If Property Prices are Less than 1997 Level

Posted by punter (36 days ago)

If property prices are below 1997 levels, are they okay? At what level is it going to be not okay (considered a bubble)?

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Posted by Sad Sack (36 days ago)

the hk market is still not back to 07 levels nm 97 levels, luxury dropped by 25-30% and was headed to the gutter before the hot money started flying in china, its now recovered by about 30% this year but that does not mean its back to where it was as headlines imply, if you lose 30% on a 1m property it goes to 700k, if it gains 30% that does not put it back to 1m

is it a bubble, if you base it on the yields you are getting on property since rents are well lower than last year (a mate told me he had to drop his rent from 70k to 50k on a renewal last month) it could be considered a bubble just as many say the stock market is a bubble, we are in a false economy that gets its octane from insane amounts of govt money being pumped into the world economy, so i think its a bubble and it will burst IF the economies of the world are not able to grow when the life IV hook up is removed, and who knows if things will get better before the money runs out

Posted by punter (36 days ago)

Even the CE said that property prices in Hong Kong are still affordable because prices hasn't gone back to 1997 levels, giving the impression that 1997 was not a bubble but a measuring guide.

Posted by bannerboy (30 days ago)

i tink the ce on the crak pipe for saying dis

Posted by Loyd Grossman is Miss Venezuela (30 days ago)

CE is right. You can still buy into a 5-year-old Sun Hung Kai Properties development in Yuen Long for under HK$4,000 psf (YOHO Town). In the interest of transparency, I own a small flat there but not looking to sell/rent. It's next to the West Rail and has swimming pools, badminton etc. If you want to buy in Mid-levels, it will be more expensive (HK$7,000 psf area for a small flat in a 10-year-old building). These prices are not that high given the 16% tax rate. As for how to detect a bubble. Basically if it looks like a bubble and talks like a bubble, it must be a bubble. My criteria are as follows: 1) People have over-extended and borrowed too much 2) People constantly talking about how much money they have made 3) Property life-style shows on TV 4) At least 4 years of the market rising 5) over confidence in the economy 6) businesses expanding 7) CEOs strutting there stuff and telling other people how to live. I really don't think we are in bubble territory. We are in 'owners not selling' territory because there is no where else to invest their cash.

Posted by hongkongoldie (30 days ago)

will there be another bubble soon?

Posted by punter (29 days ago)

Who knows? But people like Andy Xie thinks so.

Posted by walkup2 (27 days ago)

Looking at 1997 prices or asking about bubbles will not provide you with a 1-way bet in order to make a decision whether to buy or sell for speculative purposes. There will always be some risk depending on your circumstances, your time scale and why you want to purchase in the first place. Often those asking these questions do not have a personal feel for either the market or the type of property affordable by their wallet and even then are not putting much equity into the equation ie looking for 90%+ mortgages. In which case stay out and be spooked by the bear-market drummers. That way you will feel better.

Posted by PizzaAce (22 days ago)

@ punter
Andy Xie is a joke. I can't believe people think he's some kind of divine "expert" on all things financial. He was fired from Singapore and now he's just some freelancer trying to make a quid by getting newspapers to publish his sensationalist gibberish.

As for the bubble, the current situation is far from a bubble. You hvae not seen the furore on the street. You still have people protesting about Lehman for goodness sake outside the Citibank branch in Central. Any bubble would be at least 3 years from now if the government allows one to form. But since its already on the government's radar with all their talk, I think they are definitely watching it and taking measures to stop it from forming but at the same time don't want to cause a 1998 crash with ridiculous public housing policies.

With Australia, Korea, Norway and more and more countries coming out of recession AND raising interest rates, it certainly means that they want to control inflation and hence reduce the likelihood of a bubble forming so soon.

Posted by Sad Sack (22 days ago)

Before slagging xie maybe you should read up on why he was fired, it was not for incompetence it was for an internal memo that criticizing the singapore government leaving his employer no choice, he is a well respected analyst, by chance what are your qualifications since you are calling him a joke?

