The State of the Hong Kong Property Market (2)

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Posted by Sad Sack (95 days ago)

I agree that the difference between the stock market and property is that you can unload stocks quickly. That is why when the stock market crashes the property market takes 6 months or more to follow. That is why the crash in early 2009 was a shocker, it really started to gain steam within 3 months of the stock market crash before being bailed out by China stimulus.

And yes the majority might decide not to sell whatever their reason but it does not refute the fact that if you bought a property for 10M and and the market says it is now worth 5M you have lost 5M.

The only difference between the stock market and the property market is that if it was a stock you could have unloaded your bum investment before it cratered.

Just because every 10M property is not on the market for 5M does not mean that the 10M properties remain worth 10M.

One reason people hold onto the 10M property is because they are unwilling to face the reality that they have lost 5M. Psychologically they still try to convince themselves that their 10M bomb is or will soon be worth 10M or more. I think this psychology is a natural reaction from someone who has made the biggest investment in their life time only to find out it was a huge mistake, this is a defence mechanism that blocks out the reality that they have a massive loss on their hands.

Two incididents I will recount.

I refer again to a friend who bought a 10M property before the 1998 crash. It did go to 5M in value within months. It took a decade before it got back to 10M. Work out the inflation and opportunity cost on the money sunk into that and by any measure that was a horrible investment.

Another friend bought before the crash of 2009. The property was worth 12M, he had put down nearly 4M, the property had lost about 25-30% of its value so his downpayment was for all intents and purposes wiped out. Yet when he was quite happy with the invesment rationalizing by saying "the mortgage payment is still less than my rent was." An absolutely absurd statement considering it would take perhaps 100 years to make up the loss on the 4M downpayment by applying the savings on the mortgage, and that's without considering the opportunity cost of 4M.

Back to the start.

My point now and all along has been be very careful in buying into an over-valued property market because a bad investment can be like a 1000 tonne weight around your neck for many years.

With yields 1/3 or maybe 1/2 of what they should be along with all the risks of an economic crash imminent, I suggest that buying property now is risky business.

Posted by Sad Sack (87 days ago)

Lloyd if you own gold you are covered for both possible eventualities. In the event of inflation nothing holds its value like gold, in the event of economic collapse, gold will be the only "currency" that retains value. Always has always will be. In a total collapse property will implode but at least you have something you can live in.

I own my primary residence outright and paid it off in full for this reason. If my sources of income were to topple at least I have a place to live so I am with you on that point

If you look at what is happening in the world there is no logic to the claim that gold is in a bubble. There is enormous risk of financial implosion with private and sovereign debt at unsustainable highs. There is a valid reason why gold remains very high and the reason is that there is crazy fear in the global economy.

And if there is a solid recovery it is guaranteed that there will be high interest rates and either inflation or stagflation, gold is your hedge.

I personally think it will go much higher but I when in hard at the end of 2007 and into 2008 and am not buying. Instead I am staying in cash watching to see if there will be a bloodbath in hong kong property.

bdw - I agree the business news people are full of sh&% in particular those on CNBC who are no more than cheerleaders. They kiss the asses of corporate bosses and never ask a hard question. I remember Alan Stanford the crook appearing on CNBC and the moron presenter asked him "how does it feel to be a billionaire" Pathetic.

They gloss over the negatives with excuses and then when there is a slight bit of positive news they ride that like there is no tomorrow. CNBC might be entertaining but its no proper business news, its fluff. Turn on bloomberg if you want something that is close to objective.

And btw, nobody is saying Greece is in a bubble. What they are saying is Greece is bankrupt and the EU and IMF are giving them money so they can make payments on their debts because nobody is willing to lend to them. They are not the only country that is in this situation. Spain has over 20% unemployment and their banks are broke, and that is why the EU is promising 1 trillion in backstop cash.

Will it work? I doubt it just like I doubt US stimulus will work. Govts are banking on the hope that we will see strong growth before the stimulus runs out. Its not happening.

Is HK property in a bubble? Yields are less than half of what they should be based on sale prices so property is at least overpriced.

Of course China is in a huge bubble inflated by over a trillion dollars of lending forced through the banks that it is making its way into property purchases.

This is in some ways USA deja vu. They pushed huge cash into the economy to escape recession 2001. And most people there did not believe property was in a bubble.

They were wrong

Posted by walkup2 (61 days ago)

Small apartments in Sha Tin set to surpass '97 peak price levels
Yvonne Liu SCMP
Jul 07, 2010
Small flats in Sha Tin are expected to become the first residential units in the city to begin achieving prices that exceed their previous peak levels in 1997, according to property agents.

The likely trend was signalled last week when a 395 square foot flat in City One in the district was sold for HK$1.85 million, or HK$4,673 per square foot - 8 per cent higher than the vendor bought it for in the second quarter of 1997, when he paid the previous top price fetched in the district of HK$1.71 million.

Patrick Chow Moon-kit, the head of research at property agency Ricacorp Properties, said following that deal asking prices of about 10 to 20 per cent of the units on offer at City One, Sha Tin Centre and Sha Tin Plaza were now pitched higher than the price level reached in early 1997.

Across the market, property prices climbed to their highest level in March and April in 1997, though prices at the start and end of the year were lower.

"In recent weeks small flats of about 300 sq ft in large-scale housing estates near MTR stations and priced about HK$2 million have become the most popular. Demand from young couples is strong and they are willing to raise their asking prices for the flats," Chow said.

Kenson Ho Ka-kin, a manager at the firm in Sha Tin, said the monthly mortgage expenditure for buying a small flat in City One was about HK$7,000, which was affordable to first-time buyers.

Housing estates in Sha Tin recorded strong sales in recent weeks. Sha Tin Centre, where about 200 to 300 flats were available for sale every month in the first five months of this year, now had only 100 flats for sale.

The limited supply was likely to force home seekers to raise their offers. "The prices of those units will exceed their 1997 market peaks this month," Chow predicted.

