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Hong Kong Property Market Correction?

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Posted by Cruz (605 days ago)

Nothing new in what you say there, DaHKKid. We all know globally things look bleak and may get worse thru the course of the year.

Although I dont agree with you that HK property is a bubble with air to let out, it is due a small correction.
The economy has been kicking along these past 3 years and prices reflect this - that is not a bubble in my book, but a natural rise based on sound fundamentals or supply and demand. The market is healthy.

But after a healthy period of high volumes and price rises, prices are on the high side. I'm realistic that my place is probably not worth 23% more than it was when I bought it last July. That's quite some jump in 8 months. Great if it is. But if there is a 10-15% correction then I welcome that.

A fullscale meltdown - dont think so. No sign of it yet in HK property that I can see.
There is evidence that investors and speculators are getting nervous and some are getting out, helped by the newspapers which are naturally looking for some stories on price declines.
These investors losing money are short term traders, buying one month and selling soon after. That's a high risk strategy and completely different to that of most investors and home owners. Some HK investors play property like stocks - its such an easy market to buy & sell in.

The key question is what % of the market are these investors and what % are home owners.
Last year my agent says around 80-90%+ of his buyers were end users, compared to just 30% in 1997. That's quite a difference and points to a healthier, more stable market. Be interested to hear what others have to say in this regard.

If you are a serious investor then you dont panic sell at the first correction - unless you have somewhere better to put your cash.
Picking the market inflection points is mostly luck and it will hit you with trading costs (stamp duty/fees).

This market has a lot of support in globally tough times. Rents are strong. The cost of borrow is as cheap as it has been for a long time and your cash is getting rubbish returns at the bank. So if you are nervous then keep enough for a rainy day and if you are concerned that you need a greater cushion for market woes then add more.

If you were one of those who has been sat on the sidelines the past 18 months waiting for prices to soften before you went into buy then you should have an opportunity to get in over thenext few months - unless you were never that serious in the first place. Now is an opportunity to go haggle a discount for a home or an investment.

If you are in the market, I would stay fully invested. After all, if you trade out for a short term trade then will you find the same or better places to buy and will you get back in with profit net of your fees and time.

Posted by walkup2 (573 days ago)

Some board members are extrapolating from developments in the West an assumption that a tsunami wave of price reductions are heading for the HK coast. Hmm, well maybe, but a closer look at prices even in the UK reveals a story not quite the perfect storm some are cheering on. The FT suggests that the doommongers might be overdoing it a bit and even those (including Brits) who are looking for currency-assisted bargains in the US are not looking at a meltdown or even a serious correction in prime Manhattan (as compared to parts of Florida). Ditto HK.

UK housing slump fears overplayed

By Chris Giles, Economics Editor

Published: April 25 2008 22:21 | Last updated: April 26 2008 04:40

Britain will escape a repeat of the negative equity crisis of the 1990s unless there is an unprecedented fall in house prices, according to Financial Times analysis that suggests talk of a disastrous housing slump is overplayed.

The FT’s research shows house prices would have to slump by 25 per cent – more than double the falls seen in the early 1990s housing crash – before Britain faced another negative equity crisis.

However, about 350,000 homeowners – roughly one in 75 households – will face negative equity if prices fall by the 10 per cent widely predicted by economists and the property industry.

That is a particularly worrying prospect for those who bought just as prices were starting to peak in regions such as the North and the Midlands, where the value of homes has fallen fastest.

The FT’s figures are derived from the Council of Mortgage Lenders’ database of lending and are consistent both with a Bank of England survey of household finances last year and the annual accounts of the largest lenders.

The reason negative equity is less of a problem than in the 1990s is that far fewer homes were bought and sold at the height of the recent boom than in the late 1980s and also because mortgage lenders were more cautious, offering far fewer high loan-to-value mortgages than two decades ago.

Ben Broadbent of Goldman Sachs said on Friday: “If a 12 per cent fall in house prices in the 1990s led to 7 per cent of households ending up in negative equity, you would need a fall of over 20 per cent today and that is unlikely.

“Of course negative equity will go up, but I just don’t see the sorts of alarmist figures often quoted in the data.”

Gary Styles, risk director of Hometrack, added: “Many of the published estimates of the number of households who could be pushed into negative equity have been very inaccurate and far too high.”

However, the findings also identify a potential tipping point at which the number of people finding their home was worth less than their mortgage would rise exponentially.

If prices dropped 20 per cent, 1.2m families would be affected by negative equity. And 1.8m – or one in 14 households – would be underwater on a 25 per cent fall.

Posted by walkup2 (547 days ago)

Luxury prices are up reports SCMP:

Luxury prices up but vacancies still high
Analysts point to developers holding on to completed flats and active investment market
Yvonne Liu
May 21, 2008
The prices of luxury flats in Hong Kong have been driven to post-1997 record levels by limited supply, but vacancy rates in the sector remain stubbornly high.

Colliers International data shows that the average price of luxury residential units reached HK$11,846 per square foot in November last year, up 9.4 per cent from August.

However, according to the Hong Kong Property Review released last month by the Rating and Valuation Department, vacancy rates of 8.4 per cent at the end of last year were unchanged from 2006 levels.

Property analysts said the high level of vacancies was due to developers slowing the release of completed luxury residential units in the hope of higher prices. Another factor was that investors and owner-occupiers were active in the luxury end of the market.

Despite new supply of luxury residential flats dropping 49 per cent to 740 units last year as a result, vacancy rates in the sector were unchanged from the end of 2006, according to the review.

Vacancy rates of mass residential units with saleable areas of less than 1,076 square feet dropped from 5.7 per cent at the end of 2006 to 4.6 per cent at the end of last year.

Eddie Hui Chi-man, a professor at the Polytechnic University's building and real estate department, said that by comparison mass residential units were almost fully occupied with a vacancy rate of just 4 per cent allowing for some frictional vacancies - where developers or buyers hold on to empty properties.

Luxury flats on Hong Kong Island recorded the highest vacancy rate of 15.7 per cent, according to the Property Review.

However, the areas with the largest number of empty units, according to the report, were Yau Tsim Mong, including the West Kowloon new residential area where 8,825 units were unoccupied - the most in the city.

Wong Leung-shing, an associate director for research at Centaline Agency, said the high vacancy levels in West Kowloon were due to developers holding on to completed projects as they waited for property prices to increase.

Hang Lung Properties (SEHK: 0101) was one example, agents said.

Despite completing the 1,122-unit HarbourSide residential development in 2004, the company still has not yet released for sale 400 garden view units at the Kowloon Station project.

Shimao Group launched a luxury project at 23 Severn Road on the Peak in 2004.

However, the two houses are still awaiting buyers willing to pay the record asking prices, property agents said.

Meanwhile, the three-house Cheuk Nang Lookout Villa nearby developed by Cheuk Nang (Holdings) has seen only one house sold. The remaining two are still available - seven years after the project was completed.

"Many wealthy people buy units like they collect cars or paintings," Mr Wong said.

This practice was particularly common in the HarbourSide where he said many buyers who bought the first batch of units in 2004 had left them empty.

"The buyers are typically rich and usually own a unit or a house on the Peak, for instance, that is bigger than the HarbourSide units. They bought into HarbourSide as a long-term investment and to collect - not as homes," he said.

Since they bought when property prices were low, leaving the units empty for a long time was not a financial burden, he added.

Centaline Finance director and general manager Hendrick Leung Lee-chung estimated that the holding cost of maintaining a vacant 1,433 sqft unit at the HarbourSide was about HK$68,820 per month.

Posted by walkup2 (533 days ago)

lots of forecasts above, meanwhile on weds:
Luxury market sentiment improves
Two high-end projects see strong demand while house on Peak fetches record price
Yvonne Liu
Jun 04, 2008
Sustained demand for newly released flats in two high-end projects in non-luxury districts, as well as an Asian price record for a house on the Peak shows that buyer concerns about the outlook for the luxury sector are over, agents say.
Sun Hung Kai Properties (SEHK: 0016) last week sold a 5,069 square foot house at Severn 8 on the Peak to a buyer it identified as a Chinese businessman for HK$283.8 million or HK$55,987 per square foot.
The deal set a price record for residential property in Asia, topping the previous record of HK$55,491 per square foot paid for a house in the same project in January. It also brought the market price for top-end luxury accommodation to within touching distance of the HK$60,000 per square foot asking price for two houses sized 7,300 sq ft and 8,300 sq ft at Pollock's Path on the Peak. The last house has an offer of HK$172 million, which will be sold shortly.

The project at Pollock's Path, developed by actor-comedian Stephen Chow Sing-chi and Ryoden Development, has been on the market since the end of last year. But they still await buyers willing to pay HK$60,000 per square foot.

Property agents said the sustained buying demand at Sino Land's Palazzo in Fo Tan and Celestial Heights, a Cheung Kong (Holdings) (SEHK: 0001) project in Ma Tau Wai, showed market sentiment had turned positive.

The South China Morning Post (SEHK: 0583, announcements, news) reported last week that 900 units were sold in the Fo Tan development since its launch on May 9, and 210 units were sold in Celestial Heights within two days of its May 22 launch.

The latest sales data showed about 80 per cent of the 1,375 flats in the Palazzo had been sold, while about 45 per cent of the 939 units in Celestial Heights had been snapped up. Both are upmarket luxury projects in previously middle-market locations.

A special unit at the Palazzo sold for HK$23,500 per square foot, posting a record high for residential prices in terms of flat prices in the district, agents said.

