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The State of the Hong Kong Property Market (5)
Posted by Ed (365 days ago)
It would seem that the Eurobond 'solution' to the EU crisis is off the table as Germany is not willing to eternally stand behind bonds to support the bankrupt periphery countries...
As the EU is Hong Kong/China's biggest trading partner... and it is sinking into recession... what happens in the EU has a significant impact on the HK economy - and property market
Germany rules out common euro bonds
Berlin deaf to pleas from IMF and OECD ahead of summit
http://www.ft.com/home/asia
Posted by Loyd Grossman is Miss Venezuela (365 days ago)
Unless most people have paid off their properties, or put down huge deposits, after years of deflation. Market will slowly trend higher with inflation.
Posted by Loyd Grossman is Miss Venezuela (365 days ago)
Ed. make a few phone calls to property agents and ask for a cheap property. You may be lucky and find a panic seller.
Posted by Ed (365 days ago)
Germany Lends at 0%, Should You Be Worried?
http://www.cnbc.com/id/47518190
As the issue is expected to be fully subscribed... some are clearly extremely worried...
Posted by punter (365 days ago)
There are no panicked sellers yet. I'm looking for one too.
So, will property prices never come down?
Posted by OffThePeak (365 days ago)
When rates rise, sellers will panic.
Why panic now, when flats are so easy to rent, at levels that cover mortgages
Posted by Ed (365 days ago)
Difficult to predict when a panic will start...
Reminds me of a story ... was out on the Kenyan savannah... we sat around for an entire day... waiting and waiting for a panic... fortunately we had lots of beer in the cooler to pass the day... it was getting late... but then suddenly - for no apparent reason this happened: http://www.youtube.com/watch?v=zbCH2pVdh5A
And now the Greeks are openly taunting/blackmailing the EU...
Greeks See Euro Zone Exit Risks as ‘Empty Threats’
Many Greeks seem to think that since money to bail them out was found in the past, it will be found again.
http://www.cnbc.com/id/47518874
Posted by OffThePeak (365 days ago)
I don't think it is any different
But I did notice this headline in today's SCMP:
"Spanish banks may need an extra Eur 76 Billion"
... to cover increased loan losses (mostly on commercial real estate.)
What about the lost deposits?
More money is "running away" every day
Posted by walkup3 (365 days ago)
There is no reference to Hong Kong property or property at all in that link. Did you read it?
Posted by OffThePeak (365 days ago)
Spreading Global Downturn
"Italy, Spain, Portugal, Greece, the Netherlands and Brazil are now facing economic contraction (Brazil is the world's seventh largest economy and despite a huge 350 basis point rate cut from the central bank, the country has suffered three straight months of declining economic activity). France is stagnating. China is slowing down rapidly. The only two countries I see that have managed to surprise to the upside are Germany and Japan (the latter just saw the government actually raise its assessment of the economy).
Beyond Greece, two areas of concern are clearly Spain's woefully undercapitalized banking system where bad debt ratios have hit all-time highs"
(that's an Excerpt)
These problems may or may not spread to Asia. But by now we know the pattern: denial, bad news, bailouts, relief, and then the problems return.
So if it begins to spread to Asia, we can expect officlal denials before the news turns bad.
Some smart hedge fund friends of mine believe we will see the central bankers panic and flood the world with liquidity, which may lead to a 1-2 year global asset price boom, before it all collapses.
So a straight line move into a Depression is not inevitable.
Posted by Ed (365 days ago)
See above "considering investing in property"
We can discuss the backward looking Centadata index... which is pointless...
Or we can look forward and discuss the factors that might increase or decrease property prices in HK...
A slowing China will definitely impact HK property prices...
If Greece leaves the EU that will most certainly have an impact on HK property...
A recession in EU, HK/China's biggest trading partner will also impact HK property
More money printing/stimulus will likely affect HK property prices to the upside...
Scanning the posts above and on the previous thread - I think most of them are related to HK property...
Carry on....
Posted by walkup3 (365 days ago)
So where will HK property prices be in 6 months/12 months Ed? Let's see a quantification/value of the results of your 'analysis'.
Posted by Ed (365 days ago)
On one hand we have bank runs underway in two of the world's biggest economies.... people buying German bonds at 0%... countries printing trillions and trillions of dollars with little effect...
Strange to be having a debate over whether property will go up or down when at least to me, it would appear there are far graver things at stake...
Posted by Ed (365 days ago)
walkup... whats' that saying.... the only people who think they can predict the future accurately are 'fools and economists'...
From what I am observing we are lining up for something far worse than Lehman.... when will it happen? How in the hell can anyone possible put a date on it...
Even Bernanke doesn't know... he will print and print and print until one day - the printing doesn't work... then you will get your answer
Posted by Loyd Grossman is Miss Venezuela (365 days ago)
Maybe. But this is a property thread. With regard to Ed's pre vious post:
a) A slowing China will definitely impact HK property prices - Depends what you mean by 'impact'. Could have very small effect as most money invested in HK property is money taken out of China - which is unlikely to be returned.
b) If Greece leaves the EU that will most certainly have an impact on HK property - Personally don't give a toss whether Greece, Spain or Portugal are in the euro or not. Definitely won't make me want to sell my flat cheap.
A recession in EU, HK/China's biggest trading partner will also impact HK property - Maybe. But then again we have already had our massive deflationary recession between 1997 and 2006. What we are left with in HK is the unleveraged hard cash that survived nearly a decade of recession.
More money printing/stimulus will likely affect HK property prices to the upside - Too much money chasing too few assets equals inflation.
The printed money needs to find a home.
Posted by Ernie20 (365 days ago)
All the HK government curbs, all the bad news from Europe and US, still the HK market carries on up. I wonder what it will take to squash it. Even if interest rates rise and people start losing their jobs, they will hang on by their fingernails before giving property away cheaply here.
With Lehman the property market went down, but was back up quickly. People will try and ride the next dip out too.
Posted by elsdon (365 days ago)
I don't think we can categorically say the HK property market is up or down at the moment.. It's unknown IMO. Centadata is working off old data, and off a small number of transactions.. There's simply not enough visibility I don't think to say.
So my assumption is that we're currently flat. You have minor percentage swings both ways, but nothing considerable.
Loyd's points are somewhat invalid, because he's trying to base it on logic. I don't know if you're aware, but HK doesn't operate on logic. It operates on fear, sentiment, and irrational behaviour. Bad news anywhere in the world translates into bad news in HK. The larger population here isn't as fearless as Loyd, and will pull out their money because they will fear another drop like they experienced in 97, and in 03. That will be the real key, not fundamentals.
Posted by Underdawg (365 days ago)
I think Loyd's point that the majority of HK properties are fully paid for is very significant point. It goes to show how strong the property market is here. Having to put down large deposits, heavy screening to even get a 50% loan and government measures like the special stamp duty are all very significant factors that have to be considered. If anything, all of the uncertainty in Europe only makes the HK property market look even safer and stronger. Yes, prices are high, but HK real estate is still one of the safer assets to allocate your money. You can only put so much money in gold & silver. How much of your money are you going to put in farmland? You can put some money in equities and bonds. Keep some cash. And keep an HK property or two.
Posted by punter (365 days ago)
Who knows what percentage of residential flats are fully paid? Who knows whether those who have outstanding mortgage can weather a financial storm? Assuming that a big percentage can is guesswork.
In addition, the mainland buyers were completely taken out of the equation (in Loyd's statement). Yes it is widely believed that most of them paid in cash, but how true is that really? It's possible they're leveraged too and that when difficulties in the mainland gets serious, they too might bail out of Hong Kong.
Posted by Ed (365 days ago)
Lloyd has made this assertion before that most HK properties are not mortgaged.
And I have asked numerous times for a reference to support this.
So I will ask again - where did you get this from Lloyd?
Posted by fieter (365 days ago)
What you gents/ ladies seem to forget is that it only takes a few sales at 20 or 30 % below market level and then that IS the NEW market level - and what everybody else offers after that. Remember 2009???
So lloyd and friends may be right that most property is paid off or have small mortgages or have owners who are not under pressure to sell.
BUT I think that at least 10 % of property in the market belongs to speculators/ guys in debt/ failing business owners/ impatient mainlanders etc etc . All it takes is a few of them to panic and start selling cheap and you have a market crash.
Lloyd is right - if you don't sell I guess you don't lose - but your bank valuation will VERY quickly reflect the new selling prices set by the panic sellers. And so will centadata.
So it doesn't matter how strong the 90% of property owners are - only how weak the other 10 % is!!!!!
Posted by walkup3 (365 days ago)
Excellent work Itse. Now lets see if the end of the world guys will put their money where their mouth is. Is there a short for that? :)
Posted by walkup3 (365 days ago)
fieter: your theory is so much if, if, if. However the end result is that the market is spooking you to sell? What is the practical end for you? Or are you out?
Posted by Ed (365 days ago)
Lloyd - I didn't see that info - and I was waiting for it... so feel free to repost it...
Question for Lloyd and Fieter: If I bought a car for HKD500k in 2002 and I never sell it, is it forever worth 500k?
How about if I bought Facebook the other day - have I lost money?
With regard to property - if your 10M property is valued at 5M you HAVE lost 5M.... your balance sheet would show a 5M loss...
This is grade 9 economics...
Posted by punter (365 days ago)
So what does the link say Loyd? That 60% or 70% of all homes in Hong Kong is mortgage free?
As I understand it (plus the input of others), it looks like there are 2.4M homes in Hong Kong and 1.2M are self-occupied. 60% of self-occupied properties (700,000 of the 1.2M) are mortgage free. That makes 30% of 2.4M households are mortgage free.
That's a good number. But will that number be good enough to prevent others from panicking? I actually like fieter's take on this, that only a few panicked sellers may actually influence the market.
Posted by ltse (365 days ago)
"With regard to property - if your 10M property is valued at 5M you HAVE lost 5M.... your balance sheet would show a 5M loss...This is grade 9 economics..."
Did you know the investment banks don't play by those rules either? they should, but they don't. In the world of banking its called "mark to market", the banks thru their influence in Congress changed the accounting practice so now instead of valuing their MBS (Mortgage Backed Securities) aka toxic waste by what they can sell it for in the market, it is valued by the cashflow the assets generates so it doesn't appear as bad.