The average sale price at City One dropped 10 per cent in May following the government's cooling measures and poor land auction results, Ho said. However, it rebounded 15 per cent last month, he said.

Chow said prices of small units in Sha Tin and flats at Taikoo Shing in Quarry Bay were the closest to their market peaks reached in 1997.

"In the mass residential market, the cheaper and the most expensive housing estates are the most popular and have stronger price growth," Chow said.

People with lower incomes have shifted their preference to properties in the New Territories, from Hong Kong Island and Kowloon.

"Property prices in Kowloon have increased sharply. Prices at Amoy Gardens in Kowloon Bay are about HK$2.3 million to HK$2.4 million currently, which is not competitive with those in the New Territories," Chow said.

"Many home seekers found the flats in Sha Tin attractive as the prices are lower and transport has improved."

Chow forecasts that housing estates in Tai Po will be the next popular target of homebuyers, and thus would also see sharp price increases.

Posted by Sad Sack (61 days ago)

I will treat people with intellectual respect if they can put forth something other than "HK property never goes down because people in HK are rich"

If you think the global economy will recover pray to tell how we get out of this mess.

I have yet to anyone make a logical point that explains how the economy recovers.

Krugman states there have been two Depressions with a third on the way. He predicts it will be more like the first one in the 1870s.

"There was the Long Depression, then the Great Depression, and now we are in The Third Depression"

The point of the video is to demonstrate how people when faced with powerful logic, and Schiff presents very compelling logic are faced with denial and even ridicule. Same dynamics are at work on this thread

My position from day one has been logical and my predictions for the most part correct.

The only thing I have failed to predict is that the governments of the world would bankrupt themselves trying to salvage the world economy. But that is moot, it is on the way back down so that only kicked the can down a very short road.

I dont want to see the global economy collapse or be stuck in years of 1 or 2% growth because guess what, that means hundreds of millions will suffer. But that is a best case scenario as far as I can see.

The so-called brightest minds in the world have tried to solve the problem and they've tried throwing trillions of dollars at it. That has not worked. Now they will try cutting spending. I am doubtful that will work.

Logic tells me things are going to get much much worse. Hope or delusion tells others its going to get better.

If you are in the second camp please do tell me how it all gets better.

We had a thread ten km long on this subject before this was started and not one person was able to explain how we recover. And not a single person said "hello wake up, its time to buy a property in January because the China was going to jam trillions of dollars into their economy buoying it and giving a shot of adrenaline to the HK market in the form of suitcases full of money being dumped into HK flats."

Give me something more than "HK property always goes up" It doesnt.

Give me something more than "the Chinese consumer will make up for the loss of the US and Euro consumer" It will absolutely not.

Let's hear the solution.

How do countries avoid bankruptcy which bankrupts the banks that hold their debt?

How do you create growth when you are slashing spending increasing taxes and shedding public sector jobs because you cant afford to pay teachers, police, fireman?

What do you do about decreasing tax revenues as people lose jobs across the world and no longer contribute to the pot?

What do you do about the millions in the US who will not longer receive unemployment benefits next month?

What do you do about half the states in the US including california that are bankrupt?

What do you do about 300,000 foreclosures per month happening in the US. Thats more than at the height of the crisis

What do you do about a real unemployment rate that is nearing 20% in the US and you are creating less than 100,000 jobs a month and you need 150-200 just to absorb new entrants into the workforce?

The US economy is bigger than all other economis combined and it is falling apart. How do we cope with that?

I can go on and on and on about this disastrous situation.

What are the solutions? I have thought long and hard and I see no way out.

If anyone has the magic bullet lets have it and maybe we can pass the solution on to Trichet, Bernanke and the others who have been battling this for two years now and are obviously failing.

In 08 I suggested buy gold and avoid property. That has turned out to be a correct decision. And now that many are calling for a double dip or worse another Depression, it is an even wiser position.

Posted by walkup2 (60 days ago)

Back in the real world:

Flat prices edge up to 1997 levels
Sandy Li
Jul 08, 2010 SCMP

Just months after government measures dampened enthusiasm for flat-buying, the market is roaring back - so much so that some properties are back to 1997 levels.

Taking advantage of the upturn in sentiment, developers will release nearly HK$4 billion worth of flats this weekend.

Sales and prices have improved since Sun Hung Kai Properties (SEHK: 0016) paid a higher than expected HK$10.9 billion for a site in Ho Man Tin early last month. New rules requiring greater transparency in developers' price lists have also helped sentiment.

The number of weekly property transactions has rebounded to 300 from 180 in April and home prices have started to edge up.

More than half of the 964 flats at The Hermitage in Tai Kok Tsui - the first project launched under new guidelines issued by the government - were sold within a week.

Under the rules, developers must release price lists three days before flats go on sale to allow homebuyers time to study prices. Previously, developers released some prices 24 hours before the launch of a sale, leading to accusations they were manipulating prices.

Last week, a 393 sq ft flat at City One, Sha Tin, changed hands for HK$1.85 million or HK$4,673 per sq ft - 8 per cent higher than the vendor bought it for in 1997.

"It probably shows the market correction has come to an end," Eric Yuen Chi-fung, head of research at Guoco Capital, said.

Yuen said the developers' less aggressive pricing strategies had also encouraged buyer interest. "The market is still dominated by local buyers and they will return when projects are offered at a reasonable level," he said, adding that mainlanders accounted for about 10 to 20 per cent of total sales.

Prices of the first batch of flats at The Hermitage were released at an average of HK$11,000 per square foot.

"The good sales response has removed earlier concerns that the new guidelines could dampen buying interest," Midland Realty chief analyst Buggle Lau Ka-fai said. "The strong sales response reflects that buyers remain bullish."