At Celestial Heights, a deal done at HK$28,000 per square foot also set a record for property prices in Kowloon. The average price at which units had so far been sold in the project was HK$13,500 per square foot - just 3.57 per cent lower than the average price of Kowloon Development (SEHK: 0034, announcements, news) 's 31 Robinson Road luxury residential project in Mid-Levels West.

Agents said the latest data removed any lingering doubts that sentiment in the luxury market had turned positive after four months of being somewhat negative.

Kenneth Chiu Po-kit, an associate sales director at Ricacorp Properties, said demand for houses on the Peak was driven by the views on offer and prices reflected a limited availability of such properties.

"The buyers of Severn 8 are attracted by the view of Victoria Harbour," Mr Chiu said.

"Furthermore, they like the fact that all of the houses are fully furnished and the design layout is flexible."

A property agent said the project at Pollock's Path was targeting end-users, who were willing to pay aggressive prices, rather than investors.

"That's why the transactions in Severn 8 are active as there is potential for capital value growth. About 40 per cent of the buyers are investors," he said.

Louis Ng Chap-keung, a director of Ricacorp, said most of the units at Celestial Heights cost about HK$20 million. Buyers faced monthly mortgage expenses of about HK$150,000 if they applied for 70 per cent mortgage, he said.

"To afford that, total household income has to be at least HK$300,000 per month. You can't pay that much even as an undersecretary."

The monthly salary of the new government undersecretaries ranges from HK$208,680 to HK$223,585.

Mr Ng said most of the buyers were businessmen and about 80 per cent of them had businesses on the mainland. "[You could hardly tell] they are rich from their dressing. Most wear T-shirts and jeans. Many of them lived previously in the Mid-Levels, Mid-Levels East and North Point."

Property agents said more than half of the buyers at Celestial Heights were investors.

Indonesian investment fund De Monsa was prominent among the buyers, spending about HK$1.1 billion for 36 units in the project.

Lauw Siang Liong, the chairman of the fund, said the developer had offered discounts and delayed the completion date of the transaction, which was an attractive proposition to an investor.

"I am looking for at least 20 per cent growth on acquisition prices in the short term. I believe prices will continue to rise in the next few months and we will meet our sales target before the end of this year," Mr Lauw said.

Mr Ng believed the strong sales of the two projects were due to the lack of new luxury residential projects launched in the first quarter.

"Many buyers have taken profit from stock sales in the first quarter due to the uncertain outlook. They now hold a lot of cash and are looking for investment opportunities. Property is one of the good choices under an [inflationary environment]," he said.

The developers are also offering payment packages to lure investors, which include the option to pay down just 15 per cent of the total property price and the remainder after a year.

Property agents said investors could buy the flat with this package for short-term investment even if they could not afford the monthly mortgage. But they had to take high investment risks as property prices might not rise as they hoped for.

Ricky Poon, a director of residential sales at Colliers International, said transactions in traditional luxury areas in the first quarter were down 35 per cent on the previous quarter due to poor stock and property market sentiment.

Current data shows that while transactions were down 20 per cent on levels recorded in December, there had been a pick-up in deals in the last weeks of last month.

Prices, however, were up 5 per cent over the past five months and Mr Poon expected prices of luxury residential properties to rise a further 15 per cent by the end of the year.

Posted by walkup2 (521 days ago)

Today's FT for 'background music':
Investors pour funds into Asian real estate

By Andrew Wood in Hong Kong and Daniel Thomas in London

Published: June 17 2008 22:33 | Last updated: June 17 2008 22:33

The flow of capital into Asian property from outside the region is accelerating as a result of the credit crisis in the US, according to a report on the sector published on Wednesday.

Property investment in Asia grew 27 per cent to $121bn in 2007 and continues to build, says the report, which is being published by KPMG, the Asia Pacific Real Estate Association and index provider FTSE.

Investment was evenly allocated over the first and second halves of the year, unlike in Europe and North America, where investment slowed dramatically in the second half.

Most Asian markets recorded direct real estate returns above the global average of 10 per cent last year. This is forecast to continue, albeit at a lower rate.

The report comes during a period of aggressive fundraising activity for new global property funds, many of which are raising allocations to Asia to gain exposure to economies that are relatively insulated from the credit crisis. Property markets in the region, while not immune, have stood up relatively well compared with the US and Europe.

MGPA, the private equity fund manager part owned by Australia’s Macquarie Bank, this week launched a global fund that will invest mostly in Asia. It has secured $3.9bn in equity for Asian investment, giving it a potential buying power in the region, with leverage, of $15.6bn.

The fund has already committed $2.2bn to investments in Singapore, Japan, China and Thailand, and is looking at South Korea, Malaysia, Taiwan and Australia. North American investors make up 40 per cent of the fund.

Asian real estate investment trusts also outperformed American and European counterparts. Credit problems and softening real estate prices in the US and Europe mean that investors are focusing more on Asia both for long-term returns and opportunistic investments, according to the report.

At the same time, banks have become more reluctant to lend for new Asian projects, which increases the bargaining power of foreign funds. But the report says this has slowed, rather than halted, the financing process.

“There’s no shortage of capital in Asia,” said Andrew Weir, one of the report’s authors. “There are investment funds that have raised money and haven’t spent it yet.”

Posted by Cruz (498 days ago)

Bernanke can't hike interest rates in this climate - he will have blood on his hands for killing off the economy and what is left of the US housing market.
Inflation is a result of the high commodity prices caused in part by the low USD and these are in a bubble that Bernanke is not controlling directly.
Of course, they are impacted by low US interest rates, but he is facing a choice where inflation is a better option to hiking interest rates - and for some time. Nothing will be done on US interest rates before the US election and I doubt it will be done afterwards either.
Also, global growth is slowing - apparently China saw lower power use in May vs April/Mar for the first time in 4 years, Chinese goods are finding less buyers etc. Demand for commodities will slow - ie, it won't grow - and this will help reduce inflation more than higher US rates.
So I would not buy AUD. The Aus econ is clinging on by its teeth on commodities alone. The bubble will have to burst, as it is a bubble. Oil may hit $160 or even $200, but when it comes off (and it will) then Asian markets will surge and confidence will come back, at least for a while.
What else is news is the layoffs at the Banks - and Finance is about 20% of the HK economy. These layoffs are more apparent outside of Asia, which is attracting more and more relocations into the region as a result. Good for property.
But Asia can't remain immune. Banks' Asian revenue growth will slow this year whether there is an oil-induced rally or not, and the Asian % cost of the region to the banks will rise as they cut costs sharply elsewhere. They will have to cut in Asia later if not sooner as the crisis deepens and a few institutions fail. HK rents have risen to meet the high purchase prices and demand. They will fall only as demand falls and then property prices will follow.
I expect next year to be the most painful and when HK property prices will correct as the global slowdow Soros refers too really hits home.
On the other hand we are supported by RMB appreciation - HK property is getting cheaper to Mainland buyers. Yes, the Mainland story is weaker as their markets have really corrected. But China is the only country where the State is likely to step in an ensure their economy does not tail off - so China is actually good places to be right now, and so is HK as a result.
Overall I would rather buy property in HK later this year than elsewhere in the world. Rates are low and banks want to lend. Get a cheap mortgage if you find a good deal on a property in HK and you want to live in your purchase.
I'd look to pay prices 10-15% below the peak price if you buy this summer, more next year. If its an investment purchase and you can wait, then next year is probably goingto be a better time to buy - assuming you have the confidence AND the banks will lend to you freely (as they become more conservative as prices fall)

Posted by walkup2 (488 days ago)

Experts not selling out of HK market
Investors see softening of prices as a short-term correction after run-up in home values
Peggy Sito SCMP
Updated on Jul 16, 2008
Investment professionals who spend all their work time telling people what they should do with their money have no plans to cut and run from the Hong Kong property market and believe their portfolios will continue to generate solid long-term returns.

The vote of confidence, expressed in interviews with the South China Morning Post this week, is based on a consensus that Hong Kong's economic fundamentals remain sound and the present easing of housing prices is no more than a modest adjustment after a lengthy run-up in asset values.

In their private capacity, the investors appear to be putting their own advice to work for themselves.

None of them expects domestic interest rates to rise sharply, and since credit is likely to remain plentiful and comparatively cheap and supply limited, the general view is that house prices would soon rebound after a short-term correction.

But until the cloud hanging over global credit markets lifts and the outlook becomes brighter, they would not add to their existing property holdings.

"It is unavoidable that home prices will soften and could fall by perhaps 5 to 7 per cent in the next two months amid all the negative news such as rising mortgage rates and a falling stock market," said Freddy Wu, the chief executive of Hong Kong Property.

Mr Wu, who has put his money where his mouth is, bought four properties in the fourth quarter of last year - one in Tseung Kwan O, two in West Kowloon, and one in Taikoo Shing. He subsequently sold the two smaller units in Tseung Kwan O and West Kowloon, but has hung on to the two larger units measuring about 1,000 square feet each for long-term investment.

"Since rentals are rising, it is not a bad idea to hold the properties for the long term," he said.

Home prices have risen 25 per cent since the fourth quarter of last year, according to Centaline Property Agency. In recent weeks, sales activity has slowed and prices consolidated.

Residential rents, meanwhile, have maintained a growth of 19 per cent over the past six months.

"We see more demand in the residential leasing market as some potential buyers hesitate to buy and turn to the rental market," said Simon Lo Wing-fai, a director of research and consultancy at Colliers International.

"I am at present enjoying a rental yield of more than 4 per cent on my investment apartments," said Mr Wu.