The fact is none of the investment banks have a clean bill of health, which is why I like the short ETF's on banking, you might as well profit from the crisis.
http://www.aei.org/article/economics/financial-services/relief-from-mark-to-market-accounting/
Posted by Underdawg (364 days ago)
Ed, are you seriously comparing a liability (car) to an asset (property)? I think it's you who might need to revisit 9th grade economics. Secondly, I think you really need to distinguish between a realized gain/loss and an unrealized gain/loss. When buying any investment, you should have some kind of plan for how long you want to hold the investment. If you bought a flat in 2007 with the plan to sell in 2008, that would have been a bad investment plan. If, however, you bought in 2007 with plan to hold for 5 years then that would have been a good investment plan. The short lived dip in 2008 would have been irrelevent to you in this case. If you bought a flat in 2007 to live in indefinitely, then your investment is as good as the rent you've saved each year plus the realized gain/loss if and when you sell the flat. I think the same goes for equities, except I would only invest in equities that pay good dividends.
The thing is, Ed, the difference between having bought hk property when this thread first started versus not having bought is quite significant. There is the monthly rent for however many years plus the (unrealized) capital gain.
Posted by walkup3 (364 days ago)
Some might not have got much past grade 9 economics. Hey Ed, tell us which HK property has dropped from HKD10m to HKD5m. You can't. Now about that 20% drop in gold price in the last 6 months (only 2.5% today). Maybe you would like to talk us through that one. Should be interesting.
Posted by Ed (364 days ago)
Yes walkup - gold is the same - if you bought gold at 1900 last year - and it dropped to 1550 as it has - you have LOST MONEY
Yes it might go back above 1900 at some point but that does not change the math - even if you wait that out and don't sell you have currently LOST MONEY on that trade
In 1998 the value of some properties dropped 70% and they did not regain that level until 10-12 years later. Those who bought in 1997 LOST MONEY. http://www.thomascrampton.com/wp-content/uploads/hkrealestate2008.png
Property, gold, stocks, cars.... if you buy and it goes down in value you have LOST MONEY.
Interesting... this was the same line of delusional discussion that was cropping up in the months after the Lehman collapse...
When the HK property market had tanked 25% and the realtors signs in the windows had big marks through them 'price slashed'
The bulls starting to get a little nervous over the news coming out of Europe?
Lloyd... do you still think that 'that little country exiting - or that the EU recession - will not impact the HK property market'
Posted by Ed (364 days ago)
ltse - I am fully aware that the US changed the accounting rules for big banks after Lehman allowing banks to mark their assets to whatever they paid for them.... instead of what they are actually worth.
You know why they in effect changed a fundamental accounting rule that has been in place since the beginning of time?
Because they knew that if the banks continued to use the proper rules every single one of them would be declared insolvent because they had lost trillions of dollars because assets they had on their books had gone down in value dramatically.
In fact US banks remain hopelessly insolvent to this day.... and if they have to realize those massive losses on their balance sheets say goodbye to the global economy because these banks would vaporize... so the rules - for them only - get changed
The difference between them and an underwater property owner is that the rules have not changed for the individual - you mark to market not to whatever value you dream up.... and not to what you purchased the property at...
And also the Fed (or other central banks) is not going to stand behind you with printed trillions that allow you to continue to live in your fantasy world helping you pay your mortgage...
And I am pretty, pretty... pretty sure.... the Fed is not going to help you pay yourself a multi-million dollar bonus this year
Posted by Underdawg (364 days ago)
Ed, even someone who bought a flat in 1997 to live in indefinitely has done better than someone who never bought at all and has been paying rent all of these years. For example, if you bought a flat for ten million hkd in 1997 and it dropped to 3 million the following year, yes you would have an unrealized loss of 7 million. But if you continued to live in the flat, then today it would probably be worth more than what you paid for it. But the main point, which you continuously and conveniently ignore, is that you have saved paying rent for 15 years. And that is the worst case scenario yet of having bought hk property to live in.
Posted by walkup3 (364 days ago)
Ed's understanding of economics is very strange. If one bought a property 10 years ago and that property has gone up and down during those 10 years and now is worth (can be sold for) exactly the same (inflation-adjusted price) then the net losses/gains = 0. (I am also assuming for simplicity all other things being equal). Note that Ed sees only losses through his stylish Mad Max glasses. The reverse side of Ed's coin is also equally ludicrous. If you purchase a property which rises 50% and then drops back to the original price, does one scream 'Hey, I made a gain!' ? No, of course one doesn't. I am reminded of one or two of the preachers who used to make an appearance at Speaker's Corner every Sunday (maybe they are still there). Their sole message was ' You are all going to hell!'
Posted by hkxxxpat (364 days ago)
That can't be right Underdawg. Interest rates from 1997 and for what I thought was a few years after were 10% or thereabouts (someone must have the data). Yields on property (and again someone must have real data) would be at most 2-3% now and 5-6% in 1997. So for all that time you have lost money against the cost of funds. Plus add depreciation of say another 1% per annum. Sure you have an asset that is now worth say $11m but it cost you well over $6-8m to get there. You are worse off I would think. Plus the enormous stress of being so far underwater for so long.
Plus this squares with the people I know who bought then and who sold the minute they were close to paying out the mortgage. They nearly drowned in debt repayments for all those years till the crash finally brought interest rates down and prices finally rose.
The better point is to look at those who bought after property prices adjusted down after 1997, and took just a year or 2 to be significantly better off. Those who spent $10m, or $5m, in 2003 or so made 4-10 times their money in the next 3-9 years. A number are retired now.
So ask those who you know who bought around 2003 what they are doing now, my unscientific research shows the people I know who bought then have all sold now or in settlement process.
Posted by Ed (364 days ago)
This is a pretty straightforward concept:
If I bought gold at 1900 and the market value of gold is now 1500 I have lost 400 - doesn't matter if I sell it now or in 20 years... I am down 400 at this moment
If I bought a flat at 10M and the market value is now 5M I have lost 5M - doesn't matter if I sell it now or in 20 years... I am down 5M at this moment
What's next - are we going to debate whether or not 1+1 = 2?
Underdawg... it took properties bought pre-crash 97 10yrs to recover their value... work out the opportunity cost on an underwater mortgage of 7M on a 10M property that is worth 5M over 10 years... I did this on another version of this thread - the loss is staggering... you would definitely have been better off not buying in 97.
Posted by walkup3 (364 days ago)
In your case that might be appropriate. The finesse is understanding time. Let us make it even simpler. We are not (in our hypothetical example) looking forward from a notional loss. We are looking backwards over the whole process. In say 2007 I bought for 10m and the price dropped to 5m in 2011 and now it is worth 10m again (discounting inflation etc) where is the loss now? Similarly, if I bought a property for 5m and then it went up to 10m and now it is worth 5m, has it made a gain? I suspect that you just like saying the word 'loss' (hell).
Posted by Loyd Grossman is Miss Venezuela (364 days ago)
Ed. This is from today's (May 24, 2012) Standard. I know it is the head of Centaline talking about 60% of owners paying off flats but it would probably be easy for someone to prove him wrong so, on balance, he is probably correct.
- Centaline Property Agency founder and chairman Shih Wing-ching blasted the Hong Kong Monetary Authority yesterday, accusing it of misjudging the real estate market.
Offensive to Shih was the line taken by HKMA chief Norman Chan Tak-lam on Monday, when he declared the authority stands ready to impose more curbs if home prices continue to rise too fast.
"The authority is not giving the wrong diagnosis to the situation but the wrong medicine as well," said Shih.
"I don't see an asset bubble forming now. The proportion of empty homes in the SAR stands at 4.3 percent, much lower than the global average of 5 percent."
Previous measures the HKMA took to cool down the market came just under a year ago, when the downpayment requirement was raised to 50 percent for homes costing more than HK$10 million and to 40 percent for flats priced between HK$7 million and HK$10 million. Previously, only 30 percent was needed in both categories.
"About 60 percent of homeowners have finished repaying their mortgages, which is rather conservative," Shih said, adding that prices will still rise due to a lack of supply. "We need at least 20,000 units each year to cool down the market."
He said the incoming administration's proposals to boost public housing will have a limited impact on the more general private homes market.
"The most effective way will be to increase plot ratios, boost reclamation and make use of agricultural land in the New Territories."
Shih also said new guidelines from the Estate Agents Authority could easily confuse the market.
On Tuesday, the authority said property agents may lose their licenses and face fines of up to HK$300,000 if they fail to provide prospective buyers with an accurate figure of the net saleable areas of secondary homes. The new rules are effective from January 1.
Shih urged the government to use only one definition for saleable areas.
Posted by Ed (364 days ago)
walkup... further to hkxxxxpt's very wise comments....
I don't believe it so simple as that as even if you refuse to sell there is still a realized loss...
Lets say you buy in 97 at 10M - price drops to 5M in 98 - takes 10yrs to recover.
You are paying off a 7M mortgage during that period at say 6% - 5M of that mortgage is a bank funded loss... so that's say 300k per year you wouldn't have had to fork out if you didnt buy in 97...
You invest that 300k per year at say 8% and you reinvest over 10 years... now we are talking some big money in terms of opportunity cost...
So simply having your 10M property drop to 5M then recover to 10M and then selling... that does not mean you broke even... you still have 10 years of compounded income on the lost opportunity of that 300k you wasted on that underwater mortgage during that period.
Posted by walkup3 (364 days ago)
I said 'all things being equal'. Maybe you don't understand that term which is common in economics. And by the way did you forget to include assumed rent in that example you cobbled up? The (unadjusted for inflation) rent on a 10m property assuming 5% return to the owner would be hey HKD500,000. I give you an F.
Posted by punter (364 days ago)
In the past link, the 60% is the percentage of self-occupied homes. Not "ALL" homes in Hong Kong.
Posted by Ed (364 days ago)
Punter... if we had a prize for post of the day... you'd get it for the above... well spotted
Posted by Ed (364 days ago)
What does all things being equal have to do with opportunity cost walkup?
Are you trying to make a case that there is no lost opportunity from paying off a 7M mortgage on a 10M property that is now worth only 5M?
In my example the owner occupies the property ... so there is no 5% yield (however it would be fair to factor in your rent costs during this period... but then you also have to factor in agency fees, legal fees, upkeep on the property etc...)