Sun Hung Kai Properties plans to release all 377 flats at Lime Stardom, a joint venture housing project with the Urban Renewal Authority, in Tai Kok Tsui at an average of HK$8,045 per sq ft on Saturday. The flats, ranging from 345 sq ft to 1,058 sq ft, are worth more than HK$1.7 billion.

"It is unusual for a developer to release all units in one go," one agent said. "Potential buyers will have more time to study the price list."

Separately, Sino Land will release an additional 120 properties, worth about HK$1.7 billion, at The Hermitage, at an average of HK$11,637 per sq ft on Saturday.

Henderson Land Development (SEHK: 0012) will also release 16 villas at Legende Royale, the phase three development at The Beverly Hills in Tai Po at HK$7,935 per sq ft as early as tomorrow.

The total value of the 16 villas, from HK$23 million to HK$47 million, will be about HK$500 million.

Lau said low interest rates and an attractive rental return had also lured investors.

Posted by walkup2 (55 days ago)

Buyers rush to snap up offering of small flats
Yvonne Liu SCMP
Jul 11, 2010
Hundreds of home seekers and investors lined up yesterday to snap up 365 flats at two housing projects - signalling buyers are taking advantage of a rising property market.

Some 285 flats or 76 per cent of the flats at Lime Stardom in Tai Kok Tsui were gone by 5pm after sales were launched at 9am.

Lime Stardom, developed by Sun Hung Kai Properties (SEHK: 0016) and the Urban Renewal Authority and offering 377 flats, is the only development providing small flats to go on the market in the past three months.

About 70 per cent of the flats are less than 500 sq ft.

Sino Land yesterday released 120 flats at The Hermitage, also in Tai Kok Tsui, in a fourth round of sales. Agents said about 80 flats were sold by 7pm.

Hundreds began queuing at 7am in a shopping mall in Causeway Bay for the sale of Lime Stardom flats.

In the morning, URA chairman Barry Cheung Chun-yuen forecast that sales of the project would be strong. He said asking prices were reasonable and competitive.

He said the authority would release 1,300 flats for sale in the next 18 months. About 70 per cent of them will be of less than 600 sq ft, which could help meet demand from the first-time buyers.

The project is also proving attractive for investors. Agents estimated that about half the buyers were investors.

Businessman Eric Chung On-shu and his son are among the investors. They own eight flats in Hong Kong and more than 10 on the mainland. They planned to buy a 400 sq ft flat at Lime Stardom for investment. "Property prices will continue to go up as the interest rate is low. And there is no investment alternative better than property investment," Chung said.

Lime Stardom is the second project to go on sale since guidelines were issued by the Real Estate Developers Association and the URA to comply with new government rules intended to increase the transparency of sales and reduce the scope for developers to manipulate prices.

Chung said he was satisfied with sales procedures for the project. "When I bought a flat last year at iHome, a new project, I had to wait in the sales office from the morning until 10pm. But I didn't need to wait so long this time."

Sino Land's The Hermitage provides 964 flats. It has released 661 flats for sale so far. About 90 per cent have been sold, for revenues of HK$7.4 billion.

The developer yesterday released a further 50 flats, and one with a private swimming pool, for sale next week. The average price of the flats is HK$11,871 per sq ft; the one with the pool will sell for HK$25,060 per sq ft.

Andy Tso, district manager at Ricacorp Properties, said many buyers see the government rules as being intended to improve sales procedures for new projects rather than cool down the property market.

"They worry that property prices will go up more if they miss out on a chance to buy flats," he said.

Wong Leung-sing, an associate director of research at Centaline Property Agency, said the secondary market was boosted by strong sales in new projects.

The company says average property prices on Hong Kong Island rose 2.06 per cent over the past four weeks and prices in the western New Territories increased 2.86 per cent.

Posted by walkup2 (47 days ago)

Trials and triumph of a flat owner in dealing with buyout proposals
Peggy Sito SCMP
Jul 21, 2010
When owners of flats in older buildings in Mid-Levels became the target of buyout offers from developers aiming to redevelop the buildings, owners were presented with the choice of accepting the offers or fighting for more.

Richard Wright, who owned a flat in Merry Terrace, decided on the latter course because, as he put it: "I am in charge of my own destiny."

So rather than leaving his fate in the hands of the developers and the majority decision of owners in his building, Wright - a Canadian who left Vancouver in 1997 to come to Hong Kong - set about negotiating on his behalf as that of the other owners.

He was prepared for the demands on his time and energy, but not for the low point in the campaign which came when an officer from the Independent Commission Against Corruption came knocking on his door after receiving an anonymous complaint against him.

The story of his fight began on a spring day in 2005 when owners found letters in their mailboxes from a property agent who said he represented an unidentified developer who wanted to buy their units. The initial reaction from most was positive, but after closer scrutiny of the offer and checking prevailing market prices, they were disappointed since the offer seemed on the low side, recalled Wright.

That was when they decided to join forces and attempt a joint sale of their units through a tender.

Wright was elected as chairman of their "development committee" and given the responsibility of engaging a legal representative and property consultant to arrange the tender.

"I spent thousands of hours on the exercise," he said, holding numerous meetings to explain developments to individual owners and to ensure the tender sale would be transparent.

But the tender failed, he said, because of the owners' over-optimistic expectations.

Wright recalled that Charles Chan Chiu-kwok, chief valuer for property consultancy Savills, originally suggested owners hold out for a reserve price of HK$3.4 billion for the building. But another consultant, Jones Lang LaSalle, suggested a reserve price of HK$4 billion.

Owners went for the higher reserve and appointed Jones Lang LaSalle to arrange the tender. "We received five bids and none met the reserve price," Wright said.

And so the attempt at a joint sale failed and dashed Wright's faith that the differing expectations of owners could be reconciled.

But the attractive location and high redevelopment potential of the property attracted other offers, and a year later a property agent representing Henderson Land (SEHK: 0012) approached owners with another offer for their units.

Henderson secured approvals from about 60 per cent of the flat owners while 20 per cent (Wright included) sold their units to another investor and the remainder held out for higher prices, Wright said.