He added that while he did not plan to buy another flat at the moment, others might be rewarded if they shopped for bargains. "I gained a bit from the short-term trading of two units earlier. For me it is not worth entering the market since we could see a modest fall in the short run."

This view is supported by another investor, Peter Churchouse, an executive director of Lim Advisors who is the owner of a number of Hong Kong properties including four small flats in Henderson Land Development's CentreStage on Hollywood Road and a house nearby.

"I have not sold one of the properties," Mr Churchouse said, adding that he would not consider selling unless prices were expected to fall by as much as 30 per cent - which was not on the cards. "I will not sell. They are my retirement fund."

The collapse of property prices during the Asian financial crisis of 1997-98 came against a background of an excessive supply of homes, while property developers were highly geared and suffered from the high interest rate burden created by the regional financial crisis. As a result, developers undercut prices to speed up sales, Mr Churchouse said.

This was not the case now, he said, since supply levels were moderate and while some developers were having difficulty refinancing their borrowings, none were vulnerably leveraged as they were in 1997.

Kenny Tse, the managing director of Aetos Capital of Asia, a US private equity fund, upgraded his living standards by acquiring a more than 3,000 sq ft unit on Hong Kong Island at the end of last year.

He ended his 10-year stint as an equity stock analyst at investment bank Morgan Stanley before joining Aetos last year.

"The move should indicate my confidence in the housing market," said Mr Tse, whose confidence was based on the view that supply of such housing was limited and Hong Kong continued to boast sound economic fundamentals such as low unemployment.

He said mortgage rates also remained at a comparatively low level and the only major question that lingered was how long the subprime credit issue would continue to be a drag on the US economy and financial sector - and hence the market in Hong Kong.

But these investors' decision to hold rather than sell did not rest purely on a view about the immediate outlook for local property, Mr Wu said.

"If I were to cash in now, I will not know where to put my money. The Hong Kong currency is falling, interest rates are low and the stock market is falling."

Posted by spaceren (487 days ago)

I have learned to only listen to people who know by experience, i.e have bought and sold themselves more than a few times and who are still relatively impartial (debt burden / negative equity not crushing them, no euphoria of 100% gain in a few months).

For example, the "experts" said not to buy during SARS (million dollar boys with grey in their hair) - I know I asked a number out there. Why was it a good time to buy - because it was cheap on fundamentals (cost to buy, rent, interest rates). Is now the complete opposite such that a bubble is about to burst? Have HK banks run out of money/capital? The US banks have, has China? Are average property prices in HK really going to topple?

And if they do, with current interest rates so what? With relatively low interest rates in the past few years could pay off most of a property's cost (on a true rent v buy). If more people are renting, presumably on a supply-demand analysis rents go up - no?

As to the "definite trend" on asiaxpat, the numbers suggest less than 0.04% properties for sale/rent based on 7m HK people. If you look at another city, say Sydney, the number is about 0.77% (about 20 times if assume 5m people). People are finding asiaxpat works, me thinks, rather than rushing for the doors. Also, 2600 flats is just a large development or a 2 minute slow walk past a few of your neighbour buildings - look out the window, or catch a ferry, there are lots of buildings out there (I assume more property keys in people's pockets in Sogo right at this moment).

I haven't read analysis in HK of the cost of property versus average salaries - the US toppled (as is the UK and as will Aust) because the prices were silly (like HK in 97). The cost to service the debt was too much versus the implicit value. Are they silly now in HK? Maybe for a few places on the Peak/TST, but who cares about the price of these places (and reads these forums). Tell me what prices are for regular places, $2-5m.

And as for this HK is doomed sentiment, while bankers are high profile part of the community and more than a few being asked to go, the rest of the world continues. In any event, aren't the banks currently putting their good people in HK/Asia to protect them? Doesn't this mean more senior people coming? Not doom and gloom.

Maybe not time to be going crazy with property investments, but surely a reasonable time to be looking for a home. 2-3% interest rates, got to love low interest rates (less than 10 years to buy a place on a rent v buy comparison).

Posted by Ed (486 days ago)

Interesting article which is relevant to this discussion:

Is the Party Over in China

Unsold inventories are climbing, the consumers aren’t biting

China IndustryChina’s National Development and Reform Commission (NDRC) reported today that unsold inventories of cars rose 50 percent from the beginning of the year to a four-year high; this suggests that macro challenges in China have finally reached a crisis point. The future may have finally caught up with China.

Sharply rising inventories in such a strategically important industry as autos suggest that the slowdown in the economy is biting domestic demand such that corporate investment is likely to slow. If inflation weren’t already such a problem, the People’s Bank of China, the nation’s central bank, could ease monetary policy to boost domestic demand. But with inflation recently spiking and real interest rates already quite negative, the central bank is in no position to ease.

Rising inventories, slowing growth and rising inflation suggests a self-reinforcing cycle of gloom for the economy and financial sector, especially when the banking sector inevitably begins to feel the pain of rising NPLs into a slowing economy.

The last time Chinese policymakers faced such a daunting challenge in charting the domestic economy through such treacherous waters was during the Asian financial crisis of 1997-1998 when capital flight was of paramount concern. his time the stakes are much higher and the risks of a crisis are much greater. During the crisis, policymakers could count on capital flight reversing if temporary measures would just provide a bridge through turbulent external conditions. Asia recovered, China hung on and the world exhaled.

This time around, however, China is, ironically facing the opposite problem where so called hot money inflows are the problem. Unlike with the capital flight problem during the Asian crisis, just hanging on won’t solve the current hot money crisis as nothing short of a domestic economic crisis seems likely to slow or reverse hot money inflows into China. The growth rate of foreign exchange accumulation has gone parabolic, with reserve growth doubling in 2006, 2007 and set to double again in 2008 judged by inflows in the first half of 2008 already matching total inflows for 2007. Parabolic growth is a classic symptom of an unsustainable trend in markets.

In the fall of 2003, I advocated a maxi-revaluation of the Chinese yuan. At that time I even argued naively that Chinese policymakers might even consider such an option because they would eventually come to the logical conclusion that if they didn’t do it now, it would only get harder and more painful to do it later as foreign capital continued to pile into the economy in a classic boom–bust cycle.

By June of 2004, I finally gave up on the idea that policymakers might seriously consider a maxi revaluation. All of the rhetoric coming out of Beijing rationalizing the current account surplus as temporary, combined with a number of administrative measures aimed at neutralizing the macro impact of foreign capital inflows, including the beginning of an aggressive sterilization program finally convinced me to give up my “radical” notion that Chinese leaders might actually consider a large adjustment of the yuan.

Since June 2004, my theme on China has continued to be that nothing the authorities did would slow (let alone derail) a booming economy thus as the debate has raged about whether there might be a soft landing or hard landing for China’s economy, my mantra has been: “no landing”. As long as capital inflows continued to surge into the economy – which I didn’t see any reason why they would slow let along reverse—my view for China’s economy was full speed ahead. After our latest research trip to China, I came back with the same bottom line view on China: inevitable crash, but not yet, and meantime, continued boom.

The report on rising car inventories, however, has changed my view. One of the keys to our positive short-term view on China was that as long as inflation remained relatively contained and inventories weren’t building up, there was no reason to think the self-reinforcing cycle of capital inflows, higher investment and growth wouldn’t continue – short of a trade war or protectionist backlash. Rising inventories for cars, however, is a huge red flag, especially with inflation rising into slowing growth.

For the last several years, I’ve talked about Chinese policymakers systematically eliminating the usual canaries in the coal mine that indicate macro stresses, and thus reducing the usual triggers that derail economic booms in other countries, such as rising inflation, rising interest rates, an appreciating currency, bankruptcy or a bank run. Through various administrative measures Chinese leaders have been able to keep such usual canaries in check. Until recently. With hot money flows rising and inflation finally breaking the canaries are finally starting to break their silence.

Rising inventories has always been a potential canary that we’ve kept an eye on because it is something the government can’t really control directly. Until recently, however, rising inventories haven’t been a problem. As long as that remained the case, it was hard to see any serious trigger for a financial and/or economic crunch in China. Rising inventories are potentially the proverbial straw that breaks the camel’s back because they indicate falling corporate profits, slowing investment, and slowing growth, in a self-reinforcing cycle in a downward spiral that is the opposite of the positive cycle in the boom phase of an investment boom/bust cycle.

http://asiasentinel.com/index.php?option=com_content&task=view&id=1340&Itemid=32

Posted by walkup2 (479 days ago)

Strong fundamentals underpin HK market
Albert Wong
Updated on Jul 30, 2008
Plagued by stock market corrections, uncertainty over interest rate movements, and worries over the US recession, Hong Kong's housing market has been cooling down. I think the slowdown is just a short-term correction within a long-term cycle.

This is because the housing policy continues to be accommodative and the likelihood that once the trend in interest rates becomes clearer buyers will return to the market.

True, activity since the Lunar New Year has proved disappointing.

For a start, resale activity has been shrinking and last month secondary property sales amounted to 7,000 units, down 43 per cent from that in January. On a half-yearly basis resale property registrations dropped 4.7 per cent.

Primary sales have also slowed. Our tally indicated that developers sold 300 units last month, down 82 per cent from May. Worse, there have been rumours about investor defaults which have led to some transactions falling through.

However, the picture is not uniformly bleak. In the first six months of the year, secondary property registrations in the New Territories were up 4.9 per cent from the second half of last year.