That said I am interested in how you generate a 5% yield on a property when you paid double the market value for it?
End of the day given the choice I don't know of anyone who would have been happy about buying a property in 97 that dropped by half and did not regain the original value for 10 or more years...
Posted by elsdon (364 days ago)
Just on the 60% of mortgages paid thing.. I posted in the last thread, reposting for reference..
http://www.censtatd.gov.hk/hong_kong_statistics/statistical_tables/index.jsp?charsetID=1&tableID=005
2.4M households in HK.
52.7% of them self-occupied, lets assume for simplicity sake, 50%.
1.2M self-occupiers. 60% of them 'allegedly' no mortgages.
700k mortgages paid. 1.7M unpaid. (Assumption: the other 50% of investor owned homes are NOT paid in full, as that is a horrible use of capital and not leveraging the ridiculous mortgage rates currently.)
That's 30% of total mortgages paid, not the 60% which is a misleading figure.
Posted by walkup3 (364 days ago)
You didn't include the rent Ed. What you forgot and this is embarrassing to have to point out is that if s/he didn't buy, they would be paying rent. Not included by you. Got it now? The equivalent rent at purchase would (probably) have been 5% at the value of an equal purchase at the time. Even for adjustment in line with market value at its lowest point the rent is still 250,000 per year. Over the period your 300k disappears. Still an F for you. Note: My 'all things being equal' assumed that the real value would be the same assuming all other factors. So not the same figure, but same as in real. I assume you might not know the difference. An economist would.)
Posted by Loyd Grossman is Miss Venezuela (364 days ago)
elsdon. But investors with weak holding power will have been shaken out by now. Also, what about public housing?
Posted by Ed (364 days ago)
I did mention rent actually... and I noted that the other things that property owners often conveniently leave out are the costs that include agency fees, repairs, legal fees etc...
One final question before we move on... if you had bought a property in 1997 - and it dropped by half a year later...
Would you be happy about having bought a 10M property that was now worth 5M?
(the reason I ask is I recall having lunch with a friend who is a corporate lawyer who was still cursing a property he was trying to flip when the market turned in 97... 12 years later... )
Posted by elsdon (364 days ago)
Loyd, seems about 30/70 right now.. public/private sector self-occupants..
I think weak holding power is yet to be known. You've basically just replaced HK people from 97/03 with mainland China money to some degree, I'd be curious to see what their real holding power is as they typically have no idea how to handle their wealth. (Being the first time China has ever had real wealth to invest.) Time will tell as China's economy is slowing down, and we'll really get to see how leveraged these people are.
Posted by walkup3 (364 days ago)
re: 'Would you be happy about having bought a 10M property that was now worth 5M?'
No I wouldn't. But (and obviously I don't know the actual property owned by your friend) it will not be a problem I will likely have to face. Seriously if I had access to HKD 10m right now, I would be buying 2 or even 3 apartments in Sheung Wan/Sai Ying Pun/Kennedy Town and renting them out. Do I think that such apartments bought at say 3.5/3.5/3 million could conceivably drop in value by half? No. I am confident that there will always be tenants for such apartments. I also know someone whose apartment in New Territories lost half its value (recovered since then) It was an apartment for him and his family to live in so it didn't really matter (and still doesn't) what it was worth.
Posted by Underdawg (364 days ago)
Ed, the hypothetical situation I posted above I also described as THE WORST CASE SCENARIO for buying hk property to live in. THE WORST CASE SCENARIO. I did not say that one would be happy with the investment decision. But I did say that the person who made this investment decision would be still better off than someone who did not buy hk property at all and has been paying rent the past 15 years. What you also have to keep in mind is, the person who bought does not have to pay rent for the upcoming 15 years if he decides to stay in the same flat. The person who did not buy and has still not bought still has to worry about paying rent next month, the month after, and so on until he/she decides to buy. Yes, buying in 1997 would have been a bad investment decision but it's still better than having paid rent all of these years and still have no property to your name.
Posted by traineeinvestor (364 days ago)
@elsdon
If I read you correctly, you are assuming that all 1.2 million investment properties carry mortgages? That sounds like a bit of a stretch to me.
In any case, if you divide the total amount of residential loans outstanding at the end of March (HKMA statistics) of HK$803 trillion by 1.7 million properties, it works out at less than half a million per mortgage which seems very low to me and implies that the levels of indebtedness in the Hong Kong property market are very low.
Even if you make adjustments for housing related loan categories from Hong Kong banks which are excluded from the statistics (about 5%) and add a bit for non-bank sources of funding, I am still struggling to get too far past HK$500K on average for those 1.7 million properties.
Actually, this looks really low - have I got the maths wrong?
Posted by Ed (364 days ago)
Chinese Manufacturing Activity Shows Further Weakness
China's factories took a hit in May as export orders fell sharply, a private sector survey showed, suggesting surprise weakness in April's hard economic data persists.
http://www.cnbc.com/id/47545045
China Factories Worsening
China's manufacturing activity contracts at a faster pace in May as conditions for exporters worsen, according to preliminary data from HSBC.
http://www.marketwatch.com/story/china-manufacturing-activity-worsens-in-may-hsbc-2012-05-23
Well... they can always release the Mother of All Stimulus packages and built millions of empty apartments, shopping malls and entire cities... to make up for lost exports...
Oh - that's what they did in 2008?
Ah... how a bout building a few thousand bridges to nowhere? NO - a better idea... hire 20 million men... give them shovels... and ask them to dig a subway system from Shanghai to Hong Kong.
I am serious... because that is effectively what they have been doing since Lehman... building for the sake of building ... the Aussies are lovin it though!
Posted by Loyd Grossman is Miss Venezuela (364 days ago)
Ed. Lots of Russian money and Arabaian money flows into the London property market. A lot of mainland money also flows into the HK market. However, the vast majority of owners in London and HK are local. It stands to reason.As an experiment, try selling a standard HK property now for about 6-7m and see what you can get in the main European cities. Not that much really. HK is relativeloy cheap because of the weak US dollar.
Posted by elsdon (364 days ago)
@traineeinvestor:
Using table: http://www.hkma.gov.hk/media/eng/doc/market-data-and-statistics/monthly-statistical-bulletin/T0307.xls
"Residential mortgage loans in this survey are loans (including refinancing loans) to private individuals for the purchase of residential properties, including uncompleted units, but other than those properties under the Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme. Mortgage loans to corporate clients are excluded from the survey. The authorized institutions participating in this survey accounted for over 95% of the total residential mortgage lending business."
The question is, who knows how many mortgages are held by corporates or shell companies?
I think in general numbers are a bit weird in HK.. Assuming worst case scenario, 803,277*1.05=$843,441,000,000HKD
then of all the 2.4M mortgages, assume 60% are paid off.. (960k outstanding) I'm still only getting to like $850K per mortgage which still doesn't make sense.
To get to a remotely reasonable number, lets say.. an average of 3.5M HKD per mortgage, I have to extrapolate to about 200-250k outstanding mortgages.. which would equate into about 90% of total households being paid off.. which is stupid.
EDIT: Just adding up the 'Gross Loans Made' column in the table, taking a rough view.. from 1996 -> Present.. I've got a sum of 1,447,383 gross loans made..
Adding up the money column, I get HKD$1,817,289,000,000.. Which gives us an average loan amount per mortgage of: HKD1,255,568.844 (which sounds ridiculous)
Using that average, we calculate the 803trillion before as approximately, 640k outstanding loans. That puts us well above the 60% ratio if we use 2.4M outstanding mortages.. roughly 74% paid off in full? That sounds even more ridiculous.
I wonder if anyone has any idea how much HKD we really have in outstanding mortgages?
Posted by Loyd Grossman is Miss Venezuela (364 days ago)
Yeah. These are mainstream London flats, nothing fancy. Factor in an income tax rate of 40-50%, 20% VAT plus other expenses and HK looks very cheap even though the flat will be smaller.
Posted by Ed (364 days ago)
Lloyd you've missed the point...
The HK economy is hugely dependent on the Chinese economy - HK is an export-based economy...
If Chinese manufacturing and exports drop off - Hong Kong drops off... Hong Kong's stock market drops off... Hong Kong's property market drops off...
Of course we all know that PRC buyers make up a significant part of the luxury market demand in HK... if the PRC economy is in fact stalling... they will disappear
Posted by Ed (364 days ago)
Tick tock ... Tick tock.... How many 100 billion has the UK printed now? It's not working....
UK slumps deeper into recession as GDP revised down to -0.3pc
UK GDP has been revised down to -0.3pc after a sharp drop in construction output, putting pressure on the Bank of England to restart its quantitative easing programme.
http://www.telegraph.co.uk/finance/debt-crisis-live/9286543/Debt-crisis-live.html
And yet another market that won't be buying as much Made in China/HK
Posted by traineeinvestor (364 days ago)
@elsdon - point taken, there is a lot of data which we don't have, but which ever way we try to guess at the unknowns, it's pretty clear that the level of gearing in the Hong Kong residential market based on LTV is pretty low by just about any measure - a conclusion that makes perfect sense if you consider the combination of current and historic minimum deposit requirements, the passage of time during which principal repayments would have been made on most mortages and that a lot of buyers either pay cash or borrow much less than the limit. Using the experience of the last property we purchased a few years ago - we put 30% down and are currently cash flow positive and now have more than 50% equity on LTV basis due to a combination of rising values and the principal component on the monthly mortgage payments.
It's very hard to suggest that the Hong Kong market has a problem with too much debt or that banks are overly exposed to risk in this area. If we have a substantial decline in the Hong Kong market (a point on which I am somewhat agnostic), I doubt if it will be triggered by excessive debt levels This is not pre-GFC America where anyone could borrow 100% against anything with no proof of ability to repay.
Another way of looking at it is to comapre today with 1997 - gearing is lower (I believe), cash flows are better and the banks have been more conservative in their lending - it is really really hard to see the property market being driven down by people escaping debt burdens. IMHO, if the market collapses, it wil be for other reasons.
FWIW, most of my investment properties are held through a company but the bank still classifies me as a personal customer.
Posted by Underdawg (364 days ago)
Tick tock tick tock, it's about time Ed creates a new thread called "The State of the Macroeconomy".
Posted by OffThePeak (364 days ago)
"New thread called 'The State of the Macroeconomy' "
Sounds like a Plan.