Wright did not disclose the sale price but said it was about 5.5 times his original purchase price. According to Land Registry records he sold his flat for HK$19.66 million.

But there were some painful memories. "I was criticised by individual owners. My wife, who is a Chinese, was shocked by the [Cantonese] words they used," he said.

Worse was to come. "About two years ago, I received a phone call at my office. An officer from the ICAC said he wanted to come to see me. The first question I asked was, `Will you wear a uniform?' But he said no, `just a suit', so I said that's fine."

The ICAC officer duly arrived in his suit and told Wright some concerns had been raised over the sales procedures. But nothing further transpired and the ICAC investigation proved groundless.

"I was deeply disappointed by the developments," Wright said.

Following the sale of his unit, Wright recently bought a flat in an old 10-unit, three-storey building in Happy Valley - another potential target of developers for redevelopment.

So following his experiences, what advice does he have for flat owners who may find themselves in a similar situation?

"I would recommend they consider a joint sale. But they need to be very transparent in their dealings and they must also be realistic in their expectations - developers will not easily share their profits.

"They should try to unite for the common goal of a sale, rather than letting greed destroy the opportunity," Wright said.

Posted by walkup2 (46 days ago)

Market rebound likely to continue
Recent strong sales in new developments show bullish end-user demand, analysts say
Sandy Li SCMP
Jul 21, 2010
The first half of the year closed on a positive note for Hong Kong property and signs are that the rebound in buying sentiment is set to continue for the rest of the year, agents say.

Examples they cite include:

* The sale of 94 units in the luxury residential project Larvotto, each worth more than HK$30 million, in just two days since its launch on Saturday.

* The sale of more than HK$9 billion worth of flats in two major new projects - The Hermitage and Lime Stardom - in just two weeks this month.

* A 15 per cent surge in prices so far this month in Tuen Mun, an area that until recently had lagged the broader recovery in the market and is now playing catch-up.

* A deal done on Lamma Island that saw a two-storey village house of 1,300 square feet with a 1,200 sq ft garden change hands at a record price of HK$5,200 per square foot this month. That put a total price tag of HK$6.8 million on the house.

Typical of the buyers shopping for homes is Michelle Lau. "I had been looking for a flat from Island East to the Mid-Levels and noticed that prices were moving steadily upwards. They kept on increasing and didn't retreat at all," the thirtysomething, who works in the hotel sector, said.

Since owners were not budging on their asking prices Lau eventually decided to buy a flat last month to take advantage of low interest rates and to hedge against an erosion of her savings from inflation.

Her choice was a 500 sq ft unit in Caine Road, Mid-Levels, for which she paid HK$3.5 million in May. "I have been working for 12 years and had saved enough to put down the deposit, and so I decided it was time to buy," she said. Having made a 30 per cent down payment, she raised a mortgage to pay for the balance and is now making a monthly repayment on her home loan of HK$12,000.

Lau's purchase was one of the 67,073 sales and purchase agreements in the residential market in the first half of the year recorded by the Land Registry. The total value of the deals was HK$266.91 billion - versus 52,595 deals in the same period last year valued at HK$205.5 billion.

Patrick Chow Moon-kit, the head of research at property agency Ricacorp Properties, said buying confidence had strengthened after Sun Hung Kai Properties (SEHK: 0016) paid a higher-than-expected HK$10.9 billion for a development site in Ho Man Tin, and strong sales were recorded in two new projects put on the market since June 30. "The positive sales outcome of the new projects prompted home seekers who were stalling to make a move, since they worried that prices would increase further. Some buyers visited a flat just once and decided immediately to write out cheques," he said.

Chow expects the total number of home sales to reach a record of about 137,000 this year, exceeding the previous record when 125,062 flats were sold in 2007.

The 964-flat Hermitage was the first residential project launched after the June 1 introduction of guidelines by the government aimed at enforcing greater price transparency.

Developer concerns that the rules would hamper their marketing campaigns proved unfounded as by July 16 some 685 units or 90 per cent of the 762 units on offer were sold. The project, developed by a consortium comprising Sino Land, Chinese Estates Holdings (SEHK: 0127) and Nan Fung Development, has so far generated revenues of HK$8.2 billion, market sources said.

Under the new system, developers must release price lists three days before flats go on sale to allow homebuyers time to study prices. Previously, developers released only a few selected prices 24 hours before the launch of a sale, leading to accusations of manipulation.

"We are seeing the beginning of a market bull run," Midland Realty chief analyst Buggle Lau Ka-fai said, adding there was little evidence of speculation driving demand and most buyers were end-users.

In the first half of this year, Midland data shows there were just 1,015 confirmor transactions - deals done by buyers who make a down payment and then resell their properties before the deadline for completing their purchases. That compared with a peak of 6,907 confirmor deals as the market was powering its way to record high prices reached in the first half of 1997 before the outbreak of the Asian financial crisis.

As prices continue rising, first-time homebuyers with tight budgets have been forced to outlying locations where flats are less expensive.

"It is a challenge to find a unit of around 470 sq ft in central areas for under HK$1.3 million or so. But there are many choices in Tuen Mun, where a sudden increase in demand has boosted prices by 15 per cent in the past two months," said Perry Fong Kai-ming, the sales director at Centaline Property Agency's Tuen Mun and Tin Shui Wai branches.

Until recently prices in the area had lagged the overall market and two months ago a 600 sq ft unit at Miami Beach Towers changed hands for HK$1.8 million.

But now asking prices for similar units in the block had risen to HK$2.1 million, Fong said. "As more buyers come looking for bargains in the area, transaction volumes are likely to increase to 500 deals in June from 400 in May," he said.

Posted by walkup2 (45 days ago)

Hibor-based plans offer better rates in short term
Yvonne Liu SCMP
Jul 21, 2010
Homebuyers have turned in large numbers to funding their purchases with loans based on interest rates in the Hong Kong interbank offered rate market (Hibor) because of the lower borrowing costs they offer - at least in the short term.