HK is not a bubble? the luxury market is back to 97 prices, while almost everywhere in the world prices are stagnant or down, the only reason HK property didnt crash into the streets is because of the insane amounts of stimulus released by the PRC government, because before that was unleashed prices were down 30%, so the luxury end has made that up and more, what happens if the stimulus comes off and the US is still not buying made in china mate?

Be prepared for the worst http://www.forbes.com/forbes/2009/1116/opinions-great-depression-economy-on-my-mind.html

Posted by punter (22 days ago)

PizzaAce, a bubble is a bubble even if you don't like it. It's marked by rapid increase in prices (so a real estate bubble is the rapid increase of prices in real estate) until it cannot be sustained anymore and then it has to burst. If you think today's Hong Kong prices is not very high, then you're right in your mind. However, bubbles are quite difficult to foresee and usually you'll know it "was" a bubble after the fact when prices have tumbled drastically.

Maybe you have a different definition of a bubble?

Posted by walkup2 (21 days ago)

Hello, looks like the 'If prices are rising its a bubble if prices are dropping its a crash' crowd are back in town.

Posted by punter (21 days ago)

Walkup2, there's a huge difference from "prices are rising" to "rapid increase in prices until it cannot be sustained anymore and then it has to burst".

Posted by hongkongoldie (20 days ago)

The Discovery Bay property prices are highest ever...is this a bubble then?

Posted by Loyd Grossman is Miss Venezuela (19 days ago)

Nobody is selling so prices are rising. Not a bubble because people aren't over-extended. The new measures by the HKMA make it very difficult to buy a flat in the secondary market unless you have a substantial sum to put down and no debt on credit cards, other loans etc. I actually think the government has seriously overreacted. Why didn't these peope complaining about flat prices buy 6 months ago when they could have got something cheaper? I suppose they are looking for a large, good-quality flat at a cheap price with no risk attached - even though the tax rate is only 16%. Maybe we should all live in public housing and put all our cash into the MPF. Then the government would be happy.

Posted by hongkongoldie (19 days ago)

good point

Posted by Sad Sack (19 days ago)

.

Posted by punter (19 days ago)

I think that it is wrong to say that if homeowners are not over-extended then it's not a bubble even if prices are high. I say that nobody has called it a bubble yet but the warning is that a bubble may be forming as prices are going up influenced by the rocketing luxury property prices. But for argument's sake(hypothetical), if prices go down about 20-30% in the next few months, people may say that today's level was a bubble and nobody would argue with it.

Posted by PizzaAce (17 days ago)

Sad Sack and Punter are really trying to talk the market down. Maybe its sour grapes or maybe they like to suck up to the Andy Xie school of teaching. Andy make a foolish mistake and was caught out. So yeh he wasn't fired incompetence (how can you as an analyst because even when you call it wrong you simply say circumstances were unforeseen or changed when you made your prediction - typical analyst bs). But he was fired for poor judgement and with that internal memo he earned himself the pink slip. Seeing as you worship him, then wonder why he can't do anything else now except vomit his "in theory" ideas on paper as a freelance writer? Nearly everyone I know in the finance industry doesn't take what he says seriously. Its usually the man on the street that reads and is wow'ed by the "insight" it provides. But peel away the bs, and you'll find that his views are unsubstantiated and he has no track record of reliability.

Most people currently buying are to live in it. Some of the investors are taking profits as we speak, but that will just flatten out the curve rather than cause it to fall off a cliff. As a multiple of income levels, its not currently excessive. Sure there is some speculation by mainlanders, but thats the stuff that grabs headlines. Apart from headlines, the increase has been modest and I think most local HK buyers can afford the repayments even if interest rates go back up and have not overextended themselves because 1997 is still fresh in their memory. If the mainlanders sell en masse (highly doubtful because they are buying in HK for some dodgier reasons rather than profit alone), this won't have a significant dent on the overall property market.

My supply/demand curve calculator doesn't show that we are in bubble territory. My informal taxi driver test also indicates the non-existence of a bubble.

Posted by PizzaAce (17 days ago)

Oh and Sad Sack, that article you linked to
http://www.forbes.com/forbes/2009/1116/opinions-great-depression-economy-on-my-mind.html

are you frickin kidding me ? That was written by Ron Paul. Do you know anything about this congressman... Did you see him in Bruno? Did you see him ask the question to Bernanke about switching back to the gold standard. HAHAHA!