Posted by Ed (363 days ago)
In that case instead of Lloyd having to post the backwards looking Centadata figures, I can see if Centaline can just give us a feed right onto the forum...
Posted by OffThePeak (363 days ago)
Those "backwards" numbers are really useful, Ed.
If you know how to read charts
Posted by hareme (363 days ago)
The Mainland money that has come across the border as cash for property has come from the mainlands lending for business development and stimulus. The Chinese have instead taken this money and pumped it into HK property. This does not reflect as a mortgage in HK
This cash is a debt to the mainland, when property starts coming down there will be a run for the exits by the mainland investors.
Posted by Loyd Grossman is Miss Venezuela (363 days ago)
Ed. You'e missing the rather obvious point that if a lot of people have already paid off their mortgages - or have very little left in the way of debt - then buying a cheap flat from them is not easy - especially when there are now no speculators in the market. Why this fundamental point escapes you is beyond me. If someone is rich then buying an asset off them is not so straight-forward. Oh, and Hong Kong is an entrepot, not an export economy. Yes, it is hit by world events and those on the mainland - look at the Hang Seng Index - but that doesn't mean there is a 100%-correlation between the HSI, other world events and the property market. If people have little debt, it doesn't really matter about interest rates, Greece etc. Hareme. I disagree. I think most mainland money in HK is here to stay. It is, by its very nature, money taken out of China. A lot of it, I suspect is laundered.
Posted by Ed (363 days ago)
A lot - but as your false claim has been exposed above…
MOST - have NOT paid off their mortgages... and many of those are speculators not end users...
When this EU (and/or China, Japan, America) thing starts to splatter many will panic sell into the market ... just like they panic sold into the market in 1998 dropping prices up to 70%...
Guess what happens in a recession (depression...) - people lose their jobs (and their tenants) - and they can't pay those mortgages (or their BMW payment… or their other debts)... so they are forced to sell their homes... and that drives the property market down...
As for PRC money being here to stay we shall see...
Picture this... some crooked politico on the mainland has been siphoning from the mother tit (i.e. tapping into the massive stimulus money and thieving it through corrupt practices)... then coming to HK and buying property 100% cash down... i.e. he launders the money in HK...
Now the crook's ventures in China dry up as the economy slows - but he's way overextended thinking the good times will never end... he needs cash to pay the bills...
But more disturbingly…..
HIS MISTRESS(ES) ARE SCREAMING - I WANT ANOTHER LV BAG!!! AND SHE HOLDS BACK THE COOKIE JAR UNTIL SHE GETS IT ... AND YOU KNOW WHAT HAPPENS WHEN THE COOKIE JAR IS HELD BACK...
Of course our crook panics... he needs to get that LV back and FAST!!!!
What's he gonna do?
Ah - there's that flat on the Peak that he doesn't use... even though the market is in the tank and it's down 30% he's gonna sell because it's not encumbered by any debt... he gets the entire sale price.... enough to buy MANY LV BAGS!!!!
So he calls Centaline and shouts "SELL SELL SELL!!!!'
And Centraline calls up Ed and says we got a great deal on the Peak... 30% off... and Ed says nah.... 70% off....
Centaline calls the vendor who by this point, is shrill with desire for COOKIES... and says I got this gweeelo in HK... he says 70% off… I suggest you take it because the 'market is going sideways you need to get ahead of the curve... if the EU breaks all hell will break lose'
Ok he says - cut the deal!!!!
Ed attends the Centaline head office pays the money and accepts the keys to his palace in the hills and lives happily ever after...
The crook gets his cash and races across town to at last get his OREO…
The End.
So you see Lloyd… there are a lot of moving parts at play that you have failed to factor in here…
Posted by Ernie20 (363 days ago)
I wonder how many people out there are cash rich too i.e. mortgages not paid off but sitting on substantial cash. Makes little sense to pay your mortgage off at these interest rates, i like to play around with the cash and see if I can make a little more.
However if interest rates soar, i can put a serious hole in the mortgage and bring payments down again. Bet theres a lot of HKers in this position. I see no evidence of panic.
Posted by elsdon (363 days ago)
I actually see the opposite, to some degree..
As per: http://www.censtatd.gov.hk/hong_kong_statistics/statistics_by_subject/index.jsp
2.4M 'home owners' in HK, 7.1M people living here (including DH/expats??).. Meaning 1/3rd of HK people currently own their house? That hasn't been my experience..
Regarding Loyd's point above about speculators being out of the market.. only about half of the current market are owner-occupiers dude, doesn't that make the other half by definition investors/speculators??
Posted by walkup3 (363 days ago)
Love those LV bag stories Ed. Almost as entertaining as your maths.
Posted by traineeinvestor (363 days ago)
Hong Kong banks are awash with liquidity - the HKMA data confirms this. Separately, if they were short of cash, then they would have to pay more than than the negligible amount they currently offer. Given the HKMA data on mortgages referred to above, it is also clear that the amount of leverage in the residential property market as a whole is low on a LTV basis.
As to the make up of the market, there is a world of difference between a speculator who is looking to flip a property for a capital gain and an investor who views properties as a source of long term income. The latter almost certainly make up the vast majority of non-owner occupiers. If they are anything like me, they gear to the point where the rent will at least meet the mortgage payments and other outgoings (after allowing for some vacancies). Given that mortgages here are typically P+I and that large deposits are required, in the event that an investor gets into cash flow difficulties due to lower rents, higher vacancies and/or higher interest rates, there is plenty of margin to negotiate a rescheduling with the banks.
If we get a material decline in property prices, it is very unlikely to be driven by desperate sellers who are unable to meet their mortgage payments.
Posted by walkup3 (363 days ago)
Interesting observation there Ernie20. For those of us sitting on a HIBOR + 0.7% mortgage there is no incentive at all to pay off and in fact rather than taking out a new mortgage for a subsequent property, rather keep the old one and save up the cash. Alternatively just hold the cash as you suggest.
Posted by Loyd Grossman is Miss Venezuela (363 days ago)
Ed. Love the morality tale though it's a bit on the cliched side. Can you also a) show me where my so-called 'false claim' has been exposed and b) explain to me how you negotiate a cheap deal with a rich person? Also, ask yourself the question, "Is the housing market collapsing in Monaco, or Barbados, or the Channel islands?" Hong Kong is now very similar to these places and it is not the same place it was in 1997. The banks know how much you have borrowed, LTV ratios are much stronger, we have just come out of a 9-year recession. Elsdon. Maybe, but if they are speculators, they have deep pockets (probably long-term investor may be a more appropriate term) or they own multiple flats outright. Anyone taking a short punt on the market would have been shaken out when the HKMA introduced the calming measures, or in 2008, or during the 9-year recession.
Posted by Ed (363 days ago)
lloyd - how to get a deal from a rich person?
find one who is levered up the ying yang in a recession - and fire low ball offers on his assets... you will get a deal
Nothing - HK Monaco etc... are collapsing - yet - when the EU comes apart let's revisit ya...
walkup - can you explain the math behind 'you'd be better off to have bought in 1997 and endured 10 years on an underwater mortgage than to not have bought at all'...
I'd have thought you'd have been better off to not have bought in what was clearly a bubble market ... and waited...
Posted by Loyd Grossman is Miss Venezuela (363 days ago)
Ed said:
"When this EU (and/or China, Japan, America) thing starts to splatter many will panic sell into the market ... just like they panic sold into the market in 1998 dropping prices up to 70%..."
Hasn't this been going for ages? At least since 2008?
Posted by traineeinvestor (363 days ago)
Ed - I think LLoyd's point is that highly leveraged persons are very few and very far between in the Hong Kong residential market.
Of course all this can change if prices and rents fall far enough and/or interest rates go up far enough but the moves will have to become very significant before cash flow or LTV issues start motivating people to press the panic button. An absence of buyers for the expected increase in the supply of new units is a much more likely catayst for driving prices lower (not a prediction, just something that looks more likely than debt stricken investors running for the exits).
I agree that buying in a bubble like 1997 would have been a bad idea - negative cash flows and so on. Of course, 2012 is a very different market and in spite of a lot of pundits throwing the word bubble around, the Hong Kong market simply does not show the normal characteristics of a speculative bubble: the speculative element has been largely driven from the market place.
Posted by ltse (363 days ago)
Its all about the cycles, investing is about deploying capital at the right time. You make money when you buy, not when you sell, your entry price determines your rate of return.
If you ignore the cycles, and just buy keep holding as some suggest here, ie buying on an uptrend, keep holding during a down trend, and just wait until the next uptrend appears, yes you may not incur a capital loss and may even have a capital gain but would have wasted opportunity cost aka time.
The lag time between the last property up trend ie from 1997 to now is well over a decade, which would be fine if your not a speculator I suppose.
All I am trying to say is "don't chase the rally", remember when oil was at $150 everyone was saying "peak oil", "war in Iraq", "Chinese growth demand", all played a factor, many were predicting $200 oil. Well here's one writer now conceding to "what happened to $200 oil"?
http://www.financialsense.com/contributors/jeff-rubin/whatever-happened-to-two-hundred-oil
Its best to be defensive now, if you have savings, then keep it in cash, if you have multiple properties, I would sell some into the rally. Its not clear whether deflation or inflation is winning the battle. I would stay on the side lines for now.
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/5/24_Richard_Russell__We_Are_Entering_Second_Half_of_the_Bear_Market.html
Posted by Ed (363 days ago)
TI: clearly there are not that many now... but there will be plenty of over-leveraged, formerly rich people when the EU collapses....
What's that Buffett saying.... you will see who's swimming naked once the tide goes out or something like that?
Actually Lloyd this has been going on since 2007...and the devastating crash that was set up then was delayed, and will ultimately be made far worse... by the deluge of money printing and debt being incurred in a desperate yet futile battle to save the global economy
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/03/20120320_armaggedon%20costs.png
Japan and Europe are worse...
Total amount printed by central banks in the past years exceeds USD10 trillion....
Tick tock... Tick Tock....
Posted by walkup3 (363 days ago)
walkup - can you explain the math behind 'you'd be better off to have bought in 1997 and endured 10 years on an underwater mortgage than to not have bought at all'...