Data from the Hong Kong Monetary Authority shows that 82.7 per cent of new mortgage loans approved in May were priced with reference to Hibor - the wholesale money market on which banks raise their funding - up from 31.9 per cent a year ago.

Only 16 per cent of new mortgage loans approved were priced with reference to best lending rates, at premiums ranging from 2 to 2.5 per cent.

Homebuyers were attracted to Hibor products offered by banks because of the lower mortgage repayment costs in the short term, Hendrick Leung Lee-chung, a director and general manager at Centaline Finance, said.

Interest rates on Hibor-based mortgage plans are usually one-month Hibor plus 0.7 of a percentage point. Currently that translates into an effective rate on a home loan of as low as 0.96 per cent based on the one-month Hibor of 0.26 per cent yesterday.

That compares with loan charges on traditional best lending rate or "prime rate" products of 3 to 3.25 percentage points below the prime rates of 5 per cent to 5.25 per cent.

Since Hibor is a floating rate, and it exposes borrowers to the risk of a possibly sharp rise in borrowing costs, lenders offer a "cap" on borrowing costs that presently ranges from 2.7 to 2.85 percentage points below the prime lending rate.

The HKMA, which regulates bank lending practices, recommended in March that banks maintain a premium of at least 0.7 percentage points above Hibor, after Hong Kong's largest lender, HSBC (SEHK: 0005, announcements, news) , marketed the lowest mortgage rate on offer, based on a premium of 0.65 percentage points above Hibor.

The authority was concerned that a mortgage price war would put smaller banks at risk.

Ivy Wong Mei-fung, managing director of Centaline Mortgage Broker, said competition for mortgage business among lenders had now extended to caps offered on rates, rebates and penalty periods, since the mortgage rate itself was unlikely to be cut further. "In the first quarter, banks would offer a rebate of 0.5 per cent. Now they offer 0.8 per cent," Wong said. "Some of the banks have shortened the penalty period from three years to two years."

The penalty period is the duration of time within which borrowers have to pay more to the bank if they fully or partially repay the mortgage loan.

Frances Cheung, a senior strategist at Credit Agricole Corporate and Investment Bank, believes the prime rate is unlikely to increase in the next 12 months.

"We expect three-month Hibor will rise to 0.6 per cent by the end of this year from the current 0.4 per cent. Hibor may rise to 1.12 per cent by the middle of next year," she said.

Ivy Wong expects interest rates will remain at current levels until the year-end but may then begin to rise.

Hibor-based mortgage plans could help reduce borrowing costs in the short term, as the mortgage rate is 1 per cent less than under the prime rate plan, she said.

"Even if Hibor were to rise, it would not rise higher than the prime rate. Also, since most homebuyers would not hold the properties as long as 10 to 20 years, they could save from a Hibor-based plan," she said.

Leung of Centaline Finance expects Hibor to remain at low levels in the next one to two years. "If homebuyers are looking at a three- to five-year investment period, they should consider Hibor-based plans because their monthly borrowing costs will be lower," he said.

However, if they plan to hold their properties for more than five years, they should consider the traditional mortgage plan, Leung said.

"In the long term, the total mortgage expenditure of the prime rate plan would be less than in a Hibor-based plan. The current prime rate plan is very attractive," he said.

Posted by walkup2 (38 days ago)

Small flats, big prices, bigger disappointment
Olga Wong
Jul 30, 2010 SCMP
Middle-income earners hoping that government exhortations to developers to build more smaller, affordable flats will bear fruit are in for a disappointment.

While many such flats are small, their prices are not, ranging from under HK$3 million to nearly HK$8 million and with mortgage repayments that can eat up as much as 80 per cent of the median household income.

The cheapest home the Post could find among small new flats released for sale this year costs HK$2.5 million and offers saleable space of just 270 square feet - smaller than many hotel rooms. At the top of the range is a flat with 370 sq ft for HK$7.8 million.

"You have to go into debt for your entire life for a tiny living space. What kind of life are we facing?" asked Paul Yip Siu-fai, a professor who specialises in population and mental health issues at the University of Hong Kong.

While smaller flats cost less than bigger ones, their prices per square foot are at the upper end of the market, ranging from HK$8,000 to HK$21,000 in terms of saleable area and HK$6,000 to HK$15,000 in terms of gross floor area.

"The flats are small but expensive. This is unhealthy," Democratic Party legislator Lee Wing-tat said.

Since Chief Executive Donald Tsang Yam-kuen used his policy address in October to urge developers to build more small and medium-sized flats, government officials have said they will liaise with developers, including the Urban Renewal Authority and the MTR Corporation (SEHK: 0066), to increase the supply of such homes.

Transport and Housing Bureau figures released last week show that 58 per cent of the 61,000 private flats which will become available in the next four years will be small to medium-sized. The Rating and Valuation Department defines a small flat as one of up to 430 sq ft and a medium- sized flat as being up to 750 sq ft.

At least eight developments which have come on the market in the past six months have included flats in these two categories, but they are not cheap.

The cheapest flat we found -at HK$2.5 million for 270 sq ft - is in the Lime Stardom development in Tai Kok Tsui, a project co-developed by the Urban Renewal Authority and Sun Hung Kai Properties (SEHK: 0016).

The HK$7.8 million, 370 sq ft flat - among the most expensive to have gone on sale recently - is in Island Crest, another project the authority co-developed with Kerry Properties (SEHK: 0683).

In between are flats of 301 sq ft, dubbed studios, that are for sale in The Hermitage in Tai Kok Tsui for HK$3.9 million to HK$4.7 million.

If a buyer took out a 20-year mortgage for 70 per cent of the value of the Lime Stardom flat at an interest rate of 2 per cent, the monthly repayments would be around HK$9,000. For a mortgage on the same terms for a flat priced over HK$4 million, the owner would have to pay more than HK$15,000 a month, close to the median monthly household income of HK$18,000. And monthly repayments on a loan for the HK$7.8 million flat would be HK$28,000.