Posted by punter (17 days ago)

PizzaAce, how many flats have you bought lately? Is it zero? Why? Maybe it's because prices are high?

Posted by PizzaAce (17 days ago)

I finished all my buying in April thank you very much.
Now run along and pay the higher price now, or sit back and watch it go higher.

Posted by punter (17 days ago)

Congratulations on your good and timely buy. However, are you suggesting that others who did not at the early part of this year buy now? If people did not buy when they had a chance when prices were down, most of them will not buy now either. Case in point is me, I did not buy. I lost a great opportunity but I'm not buying at the current level of prices. Rents are actually stagnating so why rush?

Posted by Loyd Grossman is Miss Venezuela (16 days ago)

Punter. Rents are starting to rise again, at least in Mid-levels.

Posted by PizzaAce (16 days ago)

Rents are rising actually all over the place. I think punter hasn't been doing any research for the last few months. Mid-Levels and West Kowloon have risen dramatically almost to July 2008 highs.

Posted by punter (16 days ago)

If rents are going up and prices remains high, then should I buy now? I still will not as I am waiting for the winding of the stimulus moneys used by governments. Should I tell my friends, family members to buy now at this levels? Definitely not.

Posted by walkup2 (16 days ago)

Whether one buys now or not really depends on one's financial circumstances and what you are looking for. eg now would be a very good time for someone financing a purchase from savings in Australian dollars as the exchange rate is so good. It would also be a mistake to call the market based on withdrawal of stimulus moves as they are planned for when they are no longer required. The bears were screaming 'don't buy' before the stimulus moves were applied, they were screaming 'don't buy' after the stimulus moves were applied and no doubt they will be screaming 'don't buy' after the stimulus policies are removed. Bears? one-trick ponies.

Posted by PizzaAce (15 days ago)

market bears simply prey on people's fears and insecurities. They always talk of what may happen sometime in the future, and are very vague on specifics. Believe them at your own peril (i.e. having to bite the bullet in the future and pay a higher price).

Examples include: what will happen after stimulus is removed? what will happen if interest rates are increased ... blah blah blah

and I just heard that because other certain people like Buffett, that's a BAD sign because it means they are bottom fishing. Man, these bears have got an excuse for everything!

Australia is currently removing stimulus and increasing interest rates. 50 basis points in a few weeks already. Property is still rocketing up there. AUD$ and the Oz stockmarket doing well only 23% off the high set in 1 November 2007 (its actually reverted to the long term historic mean reversion line). Yup, it sure feels false to all those poor sods who now can't buy their first home because they believed all the bears out there.

Posted by punter (15 days ago)

What is forecast for the property market PizzaAce? Are prices going up in say 6-12 months? Or are they going to stabilize at current levels?

I'd like to see your call today so that we can go back 6 months from now and see if you're really that savvy or you just got lucky. Btw, have you realized your gains now or is it just paper gain still? Remember you're counting your "eggs" now but you haven't sold your property yet, have you?

Of course you're very good in timing so I'm sure you'll be able to time your sell perfectly too.

Posted by PizzaAce (12 days ago)

punter, the forecast not just by me but many analysts in Merrill Lynch etc are that prices from today will be up by at least 5% in the next 6 to 12 months.

I have no immediate need to sell as my rental yield is great, enjoy a low interest rate mortgage, and highly doubt the price of my property will fall substantially below my purchase price. I think rents will go up by 10% in the next 6 to 12 months, and interest rates will be unchanged (as indicated by the Fed last week). My investment properties are all positively geared which is creating free cash flow for me to potentially buy another property if an opportunity presents itself (i.e. a forced seller). There are still people losing their jobs in HK, so you need to go out and see properties and with a bit of luck, you might find a bargain if you are in a position to move quickly.

Posted by punter (12 days ago)

The market is fickle. Just talk of some "cooling" action/measures by the government and sales numbers and prices were affected!

Posted by PizzaAce (9 days ago)

"affected" ? Can you be any more vague. You must think the HK property market as whole has some kind of real-time ticker where all the prices change immediately after a government has made a statement on possible future policy.