To set up a useful case study (not the silly stuff you come up with) you have to set out the appropriate parameters and the key missing one from you was rent. One way to approach this would be to select a building which was built in say 1995 and assume that two neighbours are each paying HKD500,000 annual rent and that they were offered the apartment for sale at a price of HKD10m. One does and the other doesn't (Discounting other factors), if say for simplicity, the rent was always
5% of the value of the property and if the LTV was 50% then the interest rate would have to be in excess of 10% before the interest payments exceed the rent. You can adjust accordingly. Of course the actual mortgage includes capital repayments which is something separate, but the actual amount here can dissuade purchasers even though interest payments are affordable. So, in the first instance we have to offset the continued rental option (dead money) against mortgage interest payments and that would be an interesting exercise if we wanted to collate historical data. Either way you haven't got the faintest idea. Stick to the LV handbags Ed.
Posted by elsdon (363 days ago)
hrm.. I've been doing more thinking along the lines of the investor/speculator positions.. If I were a savvy investor (which I obviously am not.), why would I not leverage the low mortgage rates and pay the entire thing off?
Let's say I have a 5M property paid off in full.. getting 13k a month or so, that's a yield of 3.12% or so. Let's assume I've got a 70% mortgage now on said property.. so only about 1.5M in principal.. getting the same 13k a month, bringing my yield to 10.4% (not subtracting interest paid on mortgage yet but negligible..)
Why would anyone in their right mind own anything outright?? Never mind a savvy investor who has obviously done well enough financially to be investing in multiple properties? It's inconsistent. There's only one explanation.
The general assumption is that the HK investor that owns the other 50% of the flats here are intelligent. I don't think that is the case. We assume they have an logical thought process and decision matrix based on fundamentals, or other schools of thought. Untrue. Even within our tight sample set of educated people in this forum, we can't even come to a consensus.
The HK property market you say has a really low risk LTV ratio, I agree with that. On the other side of the coin, the HK property market has 50% of the market as sheep that are ultimately speculators. You are telling me that a regular person would have enough sense to try and hold through property dips? Are you on crack? Do you not know Hong Kong people? These are the same people that line up first without knowing what they are lining up for, just so they won't miss the boat. The moment the first sale goes, you'll see a fire sale.
Posted by Ed (363 days ago)
walkup - to quote our corporate lawyer who said over lunch not long ago... "that &&&..*&^% ...(*&^^% Robinson Road property is just now getting back to its 97 price!!!!"
Translates to: I suspect he would vehemently disagree with you
Eldson - eloquently stated...
Posted by Ed (363 days ago)
HONG KONG (MarketWatch) — Asia is more exposed than ever to contagion risks, according to investment banking research this week seeking to gauge the fallout of a financial accident in the euro zone.
As a result, a sharp decline could be more harmful, Nomura said, adding that negative knock-on effects to confidence would erode consumption, as well as investment and bank lending.
In a replay of events that unfolded during the global crisis, outflows of capital from the region would be likely under a European calamity, except that this time, the scale of the flight could be bigger, according to Nomura.
Daiwa Capital Markets said China has likely already prepared an action plan to deal with such a scenario, or even a milder slowdown, although it said the response would be smaller in scale to the massive expansion in bank lending and state-led infrastructure spending blitz orchestrated in 2009.
http://www.marketwatch.com/story/asia-more-exposed-than-ever-to-global-crisis-2012-05-25
Posted by grooveybaby (363 days ago)
Personally, I'm really hoping the collapse of the euro comes soon... nevermind the economic misery it will heap on millions of people... at least it will help settle some of these arguments!
Though if property prices DON'T crash with the Euro's collapse... I'm sure Ed will STILL be signing off his posts with "tick tock... tick tock..."!!! (The end of the world is nigh... but I'm OK cos I'm shacked up in the back-of-beyond!!! I made the right decision!!!! :p :)) pfffft)
Posted by elsdon (363 days ago)
rofl@Grooveybaby.
That's hilarious.
I'm looking forward to the crash as well so at least we'll have some semblance of certainty.
Also, so I can buy again. :D
Posted by Ed (363 days ago)
If the Euro Zone collapses and HK property doesn't tank... I will be dipping my words in that orange sauce they put on chicken balls...
I'll take that further... if any major economic zone has a black swan - US, Japan, China, EU... and HK property doesn't tank... I eat.
Posted by Loyd Grossman is Miss Venezuela (363 days ago)
Elsdon. I see your logic - and this happened in the past when it was easy to get back in. Now the bid-offer spread in HK property is too wide thanks to the special stamp duty. Most people holding as inflation now kicking in and it's not easy to get in cheap. Ed. If Germany collapses, then maybe the HK market will tank. As a European, I have never expected much from the Spanish or Italian states - let alone the Greeks. You may even get a flight to quality with HK property.
Posted by elsdon (363 days ago)
Loyd, getting in/out due to SSD is just part of your margin now. You just roll your selling price up the 200k or whatever required to cover your next purchase.
It still doesn't explain the number of people sitting on so much cash for such a tiny yield, and being so exposed.. They could be garnering the EXACT same return and holding safe cash, using considerably less capital.
It's not so much about the specific countries collapsing, but the market confidence that ensues. Regardless, all the european banks are so intertwined with the countries these days that any of them going down is going to have a severe impact on the global economy. We're talking bailouts in the order of tens of billions, much more than the global corporate sector ever produces in a year???
Posted by Ed (363 days ago)
Actually it's far greater than tens of billions....
The recent LTRO and Swap total was almost 1.5 TRILLION dollars... that was the amount that was handed to EU banks on a 3 yr basis at nearly 0%...
Without that Europe's biggest banks including Unicret, BNP, SG etc... would have collapsed...
That said - they are in a worse state now because a good deal of that money was invested in the bonds of PIGGS... the yields have spiked up and all the banks are now sitting on huge losses...
So they are even MORE bankrupt if there is such a state - is that like being more dead?
Posted by OffThePeak (363 days ago)
""that &&&..*&^% ...(*&^^% Robinson Road property is just now getting back to its 97 price!!!!" - per Ed.
Actually : Perhaps not!
Robinson Place, that Midlevels bellwether property seems to have gone into reverse gear:
Week : CCLI : CMMI : RobinPl: Tregun : Dynast: Clovell / IslHarb : ParkA : Waterf : Sorrent : TArch : CaribC
vsLo +10.4% +11.7% -2.26%: +3.65% +3.65% +10.6% +13.9% +7.55% +3.80% +18.2%: -7.14% +11.0%
05/20: 103.94 101.89: 13,697 : 18,052 : 22,306 : 18,416: 10,004 : 10,404 : 12,716 : 15,435 : 18,642 : 5,137
===
"Low"
01/08 : 94.16 : 91.25 : 14,014 : 17,417 : 21,520 : 16,651 // 8,780 : $9,674 : 12,250 : 13,060 : 20,075 : 4,630
===
12/04 : 98.13 : 94.30 : 14,189 : 17,635 : 21,790 : 16,859 // 9,016 : 10,054 : 12,435 : 13,257 : 20,131 : 4,834
Two Kowloon Station properties (The Arch and Waterfront) are also weak, because new properties are rising, blocking their view. Perhaps something similar is happening at Robinson Place. Whatever it is, the property is barking like a sick dog, whilst Island Harborview at Olympic Station has soared almost 14% from the beginning-of-2012 Low,
Posted by Loyd Grossman is Miss Venezuela (361 days ago)
Ed, HK is not in the eurozone. The UK and Switzerland are seeing money flowing in from Europe. Why not HK?
Posted by Ed (360 days ago)
But HK/China's biggest trading partner is the EU.... and much of it is in or headed into a Depression...
Also... the global banking system is - well... global.... if EU banks fail the global banking system fails...
The entire Spanish banking system is bankrupt - so is France's... so is much of Italy's....
Print baby print!
Tick tock .... tick tock.....
Posted by Loyd Grossman is Miss Venezuela (360 days ago)
Ed, HK had nine years of austerity after 1997. At the time the US, China and EU did rather well. Do you really think that what emerged after nine years of austerity is so weak that it will collapse simply because there is a euro crisis or a slowdown in China from 8% to 6%?
Posted by Loyd Grossman is Miss Venezuela (360 days ago)
Though I have to admit, the clampdown of foreigners is worrying. Having said that, a load of Asian football fans have just been beaten up in the Ukraine. Idocy is universal.
Posted by Ed (360 days ago)
I don't recall 9 years of austerity in Hong Kong...
Do you believe China's GDP numbers? Most economists don't...
That's why they look at other economic measurements - electricity consumption being the primary one - and it is flat year on year...
The EU is collapsing - that is China's biggest trading partner - the US is on life support - China's second biggest trading partner...
Work it out Lloyd...
The China attacks are not acts of hooliganism... they appear to be state sanctioned... the state controls all media and censors the internet ... if they didn't want this vitriol against foreigners being distributed it would not be distributed...
I may be wrong here...
But I find this sudden rise of xenophobia disturbing... and to reiterate - I wonder if it is not related to the fact that the Party has realized they are now between a rock and a hard place ...
They can't really stimulate anymore - how many million empty unsold apartments can you build? - and what about the inflation issue... remember that was what provoked that 'incident' in 1989...
And their export markets are not recovering - in fact they are sinking...
'My spider senses are starting to tingle' http://www.youtube.com/watch?v=5Kek3GqbsTk
Posted by walkup3 (360 days ago)
'Let's say I have a 5M property paid off in full.. getting 13k a month or so'. Elsdon.
The case study example is bogus. If you have a HKD5M property getting 13k a month rental then you are a poor investor. That Ed thinks it is 'eloquent' is the kiss of death.
Posted by Ed (360 days ago)
Oh my.... what have we here.....
Hong Kong Financial Secretary John Tsang on Sunday warned of rising risks in the local property market amid global uncertainties, in particular the crisis in the euro zone and the weakness of the U.S. economy, as low interest rates threaten the stability of the city's housing market.
"Hong Kong's real estate market is between ice and fire," Tsang said in a post on his blog, referring to the global economy and the city's cheap credit environment. Property prices have been rising rapidly since February, and last month they were up 8% from December and 13% above the levels of the 1997 property market boom, he said.
The surge in local property prices has been partly fueled by low interest rates and liquidity, Tsang said. "That's very unhealthy against the context of a weak global economy," he said, adding he is concerned about a property market bust if the global economy slows further or interest rates increase.