Indeed, market fundamentals remain sound: Hong Kong buyers are able to service mortgages with less than one-third of their earnings; rents are rising fast; and rental growth in the past 18 months was comparable to the rise in property prices, suggesting that the increase in home values was well supported by genuine need.

Above all, supply remains limited. Last year, demand outstripped supply by more than 9,000 units. With annual new home completions hovering around 12,000 units, supply is still expected to fall short of demand this year and next.

This limited supply situation has been the most important factor underpinning the property market since mid-2003. In the past five years developers sold 97,556 units, while the land they acquired during this period was sufficient to produce 53,400 units.

Developers will always aim for a good margin and when demand slows down they will delay new launches and thus reduce supply. This self-adjusting process has helped support property prices and also explains why prices remained firm during several consolidation periods in the last 60 months.

The limited supply in the property pipeline can be attributed to changes in housing policies.

In 2003, the government suspended land sales and scrapped the Home Ownership Scheme programme. These measures, together with economically supportive moves from Beijing, helped revive the local economy and the housing sector and it is improbable that the government will now deviate from its policies.

Notwithstanding the long-term positive outlook, the market is expected to be relatively quiet in the third quarter.

Some buyers will stay on the sidelines because of the uncertain interest rate movements, and as a result speculators may have difficulty flipping their properties in the months ahead - although with rental yields at 5.1 per cent and deposit rates hovering around zero they could enjoy a handsome return by leasing unsold units in the meantime.

Undeniably, however, the home market is not as good as some optimists had predicted. But neither is it as bad as some pessimists had feared.

In a recent survey we conducted, only 2 per cent of respondents believed property prices would fall by more than 10 per cent in the next 12 months, and we are confident that home values can remain fairly stable in the second half.

The mass residential market, moreover, is expected to perform well during the consolidation period.

This is mainly because the supply of new small-sized units has fallen particularly fast. Figures from the Rating and Valuation Department showed that flats smaller than 430 square feet (net area) accounted for just 9.8 per cent of completions last year, compared with a yearly average of 15.2 per cent from 1999 to 2003.

More importantly, demand for low-end units looks positive amid a soaring inflation environment. Indeed, quite a number of mass residential projects are cheaper to buy than to rent. And if mortgage rates stay at a low level a lot of tenants will consider buying properties as physical assets are traditionally regarded as a good hedge against inflation.

Admittedly, "buy first, ask questions later" is no longer the attitude of potential home buyers. But against a backdrop of low supply and low debt levels, we cannot see property owners being willing to offer sharp price reductions in order to secure sales.

And as long as policymakers keep a tight grip on land supply the present negative shift in market sentiment is more likely to result in a drop in transaction volumes than a sharp decline in prices.

Albert Wong is the chief executive consultant of Midland Realty

Posted by Mr Cynical (479 days ago)

Is this enough to require me to present my 7ft midget?

Hong Kong Housing Market May Slow as Apartment Sales Decline

July 30 (Bloomberg) -- Hong Kong's apartment transactions may fall to a 10-month low in July, then drop further, on concerns that accelerating inflation and a slumping stock market may push prices down, analysts said.

Transactions in 10 of Hong Kong's biggest housing complexes, used by many analysts as a benchmark, fell to 27 last week from 33 the previous week, Centaline Property Agency Ltd. said. Total home sales in the city may drop to 6,100 in July, the lowest number since September, from 7,167 in June, Centaline said.

``This will probably continue for the whole of the third quarter,'' said Louis Chan, managing director of residential properties at Centaline. ``We're looking at between a 3 and 5 percent correction in prices within the quarter.''

Home values have tracked Hong Kong's economy, peaking in the second quarter of 1997, then crashing in the Asian financial crisis, leaving many homes worth less then their mortgages for years. The 2000 dot-com bubble burst, the Sept. 11, 2001, terrorist attacks and the 2003 SARS epidemic caused prices to fall as much as 70 percent from the peak. The rebound started in late 2003 and prices doubled in the past four years.

Now, the benchmark Hang Seng Index has fallen almost a third from its record in October as credit-market losses climbed worldwide, threatening global economic growth even as inflation accelerates in Hong Kong. The combination could deter potential homebuyers, possibly for the balance of the year.

``The Hong Kong residential market will go into a quiet period for the rest of 2008,'' said Cusson Leung, a Hong Kong- based analyst at Credit Suisse. His July 8 report forecast a 5 to 10 percent reduction in home prices in the second half.

Agencies Fire

Overall housing transactions in the second half may fall between 20 and 30 percent from a year earlier, said Patrick Chow, head of research at real estate agency Ricacorp Properties Ltd.

``Many people looking to upgrade their properties again have had their capital drained by the stock market,'' Chow said. ``This may seriously impact the high-end market, in part because many of those homebuyers had upgraded last year.''

Hong Kong's four biggest real estate agencies this month fired a total of more than 300 workers in anticipation of a housing slump, according to a July 23 report in the Hong Kong Economic Times newspaper.

Hong Kong's inflation accelerated in June to the fastest pace in four months as food and energy costs climbed. Local lenders including BOC Hong Kong (Holdings) Ltd. and Hang Seng Bank Ltd. last month raised their mortgage rates for some customers to deflect the squeeze on lending margins.

``Inflation is giving many people second thoughts about buying properties,'' said Alnwick Chan, a Hong Kong-based executive director at property research company Knight Frank LLP. ``There's going to be a correction but it won't be a crash.''

Asia's Most Expensive

Hong Kong has the most expensive luxury home prices in Asia, $10,490 to $14,780 per square meter ($975 to $1,375 a square foot), according to the Global Property Guide Web site. That compares with $12,510 to $22,923 per square meter in Manhattan.

The Hang Seng Properties Index, which tracks the city's six biggest builders by market value, has dropped 30 percent this year on concerns Hong Kong banks may lift rates.

The expectation that the U.S. Federal Reserve will start raising interest rates in the fourth quarter of this year has damped Asia's stock markets, according to Credit Suisse. Hong Kong's rates move with those of the U.S. because the city's currency is linked to the dollar.

Sino Land Co. sold almost 70 percent of the apartments it made available at the Palazzo, a high-end complex overlooking the Sha Tin horse track in the first nine days of sales, Sing Tao Daily reported in May. Billionaire Li Ka-shing's Cheung Kong (Holdings) Ltd., Hong Kong's second-biggest builder by value, met full-year sales targets by June, selling 2,700 apartments for HK$23 billion.

Transactions and prices may rebound in the fourth quarter if both the U.S. and Hong Kong stock markets show they have weathered the subprime crisis, Centaline's Chan said.

The property affordability ratio, homeowners' average monthly mortgage payment as a percentage of income, is 32 percent, ``a very healthy level'' compared with 93 percent at the peak of the 1990s boom, according to Buggle Lau, chief analyst at Midland Holdings Ltd., Hong Kong's biggest publicly traded property agency.

``Growth is definitely slowing, but the fundamentals of the economy are still strong,'' Lau said. ``When the uncertainties go away we're pretty sure buyers are going to come back.''

Posted by Mr Cynical (478 days ago)

Tom Hollands column scmp this morning, consumer demand is slowing to a crawl around much of the world, export driven asian economies are starting to feel this and will really feel this in fourth quarter, this will drag down earnings for many companies and with it the stock markets. Historically where the hk stock market goes so too does the property market.

"Experts" can opine all they want but facts are facts are facts the US is going into a big hole mortgage crisis > loss of jobs > consumer demand fall off > more loss of jobs > bankruptcies both personal and corporate > more banking problems as people default on the average credit card debt per family of US$8000 > recession, possible stagflation (Soros says this will be the worst one since the depression).

Maybe people are remembering the crash of 98, it was swift and dramatic and property prices fell in a short time up to 70%, but this is not the same situation, this is a gradual economic crash, one where the US government have stepped in to prevent a massive immediate crash like 98, you think if they let Bear Stearns and Fanny Mae/Mac go under we'd not see chaos? What they have done is delay the inevitable and prolong the pain instead of allowing heart attack, but for certain the mortgage crisis leads to less jobs, less spending power, less business for china and asia leads to a slowdown here too, but it happens gradually, first you see unsold inventories in China (starting to happen now), less orders on the books (which will happen in the next few months), of course landlords will try to hang on as they always do in hong kong, they will take apts off the market and hold hold hold on their sale price, but eventually when they see that things are not going to turn around in the near term they eventually give in an the properties start to come down in price, which further puts pressure on prices as demand is not there and the supply tap opens, some owners panic and drop prices more wanting to get out before a big drop, and then you have a full on sell off

Thats how it will happen, not overnight, it will be gradual, hard to say exactly when but I think prices will slowly reduce for the rest of the year then sometime in the first 3 or 4 months of 2009 the first cracks will appear and then within one year from now we will see the big sell off happening with a drop of 30-50% overall with the luxury market being hit worst because its fueled by people making money out of the stock markets and looking for a place to park profits.