You cannot reduce the complex property market to simply one dimension.

This is just ridiculous and utter nonsense.

Posted by Loyd Grossman is Miss Venezuela (8 days ago)

PizzaAce. I have to agree with you. Punter, the HK property market is extremely liquid in HK but most people who buy are not flippers. They buy and hold and only flip when they reach their target price; or they buy and hold. In the 1997 bubble, this used to happen with primary properties with investors trousering HK$300,000 overnight after getting the right to buy a flat in a lucky drawa - which was usually about 30x oversubscribed. This simply isn't the case now. People may be holding off buying because of what Donald Tsang said but that doesn't mean others are willing to sell. That's why the government 'measures' will only have a very small effect.

Posted by punter (8 days ago)

Look at the number of transactions. Have they increased or declined? The numbers have declined because prices are high, and the government said they're not going to allow "bubbles".

http://www.theedgeproperty.com/global-market-watch/520-hong-kong-weekend-home-sales-decline-30-says-centaline.html

Posted by Loyd Grossman is Miss Venezuela (8 days ago)

Punter. Ha ha. I don't thing the government can do a thing about it. It's like King Canute. You can't buck the market and the market says HK property is going up because a) inflation worries b) fear that the HK$ may de-peg and c) no else to put HK$ except for HK stocks and renminbi deposits. Unless the government does something so crazy that it ruins HK's reputation - and the HK government's tax revenues, prices will go up. Transactions have declined because property owners are not willing to sell cheap. Let's see who moves first.

Posted by punter (8 days ago)

Of course actions like restoring the HOS will have an effect. Changing the way lands are sold will have an impact too. These things the government can do, yes?

I agree that transactions fell because owners don't want to sell- or the other way around is true too: buyers don't want to buy because prices are high. Aren't they the same? Yes, let's wait which side gives in first. Personally, I believe that prices are high and there's no point in investing in property right now unless you can find somebody really in a hurry to get cash.

Posted by Loyd Grossman is Miss Venezuela (8 days ago)

HOS will have a limited effect as you need to qualify for it first. They were building thousands of HOS flats at the height of the property bubble in 1997. It will also take years for new HOS flats to come on stream even if they okay them tomorrow. Same for regular land auctions. However, why should the HK government kill the goose that lays the golden egg (ie high property prices) just to help people who have missed the boat and could have bought 20% lower 6 months ago? A lot of people want to buy a nice flat, cheaply and without risk and they think it's the government's responsibility to help them. Why? I want to sleep with Claudia Schiffer; but what's the HK government doing about it? Absolutely nothing. Why can't the HK government at least send a delegation to approach Claudia Schiffer and tell her about the advantages of such a liaison? I'm outraged.

Posted by punter (8 days ago)

So you agree that the two things I mentioned can affect property prices?

It's not the government's responsibility to help people who made a bad investment decision. But do you remember Lehman?

Posted by Loyd Grossman is Miss Venezuela (5 days ago)

Punter. Yes they have the capacity to effect prices but theire current measures will only lead to pent up demand in a few months and if they go too far, they will damage their tax revenues. However, never underestimate the ability of a government/CEO to destroy a country/Well-run company. It doesn't take much.

Posted by walkup2 (5 days ago)

The emerging picture is that HK is becoming a place for mainlanders to park their money and purchase of luxury property the way to do it. It will be interesting to see whether the rise in property prices has helped to stabilise price sentiment in the rental market. We may have to postpone conclusion until after the CNY. Any recent experiences to report?

Posted by PizzaAce (3 days ago)

There is no reason for the HK government to intervene in the property market. They will make statements every now and again, but I think they are very cautious about doing anything because of the ramifications of certain policies they took in 1997.

Even if domestic demand drops because locals can't afford to buy, there is still money streaming in from the PRC because 4% is still better than 0.1% in the PRC. Of course, there are also many intangible benefits for PRC people to buy in HK such as residency and access to better education and hospitals for their family.

It is always in the long term interest of the HK govt to have property prices increase. They would prefer it to increase steadily but there are always external factors which influence.

Basically if you are not on the property ladder in HK yet, then you have missed the easy money phase, and probably we are in the fair value phase. High end luxury has probably reached the expensive phase.

