tom, dont you recall that the share prices will oft lead the physical property market? If so, perhaps you should stay alert for reasons why a turnaround might happen. Here's one: Look at the impact of big spending on mass transit systems in these cities, with the prices of nearby property? Many Chinese buyers are sitting on big savings. Perhaps they will want to jump into the property before the systems are finished. An upward surge in "connected" properties, will help to raise values through-out these cities.

 

I will watch Chinese property prices with great interest. They have potential to help drag HK back up, especially if Shenzhen goes into full recovery mode.

 

I went to see Alva To's talk at the HKGCC yesterday, and at the end I was able to ask a question about the HK market, and he seems to be thinking it is a bit of a dead cat, but he also seem to betray a bit of surprise that things are as healthy as they are. He gave an explanation for the "bounce", but he clearly wants to avoid sounding optimistic on either China or HK at this stage. I wonder why?

 

Alva said that HK prices are low enough that they are highly "affordable" for potential buyers.

 

The recent bounce is being driven by "own use" buyers, who have the money, can afford the current mortgage rates, and do not want to miss out, in case the current rally continues. He says that a similar (dead cat) bounce also happened after the big drop in 1997.

 

Current prices certainly are affordable. In DTZ's measure, they use prices in Taikoo Shing, and the median household income of the average HK family.

 

Here's his comparison (the psf figures are my own estimates)

===============

1997 Peak ....... : 150% : $ 8,500 psf / $ 5,700 income?

2002/3 Low ...... : 30 % : $ 3,000 psf

2008, March high: 83?% : $ 8,300 psf / $10,000 income?

2009, current ... : 62 % : $ 6,200 psf

 

Taikoo Shing ... update

 

What happened after the early 1998 bounce was that prices headed lower, as unemployment in HK continued to rise. At the SARS low in 2002/3, prices were a complete bargain, but people were too afraid to buy, as HK unemployment hit 8.6%. The same fears could creep back in during 2009 if local unemployment continues to rise. In the latest months of January and February, unemployment rose by 0.5% and 0.4%. These are worrying figures, and if such job destructioon continues, it could destroy the fragile confidence within the property market.

[drbubb]

HISTORICAL MEDIAN HOUSEHOLD INCOME

 

YEAR : Current : Real == : Reported

1996 : $17,500/mo.

. . .

2001 : $18,000

2002 : $xx,xxx

2003 : $15,500

2004 :

2005 :

2006 : $17,250/mo. : $ xx,xxx // $

2007

2008

(2007: "In a city of 6.8 million, nearly 300,000 are millionaires. And this is if one counts only liquid assets.')

==

 

/ source: http://jmsc.hku.hk/hkstories/content/view/283/76/

 

YEAR-- : HK GDP : Real ('06) : Index : Pop.midyr. /R : Households -pa / Reported (xx%)

1996-yr : ????

...

2003-yr: 1,234.8 : : 1,186.9 : 104.0 :

2004-yr: 1,340.E : : 1,333.E : 103.0 : 6,783.5 / 3.07 : 2,209 k : 606.6k /

2005-yr: 1,440.E : : 1,444.E : 102.0 : 6,813.2 / 3.07 :

2006-yr: 1,550.E : : 1,550.0 : 100.0 : 6,857.1 / 3.07 : 2,234 k : 693.8k / $207,000 (29.8%)

2007-yr: 1,615.0 : : 1,569.0 : 102.9 : 6,925.9 / 3.07 :

2008-yr: 1,678.5 : : 1,607.9 : 104.4 : 6,977.7 / 3.07 : 2,273 k : 738.5k /

= =

2008-q1: 4xx,xxx : 4xx,xxx : 1xx.x

2008-q2: 4xx,xxx

2008-q3: 4xx,xxx

2008-q4: 447,937 : 4xx,xxx : 1xx.x

2007-yr: 1,615.0 : :

= =

2008-q1: 410,585 : 4xx,xxx

2008-q2: 401,588 : 4xx,xxx

2008-q3: 429,928 : 411,485 : 104.5

2008-q4: 436,414 : 412,735 : 105.7

2008-yr: 1,678.5 : : 1,607.9

 

WORLD CITIES powerpoint (Oct/2008): http://www.cpu.gov.hk/english/documents/co...urvey%20Data.pp

 

 

=====

 

"Between 1996 and 2006, the median monthly household income at current prices edged down slightly, from $17,500 to $17,250. In real terms, the median monthly household income in 1996 and 2006 were broadly stable, at $17,220 and $17,250 respectively.

 

Households at both ends of the income distribution witnessed an increase in share over the period. The percentage share of households with monthly household income at current prices below $4,000 increased from 6.7% in 1996 to 9.2% in 2006, while those with monthly household income at $40,000 or above grew from 15.0% to 17.0%. One of the reasons for the increase in the former was the increasing number of older-person households, and the increase in the latter was mainly associated with the growth of two-earner households and improvement in educational attainment of the population."

. . .

"Amongst all the selected economies, Hong Kong has a higher Gini coefficient comparable to those of United Kingdom and Canada. Hong Kong is an open, city economy with a strong agglomeration of service sector activities which are highly developed and well diversified, employing workers with multifarious experience and skills.

 

"Given this nature, income disparity in Hong Kong tends to be greater than in those places with a preponderance of manufacturing and agricultural activities. Moreover, there is a common trend towards greater income disparity in many economies. Hong Kong is not unique in moving in this direction," he added.

 

 

/see: http://www.info.gov.hk/gia/general/200706/...00706180127.htm