Posted by walkup2 (477 days ago)

Hong Kong property prices and rentals continued positive growth in 2Q 2008
Hong Kong market continued to see solid fundamental support with stronger-than-expected economic growth of 7.1% year-on-year.
by Colliers International
Hong Kong market continued to see solid fundamental support with stronger-than-expected economic growth of 7.1% year-on-year (YoY) in 1Q 2008, despite the challenges of external environment such as volatility of financial markets and the increasing energy prices. As food and energy prices surged around the globe, the pace of price rise picked up additional momentum. Given the prevailing effective mortgage rate at 3.00% and inflation running about 5.00% in 2008, the local real estate market continued to see a negative interest rate environment in 2Q 2008, which was favourable for real estate investment. In general, property prices and rentals in the four key sectors continued to see positive growth in 2Q 2008.
....
Luxury Residential Sector
In 2Q 2008, the number of sale transactions in the luxury residential property sector reduced by over 30% QoQ. Notwithstanding the uninspiring sales volume, the average transacted price increased 8.2% QoQ to HK$14,868 per sq ft as at the end of May 2008, thanks to the limited supply of luxury stock, sustained occupational demand and the general expectations of growing inflation. In the next 12 months, the pace of capital value growth is expected to slow to 5-10%, with the underlying risks of a global economic contraction and the expectation of a tightening cycle.

In the luxury residential leasing market, the lack of new supply, tight supply conditions in the secondary market and positive hiring expectations amongst various industries continued to underpin the rentals’ growth momentum. The average luxury residential rental registered a rise of 6.7% QoQ to HK$45.24 per sq ft per month as at the end of May 2008, and is expected to grow 15% in the next 12 months.

Retail Sector
The Hong Kong retail market continued to enjoy the benefits of an expanding local economy, a growing local consumer demand and a rising number of visitor arrivals. Taking the advantage of a low interest rate environment, investment demand in the retail sector remained solid in 2Q 2008 with individual benchmark sales transactions such as the sale of KCP in Kowloon City for HK$1.48 billion. In the leasing market, a rising number of inbound visitors, especially those from Mainland China, help offset the negative impact of anticipated slowdown in the US economy. In addition, the sustained growth of retail sales is one of the key drivers pushing retail tenants to go for their expansion plans. Underpinned by the sustained leasing demand, the average rentals in the traditional shopping districts saw a growth of 2.7% in 2Q 2008 and are expected to rise 15% in the next 12 months.

This is a recent Knowledge Report from Colliers International.

Posted by walkup2 (471 days ago)

Real estate loses safe-haven appeal (5% drop forecast)
Hong Kong investors turn to alternative hedges against negative real interest rates
Fulton Mak Aug 06, 2008 SCMP
Property has lost its historical safe-haven status as a hedge against negative real interest rates and Hong Kong savers are turning to other options to protect their buying power as inflation rates outstrip the interest they can earn on bank deposits, say analysts.

There is a marked contrast between the present negative real interest rate environment - in which nominal savings rates lag behind rising inflation - and the last episode of negative rates in the 1990s, according to Nicole Wong, the head of Hong Kong and China property research at CLSA.

Then, negative real rates sent threatened savings deposits flooding the property market, pushing up average house prices 333 per cent from HK$1,500 per square foot in 1990 to HK$6,500 before the 1997 Asian financial crisis, CLSA data shows.

Funds flowed into property between 1990 and 1997 when interest on savings was as low as 1.5 per cent while inflation ranged from 5.8 to 11.6 per cent and real mortgage rates fell to negative territory in the early 1990s.

"The present low rates might have been supposed to again stimulate wealth reallocation to the property market, but it has turned out not to be the case," said Ms Wong,

While inflation rose to 6.1 per cent in the first half of this year and savings rates eased to just 0.01 per cent, leaving real or inflation-adjusted earnings on deposits at negative 6.09 per cent, property transactions contracted.

Average selling prices for 100 estates monitored by Midland Realty rose 4.7 per cent to HK$4,241 per square foot in the first half, but transactions in 35 key estates tumbled 16.4 per cent to 4,763 from 5,696 in the same period last year.

"Hong Kong dollar savings that previously went into property to protect their purchasing power have instead flowed into yuan deposits," said Ms Wong.

Since the beginning of the year, the prime lending rate charged by banks has decreased 150 basis points to between 5.5 per cent and 5.25 per cent, taking mortgage rates to a three-year low of between 2.7 per cent and 3 per cent, as home lending rates are priced below prime rates.

Deposit rates have also fallen to just 0.01 per cent on savings accounts and 2.35 per cent for a 12-month term deposit.

Inflation, by contrast, has climbed from 3.2 per cent to 6.1 per cent at the latest calculation.

In these circumstances, people normally put their deposits in safe havens such as property and other assets, hoping their money's value will gain in line with inflation, instead of eroding in a negative real interest rate environment. That way, they will also be paying back their loans at negative real interest rates.

This time around, negative real interest rates have not triggered an exit of surplus deposits into property because the subprime mortgage crisis has shaken investor confidence that property prices will keep rising.

Negative real mortgage rates have resulted from a 75-basis-point cut in the prime rate from January 24, but that did not stimulate transactions.

From January 22 to June 15, about 3,380 secondary transactions were recorded in the 35 key housing estates monitored by Midland, down 25.9 per cent from 4,562 in the same period last year.

Instead of flowing into property, it seemed those Hong Kong dollar deposits were shifted into yuan deposits, Ms Wong said.

Figures from financial databank CEIC Data show that yuan savings in the city increased 48 billion yuan (HK$54.65 billion) in five months from November last year to April. "This is equivalent to down payments for 58,888 units, assuming a 30 per cent down payment on a ticket price of HK$3 million," said Ms Wong.

At the end of May, yuan deposits in the city reached 77.68 billion yuan, almost triple the 26.16 billion yuan at the same time last year, or 87 times the 895 million yuan when licensed banks began offering yuan deposit services in February 2004, Hong Kong Monetary Authority data shows.

Ms Wong attributed the surge to expectations of a continued yuan appreciation, which, along with the interest earned on deposits, acted as a safe inflation hedge asset class.

In addition, the risk appetite of homebuyers has declined because of slowing growth in income and wealth and an ageing population.

The net nominal yield of an investment property is about 1.55 per cent - derived from a 4.3 per cent rental yield less the 2.75 per cent mortgage rate - compared with the 1 per cent nominal interest rate earned on a yuan deposit.

But after taking into account various transaction costs such as stamp duty, rates, maintenance costs, risk of a market downturn and a potential rate rise, the slightly higher nominal yield from a property investment might not be as attractive as the yield on a yuan deposit, which was almost risk-free and expected to enjoy capital gains from a currency appreciation against the Hong Kong dollar, said Ms Wong.

"The yuan is still fundamentally undervalued and needs to appreciate towards its equilibrium level in the medium term," said Wang Qing, an executive director and chief economist for Greater China at Morgan Stanley.

The investment bank is among the most bullish on a stronger yuan, forecasting the exchange rate will reach 6.60 yuan per US dollar by year-end and 6.30 by the end of next year.

Credit Suisse forecast that the yuan would appreciate to 6.75 and 6.15 to the dollar this year and next, while HSBC (SEHK: 0005, announcements, news) estimated 6.77 and 6.33.

Beyond yuan savings, people in Hong Kong appeared to be learning to diversify their wealth, as seen in the faster growth of foreign currency savings than outstanding mortgage loans, said Ms Wong.

Nevertheless, a potential rate rise is likely to hurt activity in the property market. "The only way for mortgage rates to go is up," because banks' net interest margins were minimal after several rate cuts, said Ms Wong.

She said property prices would drop 5 per cent next year, the first decline since 2003, as the economy deteriorated.

Even so, Merrill Lynch forecast the annual housing supply from this year to 2010 would be 9,000 to 10,000 units, down from the annual average of 21,591 units from 1997 to last year.

"We believe a slowdown in demand is unlikely to solve the shortage problem," analyst Keith Yeung wrote in a report.

He said the market could still take up 13,050 units despite slowing economic growth and was confident that residential prices would rise 10 to 12 per cent for the rest of the year, taking the full-year increase to 20 per cent.
transaction stats: http://tinyurl.com/5vxz97

Posted by HKForGood (451 days ago)

Article in today's SCMP.

HK market forecast to drop further
Analysts say slowing economy to extend retreat for 15 months to 30pc below March levels
Sandy Li
Aug 27, 2008

Falling Hong Kong home prices will not recover soon as buyer demand continues to retreat in line with a slowing economy and weakening affordability, warn analysts.

Coupled with poor investment sentiment owing to the current credit crisis and slowing world economies, this could mean prices may continue to retreat for a further 15 months until they have fallen by up to 30 per cent from peak levels reached in March, say some bearish forecasters.

The comments follow data showing that Hong Kong's gross domestic product growth decelerated to 4.2 per cent in the second quarter, the slowest growth rate since the third quarter of 2003.

"An economic contraction is bound to affect the physical property market. The only argument is over when it will arrive," said Fitch Ratings property analyst Michael Wu.

Mr Wu forecast a further 10 to 20 per cent price drop in the property market, but did not rule out the possibility of a steeper fall once corporates cut their year-end bonuses as a result of profit being hurt by the unfavourable global investment climate.

Investment bankers, who are major buyers or tenants of luxury residential units, would tighten their purses in fear of being sacked or having their salaries cut, he said.

"Investors are now either considering whether to exit their investments or to put buying decisions on hold," he added.

Given this lacklustre buying interest, Centaline and Midland Realty forecast the number of residential transactions this month would drop to between 6,000 and 6,500, and could be the lowest since February 2006.

Law Ka-chung, the chief economist and strategist at the Bank of Communications (SEHK: 3328)' Hong Kong branch, said property prices would lag falling transaction volumes by four or five months.

"Fewer transactions tell us that people are reluctant to spend when they see a negative market outlook," Mr Law said.

He said he remained cautious about the market outlook and did not expect a recovery until the United States housing market reached a bottom some time in the middle of next year or later in 2009.

Home prices could tumble by 20 to 30 per cent from the peak early this year, he said.