Posted by beerguy (3 days ago)

There is a huge difference between the shoeboxes the locals buy and what the mainlanders are buying, two different markets.

Posted by walkup2 (1 day ago)

Number of mortgages in negative equity falls to lowest since 2001
Yvonne Liu
Nov 20, 2009
SCMP

The number of home loans in negative equity dropped to 835 at the end of September, the lowest since the Hong Kong Monetary Authority survey began in 2001.
That is far below the peak of 105,697 cases in June 2003, at the height of the severe acute respiratory syndrome epidemic.



The authority said yesterday that its survey of residential mortgage loans in which the outstanding amount exceeded the value of the property indicated the number had dropped 78 per cent, to 835, from 3,767 cases three months ago. It was the third successive quarterly decline and also the record low.

The previous record low of negative equity cases was 936, in the second quarter of last year.

In addition, the total value of residential mortgage loans in negative equity dropped 81 per cent to HK$1.5 billion in September, from HK$8.1 billion at the end of June.

In December last year, mortgage loans in negative equity had risen to 10,949, as property prices dropped sharply as the global financial crisis began.

However, the number of mortgage holders in negative equity started to fall this year and hit a record low in the third quarter. The property market began to recover in February and property prices rose sharply.

Average residential prices have risen 30 per cent so far this year, according to property benchmark Centa-City Index.

Wong Leung-shing, an associate director of research at Centaline Property Agency, expects the number of home loans in negative equity will drop to about 700 by the end of this year.

"Property prices will be flat in the fourth quarter," he said. "I don't think the number of [home loans in] negative equity will continue to drop sharply in this quarter."

He said cases of negative equity would not drop to zero unless prices rose a further 30 per cent.

Posted by Loyd Grossman is Miss Venezuela (1 day ago)

Okay, I'm definitely being over-optimistic here... But so was Martin Luther King. "I have looked over and I have SEEN... The Promised Land." The minimum price for every HK property will eventually correspond to the minimum investment amount needed by Mainlanders to qualify for HK residency. I'll think I'll up my asking price for all my flats to around HK$7m. Not bad for 580 square feet in Yuen Long.

Posted by punter (1 day ago)

Wow Loyd, that's going to price a lot of people out of the property market! Also, that kind of price level will exceed 1997 levels. Still not a bubble if it does turn out to be true? Then maybe the government will re-start building/selling HOS homes and build more government sandwich homes!

Posted by HONGKONGEXPAT (1 day ago)

Hi Loyd!
I have no issue if property prices go through the roof...I'm holding luxury property, however, don't you think that now we have three markets in Hong Kong. The mass market, the luxury and the super luxury market and yes it can be said if the super luxury goes up so too will the other markets but not pro rata. So if we see the mainland Chinese and rich Hong Kong Chinese buying property say in the super luxury range of HKD40-80,000 per square foot, I don't think they will compromise and up the price for mass market and not even luxury market, by say 40-50%. I think we will see three separate market segments that will stay with thus for the immediate future.

Posted by Loyd Grossman is Miss Venezuela (1 day ago)

I'm dreaming of course and I certainly don't think they will go up pro rata - like Donald Tsang bizarrely appears to think. However, let's suppose that China floats the Yuan and HK stays pegged to the US$. The Yuan increases by 90% or so against the US$ and - in a fit of amnesia - the HK Government keeps the amount needed for HK residency at about HK$7m, then it is possible though highly unlikely. Oh, and stir in a bit of inflation.

Posted by walkup2 (24 hrs ago)

I think there are more than 3 markets. There are a significant number of micro-markets and it is important to be aware of this. However, a rising tide raises all boats and that is what is happening vis a vis the luxury market. One should nonetheless keep an eye on the effect of rising prices in each market and the effect on rental yields. Investing purely for capital yields is a risky exercise.

Posted by hongkongoldie (23 hrs ago)

so do you think there are increases in all markets in the future?

Posted by Loyd Grossman is Miss Venezuela (22 hrs ago)

HK inflation in at 2.2%. Hurrah! Okay it's skewed because of one-off government measures but Bloomberg was expecting a rise of 0.5%. Time to whack up the rent.