"The government will stay vigilant. I won't hesitate to launch measures, when necessary, to keep the property market healthy and stable," he said.
In case you missed the key point I repeat.... "and 13% above the levels of the 1997 property market boom"
I reference one of my all time favourite TV shows... feel free to skip to the punch line which happens at about 2:55 in.... http://www.youtube.com/watch?v=AcvofD-4rto
Posted by elsdon (360 days ago)
walkup3,
My bad. How much should a 5M property be getting to be a good investor in HK? 14k? 15k?
You apparently didn't read the entire post because it's not really relevant.
Posted by Loyd Grossman is Miss Venezuela (360 days ago)
Ed. John Tsang is not one of Hong Kong's most widely-respected financial secretaries. Your key point isn't really that 'key', is it? What you are actually saying is that property prices are now 13% higher than they were 15 years ago. It took 15 years of hard work, deflation and savings to get over the bubble. Now we have returned to where the bubble burst but are in a much stronger financial position.
Posted by walkup3 (360 days ago)
For an apartment selling at 5 million I would be looking for a rental ask of 20k per month. If I bought an apartment with a market price tenancy of 13k, then not worth much more than ~ HKD3-3.25million. Re the rest of the article I think you are unfair about HK people queuing up for things without knowing what they are doing. Having seen a number of long queues for custard tarts, I think the evidence points in the opposite direction........
Posted by Loyd Grossman is Miss Venezuela (360 days ago)
If you put HK$5 million on deposit, you may get enough for a cup of coffee at Starbucks and possible a sandwich after a year.
Posted by Ed (360 days ago)
Lloyd - I have been in HK since 1991... are you confusing austerity with recession?
Property prices are now higher than during the MEGA bubble in 1997...
You can adjust for inflation or whatever else you like but we are in another bubble - courtesy of Central Bankers and particularly China's dumping 100's of billions into the economy...
Posted by Ed (360 days ago)
Peter Schiff: 'We never had a real recovery'
“Well, we keep getting more weak economic data, which is validating my perspective that we never really had a recovery at all. We simply juiced the economy up on stimulus, and as the stimulus high wears off, the hangover sets in.”
Recall Peter Schiff was the guy who 'was right' last time... priceless...
http://www.youtube.com/watch?v=2I0QN-FYkpw
Posted by OffThePeak (360 days ago)
Yeah, but Schiff's been wrong about many things too.
For instance, he called the US "the caboose", and recommended to his clients that they buy European stocks to sidestep problems in the US
Here's a recent long podcast with Schiff and others:
http://www.youtube.com/watch?v=aY6dHhVS1_Q&feature=player_embedded
PS is about 38 miinutes in.
BTW, bank runs in Europe might actually mean money will flow into HK. If interest rates fall as a result, it might even (briefly?) help push up property prices here. I am open to various ways the European mess may play out.
Posted by Ed (360 days ago)
Agree - he's been wrong on the micro stuff (US bonds for one)... and he's underestimated Central Banks willingness to print (who could have predicted THIS http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/03/20120320_armaggedon%20costs.png)
But where he's been right is the macro...
In any event it doesn't take a genius to conclude that printed money is the only thing keeping the global economy from crashing...
Every single time a PIGG country's debt spikes what do they do? Print to bail them out.
Every single time a bank crashes into insolvency what do they do? Print to bail them out.
No printing. No financial system. No economy.
Posted by Loyd Grossman is Miss Venezuela (360 days ago)
Ed. The 9-year recession was tantamount to austerity. No money printing, interest rates rose at certain points to maintain the peg, years of delation, banks not lending. HK hardly ran a deficit but it was a huge austerity era. People and companies which survive that are usually stronger. Can't understand your or the government's bubble theory.
Posted by Loyd Grossman is Miss Venezuela (360 days ago)
Ed. Trade keeps the economy from crashing, not printed money. If you have a huge economy, you can print a certain amount. It really depends on the size of the economy
Posted by Ed (360 days ago)
Lloyd - can you show me some data that indicates that HK was belt-tightening during that period?
Not to be difficult but the problem is... you don't have a very good track record... it's almost as if you just make this stuff up...
Remember your claim that most HK property was not mortgaged?
So what do you think would happen if the ECB, Fed and Japan stopped printing money? If they stop their banks collapse - within hours. And trade - which requires credit - stops... just as it did when Lehman went down...
Further... stock markets around the world would crash into pieces... recall what happened after Lehman (and before...) Only massive QE (money printing) stopped the fall.... and it is still propping them up
Oh my.... the crash in housing prices Europe is absolutely shocking....
This means more bankruptcies... and definitely less spending on China/HK exports... even once strong markets are abruptly slowing as the global economy grinds along every more slowly day after day...
Tick tock ... tick tock...
Global house price downturn accelerates: Q1 2012
http://www.globalpropertyguide.com/investment-analysis/Global-house-price-downturn-accelerates-Q1-2012
Posted by Ernie20 (360 days ago)
More relevant to the title of this thread though is the CentaCity index, strongly up again, surely must be including the beginning of the latest episode of europanic.
The Hong Kong property market is not listening yet. Many agents in the lift with punters this weekend, secondary market only here, sales prices not asking prices edging up. I get the feeling there is lots of pent up demand out there. How long will some people sit on the sidelines and pay rent?
Posted by Loyd Grossman is Miss Venezuela (360 days ago)
Ed. This is a chat forum, not a research paper. Links are very boring and I wouldn't use one unless essential. Can you tell me - preferably without links - when the printed, hot money piled into the mass residential property market in HK.
Posted by Loyd Grossman is Miss Venezuela (360 days ago)
Ed. Evidence of belt-tightening between 1997 and 2006? LOL. Property prices down 70pc, SARS, dot-com bust, interest rates rising during a recession, 10pc of the people turn out for Article 23 march, civil servants object to wage cuts and consider petitioning Jiang Xemin. Sorry, no links. You'll have to take my word for it.
Posted by Loyd Grossman is Miss Venezuela (360 days ago)
HK property graphs don't show how the credit situation has changed over the years. They are too simplistic. There was no credit data agency befire 1997 and the banks didn't talk to each other. You could get a mortgage by psying your debts via granny's bank account and getting someone to deposit cash in your current account on the same day every month for three months. Now the banks know when you borrow money and who you borrowed it from. HKMA criteria also much tighter.
Posted by dlee08hk (360 days ago)
Sorry - chiming in late here. Lots of interesting points, but thought the main discussion was about HK property prices?...
In short, are they overvalued - likely, yes. Will there be a crash? Not likely, certainly not within the next 2-3 years.
Reasons?
- Low Interest Rates: HK$ is tied to US$ interest rates which will remain low for the next few years if the US continues to sputter along. If interest rates stay low, mortgage payments remain low. So if rental incomes cover the cost of a mortgage, or mortgages continue to remain affordable (provided one has enough to make the down payment to start), then there's no reason to sell in a panic.
- Low Supply: despite the policy overhang of CY Leung looking to make more land available and hopefully address housing shortage, that won't happen overnight. Also, the punitive stamp duty that was put in place 2 years ago has reduced a lot of supply from the secondary market. It will be interesting to see what happens in November when that policy reaches the 2 year anniversay (so the punitive 5% no longer applies) whether that will bring a lot of supply onto the market.
- Higher incomes: compared to 1997, while the property index has reached beyond 1997 levels, wages have effectively increased 27% over the same period (from brokerage report). Interest rates are also lower than in 1997, so in economic adjusted terms, property values are not as high as they were in 1997. Hard to believe but thats what the numbers say.
Are HK property prices insane? Yes. Will they correct anytime soon? I'd say No.
Will they continue to go up? So long as interest rates remain low, supply remains low, and there isn't something like SARS that creates a panic, then very likely. Probably 10-15% over the next year or so. However, once interest rates revert to normal, look out. So I'd say there's a 3 year window to make hay...
Posted by Ed (359 days ago)
Lloyd - again... you are confusing recession with austerity.
Austerity: In economics, austerity refers to a policy of deficit-cutting by lowering spending
often via a reduction in the amount of benefits and public services provided.
As for the links... I can take the 'Sara Palin' route and simply spout the first thing that comes into my head because I think I heard about it on. on Fox or perhaps it as e-News.. or I can post links to credible sources that support my comments... I choose b.
dlee - and what to you think will happen to Hong Kong property prices if the EU collapses? Do you think that would have no impact on the price of property in Hong Kong?
Posted by Ed (359 days ago)
Asia Exposed - Stephen Roach
For the second time in less than four years, Asia is being hit with a major external demand shock. This time it is from Europe, with financial and trade linkages leaving Asia highly vulnerable to a raging sovereign-debt crisis that threatens to turn a mild recession into something far worse.
http://www.project-syndicate.org/commentary/asia-exposed
Tick Tock... Tick Tock...
Posted by grooveybaby (359 days ago)
Ed, you talk about the need to provide links to credible sources, and yet in the same breath (well, post) you use phrases like "when the EU collapses"... which is the kind of hyperbole that has no credibility what-so-ever... and certainly reeks of "spouting the first thing that comes into my head".
You really suggesting there's going to be a huge hole in the earths crust where the European Union once was? :p :)) Maybe if you can be a little more precise, others will too?
Posted by castingasparagii (359 days ago)
Tick tock, tick tock.
The obvious glee with which you forecast/herald/welcome/invite the end is unsettling, Ed. Bad things happen in the world, and a Very Bad Thing may be about to happen. If not today, another day. Big deal. We may all go broke. Big deal. I've been broke before. You talk about the coming catastrophe like a convert talks about the rapture. Just an observation. Continue dancing naked around the goat entrails, conjuring doom.
Posted by OffThePeak (359 days ago)
Ed,
Spain is being hollowed out by the bank runs - it is driving deflation, as money flees Spain (and its potential devaluation) for the "safety" of Germany and the UK.
Fewer deposits, means less bank lending, and downwards pressure on property prices and small businesses - they are shrinking fast.
Ultimately, there may be only two ways to stop it:
+ Europe guaranteeing deposits in Spanish banks (unlikely IMHO), or
+ Spain exiting the Euro, and putting up currency controls to keep the deposits in Spain
If I was Spanish (or Greek or Portugese), and wouldnt want to gamble by keeping my wealth in a local bank. I would "join the marathon" of bank deposits running out of the country.