Last week, Cheung Kong (Holdings) (SEHK: 0001) chairman Li Ka-shing warned the worst was yet to come for Hong Kong's economy.

"The US credit problems spread quickly to Europe and then the rest of the world. Hong Kong will no doubt be affected and an even worse time is coming," Mr Li said.

He sounded a note of caution despite Cheung Kong reporting a higher than expected 93 per cent rise in underlying earnings to HK$5.55 billion, which excluded property valuation and the contribution from Hutchison Whampoa (SEHK: 0013), last Thursday.

On the back of global uncertainties, Merrill Lynch has cut the city's GDP growth forecast to 4.7 per cent for this year, from a previous 6 per cent, and 4.8 per cent for next year from 5.5 per cent.

The brokerage house also revised down its residential price forecast to 10 per cent growth in both this year and next, from a previous 20 per cent increase for this year and 10 per cent next year.

As a result of the fall expected in home prices, it also lowered next year's earnings forecast for major developers. It expects earnings from Sun Hung Kai Properties (SEHK: 0016) to fall 10 per cent to HK$16.6 billion, and a 5 per cent or HK$4.97 billion fall in earnings to be reported by Henderson Land Development (SEHK: 0012).

To compete for buyers, owners with large holdings are being forced to dump some of their units at a loss, agents say.

According to a survey conducted by Ricacorp Properties, about 140 sales were done so far this year at losses ranging from 5 to 10 per cent from what buyers paid during the peak in March.

"Most were cash-strapped investors that were forced to cut losses as they were holding more than one unit," said Ricacorp Properties research manager Patrick Chow Moon-kit.

Mr Chow said there were only 222 secondary transactions recorded among 50 major housing estates for the past week, a slight increase from 202 a week earlier but down 74 per cent on the 871 deals closed per week in November last year.

"Market sentiment is absolutely not good right now," he said, adding that residential prices had declined 0.2 per cent from a week ago.

So far this year, residential prices in the secondary market had dropped 5 to 6 per cent, he said.

In the primary market, sales were dominated by HKR International (SEHK: 0480)'s new project Le Bleu Deux in Tung Chung.

The developer said it had generated HK$1 billion in revenues from the sale of 250 units in one week.

Knight Frank said rents in newly completed housing estates, where many flats were owned by investors, would come under downward pressure.

Posted by Mr Cynical (443 days ago)

the hong kong property market is about to fry out according this Bloomberg story, maybe the tipping point will be sooner than expected, apartment owners will see this news and rush to unload property before it all caves in

Sept. 3 (Bloomberg) -- The value of Hong Kong home transactions fell 60 percent to the lowest in more than two years in August, signaling the city's property market may be poised for its biggest decline since 2003.

The total value of residential transactions last month fell to HK$15 billion ($1.9 billion) from HK$37.8 billion a year earlier, according to a press release on the Land Registry Web site. The figure, the lowest since July 2006, represented a 40 percent decline from the previous month.

Home prices fell in 23 of 25 U.S. metropolitan areas in June from a year earlier as foreclosures pushed down values, real estate research company Radar Logic said. The impact of credit- market losses may be spreading to Hong Kong, with the threat of a global economic slowdown and a slump in the stock market leading potential homebuyers to expect to pay less for properties.

``There's a tug-of-war going on between buyers and sellers,'' Cusson Leung, a Hong Kong-based analyst at Credit Suisse, said in an interview. ``With the outlook for the economies of both Hong Kong and China still uncertain, buyers' future price expectations could continue to fall.''

The number of Hong Kong home transactions in August fell 54 percent from a year earlier, and 28.9 percent from July, to 5,284, according to the Land Registry statement.

Home prices in the city fell 4.4 percent between the end of June and August, according to figures from Centaline Property Agency. Credit Suisse's Leung, in a July 8 report, forecast a 5 percent to 10 percent drop in prices in the second half.

Tracking the Economy

Home values have tracked Hong Kong's economy, peaking in the second quarter of 1997, then crashing in the Asian financial crisis, leaving many homes worth less then their mortgages for years. The 2000 dot-com bubble burst, the Sept. 11, 2001, terrorist attacks and the 2003 severe acute respiratory syndrome epidemic caused prices to fall as much as 70 percent from the peak. The rebound started in late 2003 and prices doubled in the past four years.

The value of all real estate transactions, including industrial and office buildings and shopping malls, fell 59.2 percent in August from a year earlier to HK$18 billion, according to the Land Registry. The number of transactions dropped 53 percent to 6,402, it said.

Sun Hung Kai Properties Ltd., Hong Kong's biggest builder by market value, has declined 36 percent this year on the city's stock exchange, compared with a 32 percent drop in the Hang Seng Property Index. Cheung Kong Holdings Ltd., the second biggest, has fallen 22 percent.

Sun Hung Kai fell 0.9 percent to HK$106.20 at the midday trading break in Hong Kong. Billionaire Li Ka-shing's Cheung Kong dropped 0.1 percent to HK$112.30.

Posted by rjmjong (417 days ago)

Mr cynical and loyd grossman...

I have been reading this thread for many months now and i have to say both of you are hillarious...so thank you.

After todays events however, i think it is even more than clear that USA will be heading for a severe technical recession, with interest rates being cut and further unemployment across the board...the eurozone is now cracking and all the asian mkts can do is watch and burn...

in the hkg property mkt i do sense fear, even with rich investors, as the reality of the world economic situation worsens every week. In regards to cash rich property investors/owners loyd, looking at the way things are now, as an investor, why hold on now when you know you could buy a better property at a better price in 2010 with the capital recieved in todays mkt ? The reason is because a good sale in todays mkt wont occur because liquid buyers have dissappeared...and hence there are no buyers...its not that ppl dont want to sell...and when your stocks are down and revenues are down dont even try and tell me the tai tai's wont reason with their husbands to sell the frills. i agree with mr cynical that maybe your opinions are too subjective and maybe you are in denial...all your arguements are based around a pot of money under the rainbow.

The reality is the key issue here is emplyment rates...if you are paying off a mortgage and trying to live off your income as well, i dont think you would wait around for one yr loyd after you become unemplyed...

Another issue is the valuation that mortgages are based on as a mkt correction may well put banks in a position to readjust their capital valuations too...the same way that there are margin calls in stocks, there is the same with property.

i recently had a meeting with analyists from barclays capital in london, and their opinion is that mkts wont even bottom till spring 2010 and then still, the drive towards non inflationary economic growth looks slow and painful.

Unfortunately, being cynical right now is the most positive attitude. Its sad but true that as consumers we must wake up and realise the most difficult financial crisis of the modern world is upon us- dont try and convince me this wont affect a particular income range with however much in their savings account...and thus dont tellme the hkg mkt wont be severely corrrected when over the past 3-4yrs, prices have only been driven by speculators from hedge funds, ibanks and hkgs own fantastic property funds/companies-the consumers (also known as the pigs/suckers) have simply followed in their footsteps. lets get real here and not generalise in favor of our own situations...lets dicuss the truth....

Posted by Ed (416 days ago)

Picked this up when going through news sources for today's headlines:

HONG KONG, Sept 30 (Reuters) - Hong Kong property stocks slid for a second day in a row on Tuesday, as mortgage rate rises deepened gloom over the city's housing market, with new apartment sales slowing to a trickle.

A spike in Hong Kong's interbank rate, as the money market was sapped of liquidity, prompted HSBC (nyse: HBC - news - people ) to hike its mortgage rate in the city by 50 basis points on Monday and other banks were set to follow suit.

The move jolted many analysts into changing their tune on the Hong Kong property market, with prices now tipped to drop by anywhere between 10 and 20 percent in the next year.

Shares in the world's second biggest developer by market capitalisation, Sun Hung Kai Properties (other-otc: SUHJY.PK - news - people ), had fallen by nearly 10 percent by 0210 GMT on Tuesday, compared to a 5.4 percent drop in the benchmark Hang Seng index. The stock lost 5.1 percent on Monday.

Rival Cheung Kong (other-otc: CHEUY.PK - news - people ) (Holdings) had fallen 7.8 percent, while Henderson Land Development was down 7.7 percent.

Hong Kong developers are now trading at an average 40 percent discount to net asset value (NAV), far below historical discounts of 10-15 percent, but that was almost irrelevant, analysts said.

'It's meaningless unless global stocks settle down,' said JPMorgan analyst Raymond Ngai.

Housing market fundamentals in Hong Kong are also decent. Supply of new apartments hitting the market in 2008, at an estimated 10,000 units, is at its lowest at least since 1990, with the long-term annual average usually at about 20,000.

Affordability is also back at 2005 levels because of interest rate cuts at the end of last year, while salaries have risen.

But global financial turmoil threatens to bring layoffs to one of Asia's main financial centres, and homebuyers know it.

Last week only nine new apartments were sold, and eight were sold a week earlier. Normally, Hong Kong developers manage to sell at least 70 homes in a week, and when a big project is launched, sales usually climb into the hundreds.

'It's about uncertainty over the stock market, about the economy,' Ngai explained, adding that home prices would probably fall 17 percent to where they were a year ago.

'It's more a sentiment and confidence issue. People don't know what's going to happen in the U.S.'

Credit Suisse analysts now expect home prices to fall 10-15 percent next year because of an economic slowdown, and recommend that investors who want exposure to Hong Kong property should stick to low-beta stocks, such as Wharf Holdings Ltd and Great Eagle Holdings Ltd.

