HK's Property Bubble and the USD Peg

Posted by Sad Sack (98 days ago)

If the USD continues its drop and the US maintains low interest rates to attempt economic stimulus HK must depeg its currency.

Otherwise inflation goes through the roof as the cost of all imports (well the cost of almost everything because almost everything we consume is imported) increases in cost.

Look at housing, HK is NOT the USA with its mortgage crisis. So the effect of low interest rates (US lowers, HK must follow) creates a different sort of bubble, a buying bubble as cashed up people keep buying property driven by low interest rates taking property to all time highs. Surely this cannot continue.

At some point the benefits of a peg to the USD are outweighed by inflationary pressures.

It will go. There will be no discussion of it in advance of course, nor will it likely go at a time when its expected to go.

We will wake up one morning soon to find its gone.

That's my gut feeling, what do you think?

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Posted by DaHKGKid (97 days ago)

Yes, the monitary board is defending the peg but this is only to deflect the issue for now and not get everyone off track right now. It will become unpegged without warning as you suggest in my mind as well. Pegged to RMB right away?
As for housing, I see no suggestion of further increases and as I have written since early spring, see the market fall back by approx. 20% (already fallen off by 5%) in real terms of buying by July/Aug this year. It's a buyers market right now as many want to dump thier properties before this correction which I note occurs.

This means you can both afford too buy with low rates but walk away from every deal you engage in that doesnt show at least a 10% drop from last months pricing and another 10% in negotions with seller. I am waiting until June to start looking at I want 20% corrrection in asking and 10%-15% in negotiations.

The greed in realestate will have someone selling ready to give you the green light.

My opinion only.

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Posted by walkup2 (95 days ago)

Do not expect the peg to go while the current financial uncertainty is still cooking. Firstly, it would be viewed as a sign of disorderly retreat by the dollar and further weaken the international outlook. Secondly, do not forget that the Mainland currency is also effectively linked to the dollar and the HKD can remain in relative lockstep while both are linked to the dollar. You can of course make a futures bet on yes or no, but the odds are at least against this year for any unlinking towards a basket.
Re property in the current climate there continue to be a number of micro-market variations. Some areas may be soft but Soho, Noho and Sheung Wan old property prices show no sign of retreat, quite the opposite. For example, the average Asiaxpat price listings for Mid-levels have now moved decisively above 3m. A 20% drop in the price of a Mid-levels apartment from 3m to 2.4m in 6 months? I don't think so.

Posted by IbuBapek (95 days ago)

I felt the same way about a property correction, but now I'm not so certain. Prices in the South Side have remained absolutely firm. Owners have been urged to lower their prices by agents, but have been firmly rebuffed, which tells me there is confidence in the market. I may have sold my properties too early. There may actually be a 10% increase in property prices by the end of the year.

Posted by Mr Cynical (95 days ago)

Historically landlords always hold out in Hong Kong even when the writing is on the wall. They do not cave the moment the economy goes bad, as one person put it, there is up to a 12 month lag between a major stock market correction and property prices dropping.

Posted by DaHKGKid (94 days ago)

Mr. Cynical is correct, just like the lag in all numbers. We know landlords will all hold together in plugging the ship if leaks are pending however as we all know in HK, when a few rats jump they all do. Even if prices in some areas dont seem to be effected on asking, its room for negotiation that accounts for the correction as well. Buy with the thought of owning in HK for 3-5 years and starting in the next 4-6 months and you should be okay.

Posted by Mr Cynical (94 days ago)

I would like to see a graph chart for the past 20 years, ideally by district, but if not available for the entire property market which shows the up and down swings over the years.

This would be very useful for two reasons:

1. It would allow you to see how long the cycles are and get a better idea of how long you might have to wait for a down cycle to buy

2. You can never call a top or bottom but this would give you some idea as to where you are buying with regard to historical prices.

Is this available online anywhere?

Posted by spaceren (93 days ago)

I don't quite understand this assertion that HK landlords hold together ... HK seems to me to be one of the few places that I have seen/read about where prices get discounted immediately by rational informed selfish capitalist investors (of which there seems to be a lot) when there is bad news. You would expect non-investors (i.e. owners) or the socialist masses suggested above to try to sell in a more orderly fashion because they think it is either an asset (the fact that it is an expense seems to pass most by) or for the good of us all (kind souls one and all).

What I don't understand is that almost everyone during SARS was saying the world is coming to an end and hence few were buying, now it seems that more than a few people think they can simply wait till the next big slump/disaster. When people are really sick and authorities are scared, will people really start jumping again? (Who bought Bear Stearns all the way to the bottom? When was it a good buy?) And if you are non-local with children, how you can buy when you were on a plane out of here and weren't sure if you had a job? I understand hsbc main building mortgage floor was empty at that time (the only time the bankers were wearing the masks?). Will it be different next time (assuming there is a next time in our lifetime)? What is different?

And for investors: who cares what last month's price was, unless you bought at that price, what is today's valuation of the property? If you can't value the property, isn't that called "speculating" not investing?

Posted by Sad Sack (93 days ago)

So very true, it does take a lot of discipline (and cash) to be a contrarian investor.

You are correct that most buyers disappear from the market, both property and stock, but I am sure we all know of some who bought when the market was in the doldrums and their apts are now worth as much as triple. A friend of mine bought 2000+ sf with a private roof on Jardines Lookout in 2001 for about 5M. Whats that worth now, maybe 15M?

My problem has been not having the cash to jump in during market dips/crashes. Not the next time around.

One of my reasons for bringing up the peg is that the situation with the peg is keeping interest rates low here and pushing up prices in the property market. I am looking for that big crash which will surely come without a depegging (the pain in the US has just started, wait till they stop spending, that hits imports which hits china which hits hk property because the luxury sector is driven by cashed up mainlanders unloading their cash) but for sure with the peg gone things will settle much more quickly

Posted by DaHKGKid (93 days ago)

One thing you can count on with HK investors, when the S#$% hits the fan they all run for cover! Be in a position to buy. During SARS we could raise enough cash as we had just landed and there were no other lending vehicles in place to offer low front end transactions. Now the bank will give you 95%, throw in some cashback, roll upto 1M+ into reno's at same rate amortization and now offering even to throw in stamp duty deferral. Hmmm, homes are not selling, rates are low, banks throwing everything at us, the is an opening for a correction either on recession fears or greed over loosing those sweet gains since 2003 2004 2005 or just recently. Patience and Positioning my friends.