Posted by Loyd Grossman is Miss Venezuela (359 days ago)
Ed. Firstly, a chat room is a place for 'chat'. When you go to a coffee shop to meet friends, you don't take a pile of literature to illustrate each point you make unless you want to be seen as an insufferable bore. Secondly, I have 15-years' experience of buying and selling HK property so why do I need to post links from CNBC and Bloomberg? What's wrong with telling it like I see it? Thirdly, what has the former governor of Alaska got to do with the HK property market? Are you saying because I don't post links, I don't approve of reading? That's just tendentious and silly. Finally, if you must have an example of HK government belt-tightening then how about the postponement of the North Island Line? Oh and you still haven't answered my question about when the printed, hot money piled into the mass residential HK property market.
Posted by Ed (359 days ago)
GB - explain to me how the EU does not collapse.
The reason I post links is because the MSM (mainstream media) is not telling the truth. Two months ago the politicians were telling you 'all is well because Italian and Spanish bond yields are down' And the MSM repeated that generally without telling the full story.
Yes the yields went down stopping an imminent collapse of the banking system (yes - in December Lehman on steroids was happening...)
But what they failed to tell you was that the Fed had handed over 1 trillion dollars of printed money to the ECB - the ECB handed that to EU banks who are already bankrupt (yes SG, BNP, Unicredit, and most other big EU banks are bankrupt and relying on printed money to operate) who then took that money and bought the bonds of countries that no one else would buy.
That brought the rates down - but within months they are again over 6%... Greece, Ireland etc... went parabolic after 7% and needed bailouts... Spain and Italy are too big to bail out...
And those same banks are even more bankrupt now (is that like being more dead?) because those bonds they bought have tanked in value...
So please explain to me how the EU survives? From what I see the EU is a bankrupt entity that exists only because Central Banks are printing money.... hence the When not If... because the printing at some point will no longer work
Casting - yes bad things happen.
And they usually happen because too many people are apathetic, ignorant and/or stupid.
Who elected the politicians who created this mess? Who allowed the corruption in the US to fester to the point where the system is now ruled by crony capitalists?
I can tell you who - the people who sit around watching Dancing with Stars, and American Idol... who sit on Facebook discussing nonsense... who get their news from E 'news' ... who can't be bothered to read anything longer than a 'tweet' ... the same people who when this crisis started moaned and wailed with outrage asking 'how the hell did this happen!!!'
Yes indeed bad things do happen... the last time we had a catastrophe anywhere near this was in the 1930's... and it resulted in the deaths of 10's of millions from a global world war...
Posted by traineeinvestor (359 days ago)
@ Ed - I for one appreciate the links. Possibly this means that I like insufferable bores.......
People have been predicting the imminent collapse of the Hong Kong property market for several years. So far such predictions have not only been wrong, following them has cost people a great deal of money as HK residential prices and rents have continued to increase. I can still remember all the "Hong Kong is finished" posts appreaing on various sites back in 2003.
If Europe's economic problems are going to lead to the "collapse" of the Hong Kong property market, why haven't prices gone down? If it was an expected outcome, buyers would have vanished, sellers would be heading for the exits and banks would have cut lending even further? Why hasn't that happened? This issue has been on the table for some time - years - and prices have risen during that time.
I'm sure prices will retreat at some point but have no idea when that will start or from what level.
Posted by OffThePeak (359 days ago)
The Idiot Spaniards lacked discipline when they needed it : They could have learned from Hong Kong. So now Spain is paying the harsh price of having previously allowed unbridaled speculation. They are paying the bill for having eaten far too much junk food and desert. So let them slim down now, as painful as that may be ...
Some bulletpoints from the article:
+ Spanish real M1 deposits fell at an 8pc rate in mid-to-late 2011, guaranteeing the crash into double-dip recession that we now see.
+ Private sector credit has fallen for 18 consecutive months. Industrial output fell 7.5pc in March. Brussels expects the economy to shrink 1.9pc this year, with the crunch yet to come.
+ Spain’s Bankia fiasco has merely brought matters to head, though the details are shocking enough. A €4bn bail-out in mid-May. A €23bn bail-out two weeks later
+ ECB is holding the line with its three-year lending blitz. Spanish banks have taken up €316bn, allowing them to avert disaster as their debts comes due
+ The debt of the (Spanish) regions has reached €135bn, or 12.6pc of GDP, chiefly because they look after the elderly and bear the brunt of Spain’s demographic burden
+ He cannot devalue. He cannot cut rates or print money. He cannot mobilize a lender of last resort to eliminate all risk of sovereign default. He can only lament. "Europe has to come up with an answer because we can't go on like this for long," he said.
/see: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9293270/Europes-Maquina-Infernal-has-crippled-Spain.html
Note:
This big REVERSAL-of-Fortune came after DECADES of flows of speculative capital into Spain, chasing property investments. And Spain did nothing to stop those speculative flows. The article makes clear that they should have restricted aggressive property loans:
"The Bank of Spain tried in vain to check the flood of cheap capital from North Europe. Madrid ran a primary surplus of 3pc of GDP in 2007. Public debt fell to 42pc (Germany was 65pc at the time). Yes, Spain could have done more. It could have adopted Hong Kong controls on loan-to-value ratios on mortgages - 80pc, 70pc, 60pc, etc, until you choke the boom - but that is not what the EU or ECB said at the time."
Posted by Ed (359 days ago)
Lloyd... this is a debate not a chat. Facts are rather important... as you have found out on numerous occasions most recently when you pulled some number out of the air re: the % of HK properties that are mortgaged and you were correct by links to credible sources...
Posted by Ed (359 days ago)
Casting... when I see bank runs (both retail and on the institutional level as funds and companies flee...)... when I see Spanish yields back over 6%... when I see literally trillions of dollars being printed... the last thing I feel is glee...
Keep in mind there are far more informed and smarter individuals who are issuing similar warnings including a number of the most successful hedge fund managers of the past 10 years (e.g. Kyle Bass, Ray Dalio)...
I am posting links to articles because I think they are a good balance to the mantra of the bulls here who no matter what happens either say
1. Property always goes up - there is nothing save a massive meteorite strike on HK that could bring it down
2. If it does go down if I don't sell my property is still worth whatever I believe it is worth.
TI - my posts are nothing more than the above - attempts to balance the narrative... at the end of the day people make their own decisions ... but ideally they are able to make decisions based on full information....
You will note I have on many occasions suggested the market will rocket forward... refer to Bad News = Good News... because it means more printing... more printing = higher property prices...
Posted by Ed (359 days ago)
Anyway...
Many of the bulls have claimed that the EU situation will have no effect on HK property - if the EU collapses HK property will sail right along...
Sorry for another boring link ... but here's Stephen Roach - former Chairman and Chief Economist of Morgan Stanley Asia...
He is disagreeing vehemently with you... you can ignore the facts he presents and chant the mantra... or you can dissect his argument...
In any event, I am sure that there are enough people in our audience interested in more than the mantra... so the link again as it has gotten lost in the jumble above...
http://www.project-syndicate.org/commentary/asia-exposed
Posted by walkup3 (359 days ago)
Re: As for the links... I can take the 'Sara Palin' route and simply spout the first thing that comes into my head because I think I heard about it on. on Fox or perhaps it as e-News.. or I can post links to credible sources that support my comments... I choose b.
I think Ed meant to say 'I choose both.
The rationale however boils down to a simplistic The World is Going to End and Therefore Hong Kong property Will Be Affected. Will Be. Sometime. In the Future.
However, discourse with a parrot has its limitations. What we like to read is the ability to transition from the general to the particular. And that means connecting to HK property in a real and committed sense. Should one buy/sell/stand put everywhere/some places now/6 months/12 months? Projected gains/losses. In short taking a position which is quantifiable and measurable. Unfortunately Ed does not appear confident enough to make the connection between his theory and the actual practice of the HK property market sufficiently to argue any position to take. There is no dynamic link. Time is the coy mistress. And that is why the thread contributions come over as empty preachings. Today is Be Kind To Parrots Day.
Posted by Ed (359 days ago)
Not at all. I am simply pointing out the risks in the market. Because there are those in the audience who would say there are no risks - HK property only goes up.
And of course this is something the property bulls don't like because they own property and they cannot tolerate dissenting opinion...
If you think not scroll through the discussions and note what happens anytime anyone (not just me) posts something that contradicts the mantra... the knives come out
I post a note that HK property is now above the absurd 1997 levels... ignored/doesn't matter/property always goes up
I post this very bearish commentary that contradicts the bulls claims that the EU cannot affect the HK market... and we get 'not interested in the link' http://www.project-syndicate.org/commentary/asia-exposed
Forgive me but that sounds an awful lot like something Sara Palin would say...
Let's check it out: http://www.youtube.com/watch?v=xRkWebP2Q0Y
Posted by elsdon (359 days ago)
dlee08hk.
Welcome. Glad to have another opinion in the mix.
- Low Interest Rates: HK$ is tied to US$ interest rates which will remain low for the next few years if the US continues to sputter along. If interest rates stay low, mortgage payments remain low. So if rental incomes cover the cost of a mortgage, or mortgages continue to remain affordable (provided one has enough to make the down payment to start), then there's no reason to sell in a panic.
This is a key point of contention. Hong Kong has no need to have zero interest rate. If you recall, this is what spurned many people here to buy property because they were getting nearly 0% interest in their bank accounts. This obviously cannot change until we depeg/repeg from the USD, but I think this could happen.
- Low Supply: despite the policy overhang of CY Leung looking to make more land available and hopefully address housing shortage, that won't happen overnight. Also, the punitive stamp duty that was put in place 2 years ago has reduced a lot of supply from the secondary market. It will be interesting to see what happens in November when that policy reaches the 2 year anniversay (so the punitive 5% no longer applies) whether that will bring a lot of supply onto the market.
It should be interesting to see what happens when CY Leung takes office. I understand and agree with what you are saying, it will take time for him to actually release these units into the market. That being said, the market will react the moment he announces it as if he has actually released them, so the impact could be more immediate than you think.
- Higher incomes: compared to 1997, while the property index has reached beyond 1997 levels, wages have effectively increased 27% over the same period (from brokerage report). Interest rates are also lower than in 1997, so in economic adjusted terms, property values are not as high as they were in 1997. Hard to believe but thats what the numbers say.