Both firms have an office portfolio providing steady rental income, although many analysts also expect office rents to fall next year as new supply of space comes onto the market.

http://www.forbes.com/afxnewslimited/feeds/afx/2008/09/29/afx5487110.html

Posted by Ed (402 days ago)

Global meltdown set to hit Hong Kong's luxury market hardest

Hong Kong - It is home to some of Asia's wealthiest and most successful people - a city where tycoons, celebrities and high-fliers live in sumptuous surroundings in some of the world's costliest properties.

A pad on Hong Kong's exclusive Peak will cost you in excess of 7,000 US dollars per square foot (75,000 US dollars per square metre) - more than in New York or London - and a down payment on a shoebox-sized studio flat will set you back as much as a town house in other world cities. Sponsored Links:

In the past five years, luxury property has flourished in Hong Kong, bouncing back spectacularly from the slump of the Asian financial crisis 1997 and the dark days of the 2003 SARS (Severe Acute Respiratory Syndrome) outbreak which saw prices fall 60 per cent from their 1990s heyday.

The last year was especially bountiful with prices increasing by 25 to 30 per cent as interest rates in the former British colony, which pegs its currency to the US dollar, fell in line with those in the US, keeping lending rates low.

The volatility of Hang Seng Index, which has lost 50 per cent of its value in the last 12 months also boosted property markets with investors choosing bricks and mortar rather than stocks and shares.

But now the tide is turning and a fall in year-on-year transactions since April indicates that not even the Hong Kong property market is immune to the global meltdown.

According to Peter Smith, head of research and consultancy with Savills Valuations and Professional Services, the luxury sector looks set to fall by 25 to 30 per cent in the near future, wiping out all of the gains of the past year. This compares to a fall of 15-20 per cent fall in the mass market. Sponsored Links:

'The reason why the luxury market will be worst hit is that it has come a lot further than the mass market over the last couple years,' said Smith, adding that affordability at the mass market remained quite good.

The recent economic boom in Hong Kong and Asia generally over the last few years has moved upper quartile incomes a lot further than other incomes - particularly in cities with a significant financial services sector such as Hong Kong or Singapore, he said.

'That has meant prices at the top end of the residential market have risen quite quickly because they have seen a quite sizeable increase in demand for luxury stock both for rent and for purchase driven by the partly growth upper tier financial services economy and the high income growth we have seen among those people.'

Smith said this demand, fuelled by the scarcity of new luxury development coming on stream had spurred prices significantly upwards over quite a short period of time.

'Now a lot of that froth has to come off the market,' said Smith. 'There is uncertainly. Transaction volumes have been slipping since April on a year-on-year basis suggesting people are holding off making major capital commitments. Sponsored Links:

'Also the luxury residential market is quite highly correlated with the stock market on a one or two quarter lag and so as the stock market comes off, then the luxury market will follow.'

When exactly that fall will happen, how fast or over what time period of time is more difficult to predict, he said.

But the good news, said Smith, is that the low volume of luxury supply in Hong Kong will help support prices and the market should show signs of bottoming out and improving in the latter half of next year.

Peter Tebbutt, Senior Director of Financial Institutions, Hong Kong, Fitch Ratings, is similarly optimistic for Hong Kong in the longer term.

'The market will be soft, particularly in the higher end residential market,' Tebbutt said.

'But I think Hong Kong will do fine. During the Asian crisis prices went down 50-60 per cent and the losses Hong Kong banks made on mortgages was negligible,' he said.

'People continued to pay back on their house. They (the banks) have been lending to many property developments in China but from what I gather most is to a handful of very large property developers here in Hong Kong, and they do have very strong balance sheets.'

China too remains a factor in the equation that cannot be ignored. 'Asia generally seems to have learnt its lessons from the 1997 Asian crisis which has put us in a slightly better position to weather this one. We also have the motor of China growth for as long as that continues,' Smith said.

'At the moment that is positive. But if that economy slows too rapidly and there is evidence of a hard landing then that is going have a knock-on effect on somewhere like Hong Kong.'

http://www.monstersandcritics.com/news/business/news/article_1436767.php/Global_meltdown_set_to_hit_Hong_Kongs_luxury_market_hardest_

Posted by Ed (394 days ago)

Global Real Estate Crash?

If declining home values have you down, and you'd like some company in your misery, here's a glimmer of good news: when it comes to the housing downturn, the United States is starting to have plenty of company.

It's been nearly three years since U.S. home values peaked at the height of what was, in retrospect, a bubble fueled by low interest rates, speculation and a general giddiness as millions of Americans began to look at their houses not only as a place to live, but as an asset that would make them rich. For years the experts assured nervous homebuyers that nationwide home prices had never fallen year-over-year since the Great Depression—a record that's come to a painful halt as the average U.S. home has now lost more than 15 percent of its value.

Meanwhile, a similar transformation has been taking place in other countries. In much of the world, home prices soared during the first half of this decade, rising far beyond the levels that you'd expect, based on traditional economic factors. In the last year, however, many of those markets have seen their housing bubbles burst, too. In fact, during the first six months of 2008, a host of economies—including that of Denmark, New Zealand, the UK, Spain, Sweden, Canada and Norway—have seen home prices fall at a faster rate than is occurring in the United States.

In a study published this month, economist Prakash Loungani of the International Monetary Fund examined how this boom-bust cycle is playing out around the globe. He and his colleagues looked at how and why home prices rose in a variety of countries between 1997 and 2007. They tried to figure how much of the rise could be explained by traditional economic drivers like income growth, population growth, interest rates, the availability of credit and the wealth being created by rising stock prices. In a host of countries, home price gains went well beyond the levels you'd expect based on those variables, and the IMF study looks at this "house price gap" as one indicator of just how bubbly each country's housing market became. In Australia, Ireland and the U.K., this gap ranged from 20 to 30 percent, and in France, Italy, the Netherlands and Spain the gap ran between 10 and 20 percent. In the last year, home values in all those countries have begun to fall more quickly than they are in the United States.

"By now the U.S. has undergone substantial correction already, so that the other countries are experiencing much more profound changes in their house prices," says Loungani, who's based in Washington.

While optimists have begun looking for the bottom in U.S. home prices, in Europe the sense is that their roller-coaster ride is just getting started. "In Europe, we're in the more early stage of the downturn," says Ruth Stroppiana, the London-based chief international economist at Moody's Economy.com. Stroppiana says the overseas housing-bubbles were driven by many of the same factors that drove U.S. home prices so high—low interest rates and loose credit among them. (American lenders weren't the only ones offering mortgages for more than 100 percent of the value of a home.)

http://www.newsweek.com/id/165154

Posted by DaHKGKid (381 days ago)

[opened]
Hong Kong Real Estate: Biggest Home Sales Drop Since 1999

* Hong Kong's home sales fell 58% y/y in volume and 63% in price in October as local lenders tightened mortgage lending amid a slowdown in the economy - this is the largest drop since 1999 and the fourth consecutive monthly decline. Bank lending rose 13% in September, the slowest in over a year, and almost half the 24% increase in August. Office rents in Hong Kong may experience a 20% drop by the end of 2009. (Bloomberg)
* Banks have not lowered their prime rates along with the 0.5% cut in the US interest rate and are adopting more conservative mortgage lending policies (loaning less and scrutinizing borrowers more)
* UOBKH: Prices have been sticky downwards as many home-owners have only just
woken up to the fact that the market is heading into a protracted downturn as
opposed to a brief correction. Average prices have only fallen 14% from the peak. The high-end segment is still outperforming and faces more downside risk. homebuyers may be cancelling transactions by forfeiting the deposits and delaying completion date of the transactions.Equity prices remain above their historical lows
* Citi: downward spiral in the Hong Kong property market will continue for the next 12 months - potential pushback in completions and the lack of new land sales by the government will result in further declines in construction activities, leading to rising unemployment in the sector, and deal a further blow to the economy (through other industries like property agency, interior decorations, furniture and fittings, consumer electronics) which in turn will adversely affect housing demand.
* Hong Kong's prime office rents surged 33% in the 12 months ended May 2008 (Colliers) but most assume that their growth will slow over the next year
* During the 2nd quarter of 2008, prices fell in several segments of Hong Kong’s property market. Smaller sized apartments were especially hit badly but property prices were strongly up over the year. The overall index rose 25.4% (19.4% in real terms) to end Q2 2008
* Strong consumption growth has been propelling residential and commercial property prices upward while negative real interest rates have been supporting the creation of new development. robust labor market has kept demand for commercial space tight (PREI) But with credit costs rising and slowing economic growth, Hong Kong's property market could be vulnerable
* PREI: total housing transaction value in the second quarter fell by 4.6% from that of a year before
* Decline in global shipping on higher costs/slower demand for raw materials might have negative effect on warehousing demand which has been a driver of retail property demand
* Jones Lasalle: despite slowing consumption growth, leasing costs have been rising. Sales volumes have fallen but so far prices are holding up so far (through mid Q3)
* Hang Seng Bank: Residential property prices were accelerating early in 2008, from 10.1% yoy increase in June 2007 to 27.7% in January 2008. Prices at the luxury end of the market are already back at 1997 levels. Low borrowing cost at 2.5%, high property yields at 4%-5% made property investment more attractive

Posted by housed (372 days ago)

I've been following this thread for some time and just wanted to share my own experience - mainly b/c I think our overall home-buying experience reflected many of the things that are being discussed right now (on both sides of the argument too).