In April, when prices in some large estates passed their 1997 peak, Secretary for Transport and Housing Eva Cheng highlighted the supply of small to medium-sized flats in a bid to address public concern about increasing flat prices.

In February, Financial Secretary John Tsang Chun-wah said in his budget that the government would, for the first time, require developers tendering for a site in Long Ping to build smaller flats. It would also liaise with the MTR and Urban Renewal Authority to increase the supply of smaller flats.

The authority, which is committed to building smaller flats in a Ma Tau Wai project, now says it will reduce the size of flats at Yu Lok Lane, Sheung Wan, to less than 500 sq ft.

Yip, the population academic and a government adviser on policy, said studies showed rising demand for housing from people in their twenties and thirties but the small flats available to them were too pricey.

"The increasing number of university students queuing for public flats is a bad sign," he said. "They are simply giving up hope of moving into a private flat."

Housing Authority figures show the number of single people under 30 waiting for public flats has increased by 60 per cent in the past four years, from 13,400 in 2006 to 21,300 last year.

"We are facing two extremes. Those who cannot afford luxurious apartments will have to live in public flats," Yip said.

Law Chi-kwong, a social sciences professor at the University of Hong Kong, said: "Government policy should not seek to shrink the living space of its people. It does not match with Hongkongers' expectations."

Posted by Underdawg (26 days ago)

I don't think any data numbers that are available for everyone to see will help anyone predict property prices. Whether it is the current interest rates or the CentaCity Index or anything else. I believe that if property prices crash it will be because of some unforeseeable event such as war or disease or another big bank like Goldman Sachs or HSBC going bust for some shady business they were involved in that nobody caught before it was too late. And what does the '97 peak have to do with today's property prices? Is the '97 peak the highest that the HK property market can go? I agree that in terms of income and the general economy, prices probably won't double go up another 50% in the short or even medium term, but I wouldn't be surprised to see another 25% increase or at least 15%.

There was an interesting article in today's paper talking about how buyers are moving to buy village houses because prices in the central areas are too high. I think more of that is going to happen rather than prices in central areas coming down. HK has so many livable places all over that are ignored just because they are not the usual centrally located places. We're all familiar with the status conscious HK attitude of the older generation but I think the younger generation will be smarter and take advantage of the up and coming districts of HK.

One thing I have to say though, in response to bdw's funny comment about living in Tai Kok Tsui, is that I don't know if I would brag about living so close the Sham Shui Po and Mong Kok MTR stations because I've heard safety is a concern is those areas. Also, I'm assuming that the building is new and the efficiency would be around 70% so the usable area in a 1178 unit is about 824sq ft. That's a very comfortable size, but I wouldn't really go around calling other people's flats shoeboxes. Rather than live there one could by a village house for 8 or 9 million that is about 2000sq ft with a garden , etc etc. Much cleaner and less polluted environment than Mong Kok I would imagine.

I think it's amazing that WK has the Cultural District coming up, but HK Island will also always be a great place to live. Look at cities like NYC and London. Manhattan and Central London have always been very important and central places to live, and also have their own culture and art within. And on the other side, WK's Cultural District will attract not just people from HK Island but art enthusiasts from all over the world. Every area in HK has it's own charm and anyone who believes only their area is the best will miss out.

Posted by walkup2 (25 days ago)

The problem for gold bugs is that they don't understand the velocity (circulation) of money. Unfortunately it is not in their vocabulary as it is the physical quantity of money which only interests them (ie the 1:1 relationship with gold which is their desired holy grail). Krugman does understand this core factor ie money circulation which is why he thinks there should be another round of stimulus. The gold bugs meanwhile just talk their own hand and get excited when the market dips and indignant when it goes up.

Property tycoon bets on home prices to rise again
Bloomberg in Sydney
Aug 11, 2010

From her leafy, 11th-floor rooftop terrace at the headquarters of Soho China (SEHK: 0410), billionaire Zhang Xin scans the relentlessly expanding Beijing skyline she helped create.

Zhang's avant-garde buildings - some sleek as chopsticks, others stepped like rice terraces - became part of the hottest real estate market on earth this year.

Zhang says she is well aware of the chorus of investors and economists who predict that China's property boom is about to go bust, taking the global economy down with it.

The doomsday scenarios do not intimidate Zhang, a one-time penniless sweatshop worker who ascended to Wall Street by defying the odds. She hopes to prove sceptics wrong again this year by betting hundreds of millions of dollars on new buildings in Beijing and Shanghai, Bloomberg Markets magazine reports in its September issue.

"I don't see any bubbles," Zhang says. "The next few months will be a fantastic time to buy."

Zhang, 44, personifies the explosive rise of China, from the poverty of Mao Zedong's communist rule to the riches of state-controlled capitalism in the world's third-biggest economy. At age 30, armed with a master's degree from the University of Cambridge in England and connections from working at Goldman Sachs Group in New York and Hong Kong, Zhang founded Soho China with her husband, Pan Shiyi.

The company became central Beijing's biggest developer about a decade later in 2005 - and a favourite among investors.

Zhang's ownership stake is worth about $2.2 billion, ranking her alongside Oprah Winfrey as one of the world's wealthiest self-made women, says Rupert Hoogewerf, whose Shanghai-based Hurun Report tracks China's rich.

Economists began predicting a real estate bubble in China last year after the government pumped US$585 billion of stimulus funds into the economy. State-controlled banks went on a record US$1.4 trillion lending spree in 2009.

That sent residential real estate prices soaring 68 per cent in the first quarter of this year compared with the same period in 2009, pushing the mainland past Hong Kong as the world's fastest-appreciating housing market, says property adviser Knight Frank.

Beijing's skyline has shot up along with prices, leaving it with many unoccupied see-through buildings.