First, we just bought a property - in the Midlevels (Conduit Rd), 1500 sq ft for just over HK$6000 psf. We've been looking for some time now (since around the time this thread started) as we really need the extra space (we just had a baby). Not sure if you would call what we bought a "luxury" or a "mass market" property, but basically we've seen the price go from $10,000 psf (same size/config but a floor up, bought in March), down to what we just paid. (Ours is a low density dvpmt of only 10 floors so annually (in good and bad times), there is only about half a dozen properties that exchange hands in this bldg each year for the past 10 years or so.

Did we pay too much? I don't know. I fully expect home prices to correct further. So why buy now? Well for one, we need the space. Two, we really like this flat and in fact had offered $1.5 million MORE to the seller only 2-3 weeks before (except he rejected it then as he was hanging on for a better price). At that point, we weren't too bothered as we figured we would just keep looking. But then our agent pushed us to offer again (I think he knew something) and with HSI plummetting to the 14,000-level, we agreed but with a much lower offer price and surprise, surprise, he accepted! (Turns out he had initially rejected some higher offers but saw offer prices continuing to drop and so finally gave up his "target" price and accepted. In fact one buyer - whose offer he finally accepted before us - was unable to come thru with the cash (I think our agent said he had probs getting a mortgage) - so in the end, he accepted our second (lower) offer.

Once we renovate our new home (next Feb/Mar), we will look to rent our current home out as we don't want to sell it cheap in the current environment. (We've already paid it off so no mortgage to speak of.) Our agent tells us that we should expect to rent it for about 20% lower than what the going rate is for our bldg right now. Meanwhile, I have a friend whose lease is up and now she is moving to a nicer bldg on Old Peak Road (Hillsborough) where she was able to negotiate her rent down to $20K (from the $32K asking price) for a 900-sq ft flat. A different friend whose husband is on a very generous expat/housing package and lives in Branksome Crest told me that their neighbour is moving out as their lease is up and the landlord wants to raise their rent ($80K plus for 2000 sq ft) around 20% and refuses to budge. She has noticed a number of empty flats in their complex, most likely for the same reason.

Posted by Cruz (363 days ago)

Why panic ??
Seriously, its time for all those who regretted not buying in 2003 after SARS and who told tales of the wonderful prices back then - “my friend only paid $x and its now worth” - to look at themselves and ask if they have the minerals to start looking for deals and opportunities.
Sure, prices are not back to 2003 levels, but confidence has evaporated from the economy, stock market and property market. Prices are beginning to reflect that and will do more so next year and there are some great deals to be had.

So what are you doing ? Am sure everyone on this thread has asked themselves “would I buy now” ? And you’ll probably say (in this order) that:
1) its not cheap enough yet,
2) I could lose my job and need to stay cashed up,
3) the bank will only lend 70% and is giving a low valuation – so why should I take the risk,
4) mortgage rates are not low enough.
And that’s not unreasonable.

So put yourself back to 2003 and into the shoes of the folks that plucked up the courage back then. The banks were in a 2-year job cut cycle – thousands were laid off, the stock market was dead, property market was destroyed, people leaving HK every day. There wasn’t quite the spectre of a global meltdown as we have now, but I definitely remember it being worse than this.

So if we are heading back to 2003 my point is that the people that got those steal deals then were facing a similar bleak outlook and lack of bank financing. They had no surety of a property rebound, that they would see the value of their places rise. Some lost money - on paper - for a while, for sure. Yet they saw a time to buy.

If you regretted not buying a property in 2003 and wished you had that opportunity again then take a look at the environment we are in now. Measure the confidence you had in HK back then vs what you are seeing today. Who knew 2003 was the bottom of the market ?

Its great to see posts here of people buying 40-50% below the sellers advertised price or what they paid for it originally, landlords renting cos they cant sell. That’s awesome. Its power back to the buyers – and you just have to realize that. Trust me, these will be the people you’ll be talking about in 2-3 years time saying what a huge opportunity it was in 2008-2009 and “my friend only paid $x and its now worth”.

I’m cashed up myself and doing homework on places I want to buy next year. Whether its 2Q or 3Q, it wont matter because it will be at a serious discount to 2007 prices and am sure I’ll be boasting about the deal I got before too long to friends who wished that had done the same.

Posted by beerboy (352 days ago)

And now for the real news we take you from La La land back to reality..........

New projection shows even more face negative equity

Tom Holland
Updated on Dec 04, 2008
Hong Kong's housing market is in a desperately sorry state. Unfortunately, things are going to get an awful lot worse over the coming months.
Home prices have suffered a triple blow since they hit a 10-year high back in March. The plunge in the stock market has eroded the disposable wealth of property investors. Fears over the worsening economic outlook have unnerved potential buyers. And banks have tightened lending standards in response to the credit crunch, making mortgages harder to come by.

As a result, market activity has evaporated. According to the Hong Kong Monetary Authority, the value of mortgages approved in October was down 40 per cent from the same month last year.

The knock-on effect has been dramatic. On Tuesday the Land Registry announced that the number of home purchases last month fell to just 3,264. That's down 31 per cent from October's level and a whopping 79 per cent below the number for November last year. Perhaps more significantly, it's also fewer deals than were struck either at the worst of the Asian crisis 10 years ago or in the depths of the 2003 Sars scare.

Understandably, prices have been hammered. According to the Centaline property agency, home prices have now fallen 22 per cent from their high in March, with around two-fifths of that drop occurring in the last month (see the first chart).

To compound matters, on Tuesday Hong Kong's dominant mortgage lender, HSBC, jacked up the interest rate on the majority of its home loans by 0.5 of a percentage point to 3.5 per cent.

At first it seems blatantly unfair that mortgage rates should be rising when the HKMA has cut its base rate from 6.75 per cent last September to an all-time low of just 1.5 per cent now.

But with job losses mounting and incomes under pressure, HSBC's bankers feel compelled to raise mortgage rates to cover themselves against the increased risk that borrowers will default.

Similarly, with the outlook for property prices deteriorating, mortgage banks have reduced the average amount they are prepared to lend to just a shade over 60 per cent of purchase value, from more than 65 per cent when prices were still rising.

Of course it could be argued that the banks' fears are self-fulfilling. The combination of higher mortgage rates and lower loan to value ratios deters buyers, further depressing prices.

So far, however, the pain inflicted on home-owners by falling prices has been relatively mild. Thanks to the banks' conservative insistence on a sizable loan to value buffer, in September the number of households in negative equity - those with homes worth less than the mortgages taken out on them - stood at a modest 2,568.

At just 0.5 per cent of outstanding mortgage-holders, that number is tiny compared with the level in June 2003 during the Sars outbreak, when 22 per cent of all borrowers - 106,000 households - found themselves under water.

But if prices continue to fall, the number of households in negative equity will rise rapidly. Last week Monitor projected that the number could exceed 16,000 next year. That was a back of the envelope calculation, which seriously underestimated the extent of the likely damage.

A more rigorous analysis extrapolating from HKMA figures for average loan to value ratios indicates that if home prices were to fall 40 per cent from their March peak, which many analysts believe likely, then all new mortgages extended between February and August this year could sink into negative equity. That's equivalent to more than 60,000 households.

And if prices were to fall 50 per cent from their peak, as happened between 1997 and 1998, then all mortgages taken out since October 2007 would be under water, equivalent to 115,000 households (see the charts).

These estimates are necessarily flawed. They rely on average values and take no account of refinancings or early repayments. Nevertheless they are well within the bounds of possibility, and - alas - the outlook they project is grim indeed.

Posted by bing2 (344 days ago)

you cant really trust these agencies and banks for their predictions, really...all these so called experts last year they predicted that property in hong kong will go up another 40% by 2009 - 2010 and luxury by another 20%. that's why indonesian investment company de monsa bought the most expensive property per square foot in hong kong in the peak. after the financial crisis all these agencies changed their tune and adjust thier forecast.....they are telling people what people already know.....just like the consultants in your company.....telling you things that you already know.....if they are so good they should say in early 2007 that property will go down in late 2008, agree? when things are hot they predict property will keep rising, when things turn around, they change their prediction and say property will consolidate, cmon, this is just bunch of bs prediction. they keep telling people what people already know. the only difference is they come up with some fancy research numbers, etc confirming what we already know, agree?....for me their predictions/ forecasts are bunch of bs, sorry but this is my personal opinion...

during sars so many people said prices would go down further but of course that was the bottom and people who stayed on the sideline who thought prices would drop another 20 - 30% were banging their head to the wall......after sars prices went up so quickly. i remember landlords and developers were raising prices by 2 - 5% every week....

prices have stabilize for now after a big drop, i am not sure if we are going further down or up later because the situation in the us is still bad, who knows what's gonna happen in a few months time.....

i think the key in hong kong is the employment rate, just keep watching this.....if it's steady property will not go down anymore despite more bad news from all over the world.....for hong kong's joe the plumber it is against his religion to sell his property at a loss, so if cash flow is alive and kicking, joe wont sell at a loss.....

stock is up now, but fundamentally is still weak because of the situation in the us. as you know nothing has really changed there and credit card debt is going to surface soon.

all i am trying to say here is prices have dropped to a reasonable level....if prices continue to drop as predicted by many here by 40% it is not going to be good for hong kong at all. i think it is irrational to think prices in central, let's say centerstage, to drop to 4500/sqf or taikoo shing to 3300/sqf or city one in shatin to 1800/sqf? how about those old walk ups in soho, noho area? you think it would go down to 3000/ sqf? You may argue walk ups are unique but if property would go down another 40% we would most likely see the biggest expats exodus in the history of hong kong, so who's gonna buy them?