Zhang, who early this year feared a bubble, now says her own research reveals that the property market is regaining its sanity.

She says real estate prices have been cooling since April, following the government's lending restrictions, but are not headed for a collapse.

"We know from our own experience the prices are staying flat," she says.

Zhang says success in real estate has come down to guessing what the government will do next.

In June, she gave her prediction at a JP Morgan Chase conference attended by almost 2,000 foreign investors in Beijing.

"Everyone was so pessimistic, and I was saying that in the next six months or a year, prices will go up again," she says.

"My guess is that it is austerity now, but at some point it will become stimulus again."

If the former sweatshop worker is right, her latest property investments will likely prosper - as will China, perhaps sparing the global economy the threat of a double-dip recession.

Posted by Sad Sack (17 days ago)

Forgive my intrusion.

The US economy is headed back into recession and recession means Depression and that means the world will go into Depression and that means China will have atrophied exports and that means the days of propping up their GDP will soon be over and that will crash their property market and Hong Kong will follow.

The battle against collapse has been lost. The stimulus has proved to be nothing more than two year sugar buzz and its quickly wearing off.

New jobless claims up, economic recovery in serious doubt -- or worse

Unemployment is in this country is going the wrong way.

On Thursday morning, the Labor Department said that new jobless claims filed last week unexpectedly rose by 12,000 to hit 500,000, the first time since November that the half-million mark has been reached. The four-week moving average of new unemployment claims, which smooths out week-to-week volatility, rose by 8,000 to 482,500. Forecasters expected last week's new jobless claims number to go down, not up.

President Obama used the bad jobs data to urge Congress to restart the stalled small business jobs bill that he said would help small businesses with tax cuts and expense write-offs, and would help small banks lend to small businesses.

Obama noted that in the last few months of 2009, businesses with fewer than 50 employees accounted for 60 percent of the job losses in the U.S.

We know how the markets reacted to today's jobless claims number: straight down. All three major indexes are trading down more than 1.5 percent.

Everyone is familiar with the monthly national unemployment rate, which comes out on the first Friday of each month and now stands at 9.5 percent, according to the July numbers, the most recent available. That number gives us a monthly, detailed, deep look into unemployment in the U.S.

But the new weekly jobless claims number, which is released each Thursday by the Labor Department, gives us a faster, week-by-week snapshot of unemployment. And the picture is getting increasingly ugly.

The latest number marked the third straight week of increase in new weekly jobless claims. That suggests that employers not only are not hiring, it suggests that they're starting to lay off workers again, and that will start a whole cascade of problems for the U.S. economy and the politicians in Washington who face reelection this November.

To be sure, the number of new weekly jobless claims is well down from its March 2009 peak, when 650,000 Americans were filing for unemployment each week. But the number had been steadily decreasing until three weeks ago. Now, it's headed back up.

And here's the really troubling part: Economists say that real, lasting job creation in this country will not happen until the new weekly jobless claims number gets down into the low 400,000s or upper 300,000s. The weekly claims number got down to about 450,000 but then remained stubbornly stuck, refusing to go any lower.

That left employers -- real businesses that give real people real jobs -- in a pickle. The number was still uncomfortably high, but if it had kept going down, employers would have believed in the momentum of an economic recovery and would have hired up for future growth. But it didn't. It stagnated. And so businesses didn't hire new people. Now, it looks like they're starting to lay off workers again.

The overall unemployment rate of 9.5 percent is down from its recent high of 10.1 percent, hit last October. But understand that a number of factors go into calculating the jobless number that have very little with how many people are going back to work. For instance, if lots of unemployed workers stop looking for work, they are not counted as being unemployed -- oddly -- so lots of people checking out of the labor force can actually bring down the unemployment rate. But they remain a burden on the system and have all the problems of the unemployed.

Politically, the new jobless claims number is bad news for incumbents, be they Republicans or Democrats. Private-sector employers are not hiring. That leaves only the government. And people want the government to do something.

But unless the government wants to explode the already steadily increasing national debt and budget deficit, it's pretty much out of bullets. Indeed, there's a real "what do we do now?" feeling pervading Washington. Why? Because after two years of massive government stimulus programs -- the big $800 billion stimulus, the cash-for-clunkers program, the home-buyer tax credits and on and on -- the economic recovery is firmly stalled.

The overall unemployment number refuses to drop appreciably. GDP for the remainder of the year likely will head downward. After a terrific one-year recovery run, the stock markets peaked in April and have been roller-coastering downward since. The best possible forecast for this recovery is a stalled recovery. The worst-case scenario is much darker: a second Great Depression.

The stalled recovery puts the Bush tax cuts -- which expire at the end of the year -- increasingly in the news. The president wants to extend the tax cuts except for the wealthiest Americans -- households making more than $250,000. But the truth is, the wealthiest Americans are those who are best-equipped to create new jobs. But that's a politically unpopular thing to say with unemployment near 10 percent. So you see the conundrum.

There will be a lot of pressure on the person Obama picks to replace Christina Romer as his economic adviser. Their No. 1 task will be creating jobs.

Posted by Sad Sack (16 days ago)

Last I looked the Depression of the 1930s was a global phenomenon, no countries were immune so why should this time be any different?

At the time the US was China in that it was a big exporter, had surplus trade balances and still the country was crushed.

You think that if you unplug the EU and US economies China is going to motor along?

The entire global economy is going to come crashing down when the United States goes into Depression, many are saying this time will be far worse than the 30's because in the 30's most people didnt have mortgages, a large number of people lived on farms so could subsist and now they live in cities.

Look at what happened in 2008 when the banking system froze up. There was no credit flowing so trade froze up, ships were sitting idle by the thousands.

The US is the centre of global banking and the EU follows just behind, if you have big banks go bac into crisis the world will seize up. No trade will flow because there will be no credit.

You are living very dangerously if you think that China and hong kong and any other country in the world will not be dramatically impacted if the US collapses.

To put a fine point on this, remember what happened to Hong Kong in 1998 when a Thailand and Indonesia crashed. Property plunged 69%! Thailand and Indonesia economies and markets combined are probably smaller than the single state of california.

Here is what is coming and it is going to suck us all into a black hole

http://www.youtube.com/watch?v=Z_rShZA_IjE&feature=related

http://www.youtube.com/watch?v=LZuJqrcwrEU&feature=related

An economic collapse is coming.

You need to get prepared.

For those not familiar with my previous articles, let's review just some of the reasons why America is headed towards an economic nightmare of unprecedented proportions....

The National Debt - The U.S. government has accumulated a national debt that is rapidly approaching the 14 trillion dollar mark. According to Democrat Erskine Bowles, one of the heads of Barack Obama's national debt commission, if we continue on the path we are on the U.S. government will be spending $2 trillion just for interest on the national debt by 2020.

State And Local Debt - Many of America's state and local governments may be in even worse financial shape than the federal government is. In fact, some state and local governments are in such a financial mess that they have starting cutting off even the most essential services.

Consumer Debt - The total amount of consumer debt that Americans have accumulated now stands at approximately 11.7 trillion dollars.

The Trade Deficit - The U.S. trade deficit has exploded to nightmarish proportions over the past two decades. Every single month tens of billions more dollars flows out of the country than flows into it. The rest of the world is literally bleeding us dry in slow motion.

No Jobs - Today it takes the average unemployed American over 8 months to find a job. The number of Americans receiving long-term unemployment benefits has risen over 60 percent in just the past year.

The Credit Crunch - The U.S. is experiencing a credit crunch unlike anything it has seen since the Great Depression. Lending has really, really dried up, but without loans our economic system cannot function properly.

The Housing Crisis - Even with mortgage rates at historic lows, a shockingly low number of Americans are buying houses. There has been a total collapse in home sales since the home buyer tax credit expired. At the same time, mortgage defaults, foreclosures and home repossessions by banks continue to set new all-time records.

Rising Bankruptcies - Nationwide, bankruptcy filings rose 20 percent in the 12-month period ending June 30th.

Rising Poverty - One out of every eight Americans and one out of every four American children are now on food stamps. Approximately 50 million Americans couldn't even afford to buy enough food to stay healthy at some point last year.

The Coming Pension Crisis - America is facing a pension crisis that is so nightmarish that it is almost impossible to adequately describe it. State and local government pension plans are woefully underfunded, dozens of large corporate pension plans either have collapsed or are on the verge of collapsing, Social Security is a complete and total financial disaster and about half of all Americans essentially have nothing saved up for retirement.

The Derivatives Bubble - Our financial system has become a gigantic gambling parlor and we have allowed a horrific derivatives bubble to develop that could destroy the entire world economy if it ever bursts. Nobody knows exactly how big the derivatives bubble is, but low estimates place it at around 600 trillion dollars and high estimates put it at around 1.5 quadrillion dollars. Once that bubble pops there simply will not be enough money in the entire world to fix it.

The Federal Reserve - The Federal Reserve has devalued the U.S. dollar by over 95 percent since 1913 and it has been used to create the biggest mountain of government debt in the history of the world. There are many economists who would argue that the Federal Reserve is at the very core of our economic problems.

As we get even closer to the economic abyss that we are racing towards, even more big names such as Tony Robbins will come forward with warnings.

The truth is that these problems did not develop overnight, and they are not going to be solved overnight either.

Perhaps our economic future is best summed up by this one statement that economist Paul Krugman recently made....

"America is now on the unlit, unpaved road to nowhere."

It would be great if I could write about America's bright economic future and the unlimited prosperity that is ahead for all of us, but that would be a lie.

We are headed for an economic collapse.

It is going to be painful.

It is time to get prepared.

Posted by bing2 (13 days ago)

sadsack, you dont have the crystal ball and you were wrong the first time around. property in hong kong has also not crashed. it was down for a very short time and of course i agree this is because of the stimulus money but it has not crashed as you said it would. i also find it difficult to believe that you didnt anticipate stimulus money. whether the stimulus money would work in the long run or not at least for now it has worked well. it may delay what's coming in the future, but again no one knows for sure. i just think it's time to get ready especially when no one knows where the market is heading for the next few months. i remembered you also once said property would cost cheaper than the cost of building it. i am anticipating a correction in the next few months up to 30% but absolutely no crash in my opinion. i hope you know hk and china gov are the biggest landlord and they had learned (hk gov) a painful, painful lesson in 97-98. i think it's great you share your thoughts but the thing is you keep telling people dont buy, property is a bad investment, etc, etc, which i personally think you should not be doing. if i had listened to you during financial crisis and stayed at the sideline i would have kicked my own balls. i am sure along the way you scared some people off.

walkup, if you take warren buffet as your idol, you should be selling now because everyone wants a piece of soho. everyone is greedy now. after i signed my s & p a new buyer offered to pay higher price although my price was already one of the highest recorded prices in soho area. i agree with you that it is very difficult to find units with a terrace on elgin st that's why i let mine go for a premium, but again i would say it is difficult to find units this TIME around. who knows a few months or years from now everyone wants to get rid of their units in soho, no one knows but for sure if you want to buy TODAY you need to fork out close or more than 5 million for a shoebox size unit with a terrace. i also dont agree with you that the value of these properties in soho will hold even during bad times. i got mine during financial crisis after lehman collapsed and i got it for less than 1.8 million (small unit). there are always people selling or panicking during bad times so they are not immune. however soho properties could bounce back faster because of its prime location - it's the same golden rule for prime location but absolutely they are not immune to bad times. also i actually dont have any plan to buy a newer apartment as i love old walk ups around soho area. i think they have more value for my money but not at 4-5 million and yield of 3 - 5%. i can achieve that yield with newer buildings, such as centrestage on hollywood rd.

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