Where are your figures from? From: http://www.censtatd.gov.hk/press_release/other_press_releases/index.jsp?sID=2898&sSUBID=20161&displayMode=D
The median monthly income from main employment of the working population was $11,000 in 2011, representing an increase of 10% over the past ten years.
The median monthly income of domestic households was $20,500, an increase of 9.6% over that ten years ago.
Which lags WAAAAY behind inflation.. an approximate ~10% increase over 10 years horrible.
Will they continue to go up? So long as interest rates remain low, supply remains low, and there isn't something like SARS that creates a panic, then very likely. Probably 10-15% over the next year or so. However, once interest rates revert to normal, look out. So I'd say there's a 3 year window to make hay...
I don't think its fair to say they are 'going up' but the fact that they are holding strong is testament in itself. Buying now, I don't see the upside potential outweighing the risk, given the current climate of things. 3 years is an awfully long 'window' in HK, the entire landscape can go from boom to bust back to boom in 3 years.
Posted by walkup3 (359 days ago)
Every trader/investor in the world knows that there are risks in the market. Tell us something we don't know. The point however is to translate risk into action. Those with genuine interest in HK will take a bull/bear position re now/6 months/1 year. ie what to do. Those with no interest in Hong Kong property per se are not bears at all. They are followers of the gold bug position who hold that asset classes such as HK property are doomed full stop and hide behind a HK property bear mask. Go ahead fellow forum members; ask Ed whether you should buy/sell property now/6 months/12 months/18 months ahead and what will be the price movement in any sectors you care to mention. Answers there will be none.
Posted by castingasparagii (359 days ago)
walkup - fantastic.
May I be the first to leave a cracker.
Posted by Ernie20 (359 days ago)
That would be intersting to know walkup!
I would be intersted to know of any demonstrable effects euro-geddon has had on the HK property market so far. Have the locals factored risks in?
What effects would Credit Suisse's prediction yesterday of a 2 trillion yuan stimulus to the Chinese economy have in the next 6-12 months?
Posted by Loyd Grossman is Miss Venezuela (359 days ago)
Ed. For over a year, I have been negative on New Territories property. Just bullish on HK side. That is a huge difference from someone just talking his book and making outlandish claims. My equities book is down 22%. As for links, okay, each to their own and I was a bit rude about the 'bore' comment. But I don't see why a comment without a link is somehow secondary to one with a link. This is not the Oxford University Debating Society. Ed. When do you think all the hot printed money piled into the HK mass residential market? It seems to be one of the cornerstones of your bubble argument?
Posted by Ed (359 days ago)
Walkup... that is my entire point.
The bulls refuse to acknowledge any risks.
They drone on and on and on about the Centadata index... which is a backwards looking measure...
Post data about a China slowdown - 'not interested'
Post data about the recession in the EU HK/China's biggest export market - initially the comments were 'no recession in the EU'... then when it was irrefutable 'not interested'
Post data about 10 trillion dollars of printed cash propping up the markets that cannot continue indefinitely - 'not interested'
Post info about Japan's disastrous economy and the risks it poses to the global economy - 'not interested'
Bank runs in Europe - 'not interested'
These are risks. Massive risks.
Either most of the people don't know about them. Or they are in denial.
Or more likely they don't want anyone else knowing about them because they fear that if these risks are exposed we might end up as we were in 2008 with a collapsing market.... and if you are long property you fear another 1997 debacle.
Posted by ziggity (359 days ago)
Ed, your continuous prophesies of doom at some point some day in the future make you hard to take seriously, its been the same story from you for years. You say property bulls don't listen to the risks, but you ignore any up side. The low loan to value ratio in hk you dismissed ... In my opinion it's pretty relevant.
As for being worried about a 2008 like downturn... Really? It lasted 5 minutes who is concerned about that?
A post 1997 like crash would be concerning, but ultimately almost all asset classes would get hit hard in that scenario, and not to mention I think given the low loan to value ratio and all the changes in the system since then it's much less likely we will see something as drastic. Markets go up and down. You just have to make sure you can weather the storms and you'll do fine. It's likely a correction will happen at some point, I just don't think it will be as big as you are hoping and dreaming of like a man possessed and in a crazy dooms day cult. You say you are assessing both sides, but it doesn't seem that way.
In terms of investing, if you can pick up good buys, get good rental and aren't a sophisticated investor in other types of investment, then why not buy property?
If people are scared of the US and EU then may be those with money may decide to park it somewhere like HK property until things settle down. I'm not saying they will but it is one possibility.
I bought a nice flat for 1.25m which is renting to great tenants at 9k recently... When there are still little gems like that in the market why wouldn't I. Would I mortgage to the hilt and buy a luxury 40m property now, no I personally wouldn't
Posted by Ed (359 days ago)
The 2008 crisis actually started in 2007... and it was not a 5 minute event - it has been going on for 3 years and it is getting much much worse...
I think quite a few people are very concerned about that...
If you don't agree feel free to explain how the 2007 crisis ended... and then we can debate...
At the end of the day, it doesn't mean don't buy property because as you point out, what do you do with cash.....
I suppose the bulls will once again respond with 'what happens in the EU is irrelevant to Hong Kong'... Stephen Roach disagrees... and now Bloomberg main page headline disagrees...
Greek Euro Exit Aftershocks Risk Reaching China
http://www.bloomberg.com/news/2012-05-29/greek-exit-aftershocks-risk-reaching-china.html
If you disagree then why not try to refute the articles rather than default to 'no interest'
Posted by walkup3 (359 days ago)
I warned readers that Ed wouldn't deliver on specifics. You will wait till the cows come home. LGMV makes an interesting comment re only feeling bullish about a part of the HK property market. You can bet that Ed will ignore this. He is indifferent whether we are talking about a Village House in the New Territories or a new apartment block in Wanchai. Its all the same to him. So now I will reprise where I am hanging my hat. Targeting ~ 13k rental max and a return of 4.5-5%, I would be happy to advise purchasing now an apartment in Sai Ying Pun up to 3.5. Risk of volatility very low. Irrespective of all of macro/micro/velcro considerations.
Now let's ask Ed, if he would like to predict a range of price drops for this property over the next 3 months/6 months/ 1year. 30%? 50%? 75%? Don't hold your breath waiting for an answer.
Posted by Ed (359 days ago)
I ignore that because I have no opinion on it... and I have no data that can be used to dispute it...
Basically that means 'I don't know' so I shut up...
However when I post facts from proper sources that indicate the EU is in recession - we get 'I don't agree with that'...
When I state that the EU (and macroeconomic picture) are hugely important to HK markets... and I post data on that... we get 'I don't agree'
If you don't agree then take on the data.... and demonstrate why it is wrong... otherwise perhaps best to follow my lead...
Anyway.... this is a discussion of property investment and the risks involved... as things fall apart in the EU and elsewhere... the links will continue to appear here... because they are relevant...
Posted by walkup3 (359 days ago)
This is such hard work. I should get paid for this. Ed, should HK property owners sell now in all areas, in all sectors? (I am going to go now and get some durian for lunch)
Posted by elsdon (359 days ago)
I see both sides of this argument. I agree that Ed has played the role of a devil's advocate quite vigorously, but in his defense, I appreciate his efforts finding information that may not be available via mainstream media.
Part of making a decision as a investor for me is having as much information as possible. This ensures that when I do come to a decision, I feel that I've done so within the best of my abilities.
I'm in the same position I imagine a good number of HK people are, currently renting (after having liquidated my primary residence and secondary investments) and sitting in 100% HKD. I feel safe doing this because although CPI in Hong Kong floats in the neighbourhood between 7-9%, I don't think this will ever manifest within the property market, and that is my primary investment vehicle in HK.
walkup wants to see a position, so I'll disclose mine. I am buying before the end of this year, regardless of what happens. I sold in mid 2011, and fortunately happened to touch the tip of the peak on my transactions. Prices have moved about 6% down from when I sold comparing the exact same units, so even if I buy again now I would have only lost the standard stamp duty, as the difference covers both my rent for this year and agency fees.
I am calling a drop in property prices between 20-30% as a direct result of macroeconomic factors, and aim to buy during that drop. If the eurozone manages to keep crawling by, I won't exclude the possibility of buying again and trying to mitigate the next 2 years of QE. (because that is the only way they can keep this going)
Posted by grooveybaby (359 days ago)
Ed, Loyd has stated quite clearly why he disagrees with you... which (if I can summarize), is that the market is driven more by local factors. And, as this is a 'state of the HK property market' thread, and prices have been going up for the past 3 years... you're the one that has got it wrong and has to justify your position, not Lloyd.
Posted by OffThePeak (359 days ago)
"I'm in the same position I imagine a good number of HK people are, currently renting (after having liquidated my primary residence and secondary investments) and sitting in 100% HKD."
E.,
I understand your desire to avoid risk, and sell down an asset which may be over-valued. But If I was you, I would think long and hard about where I had those HKD on deposit. Else, you may be moving from the frying pan to the fire.
You do have some time, since you can watch how the current bank runs (may) spread from Greece and Spain to otehr countries. But if you are going to wait, you'd better be prepared to pull the trigger very quickly.
Posted by elsdon (359 days ago)
OTP.
Based off the other thread, I have diversified my deposits amongst Hang Seng, HSBC, and trying to decide if I want to touch BOC HK.
I am prepared to pull the trigger quickly. I've moved out of any investment vehicle at the moment, time deposits etc.. It's just sitting there as cash now. I wonder if I should invest in some solid brief cases or suitcases to make the cash withdrawal when necessary.. :P
Posted by OffThePeak (359 days ago)
BOC-HK, in theory at least, is the safest bank in Hong Kong.
I don't think you should worry about it, anymore than Hang Seng bank. In fact, it may be safer. It is the global exposure of Hsbc that worries me. If they can firewall against that, then they may be fine also.
My partner was born in HK, and she assures me that Wing Lung Bank is also very safe, but I haven't reviewed their financials, so I cannot comment personally.
Posted by Ed (359 days ago)
Groovy Baby.... I figured out Lloyd's game in 2008...
> he was insisting that the US problems would have no impact on the HK market just as he is insisting NOW that the EU disaster will not impact the HK market
> then the HK market went into a tailspin in 08 off 25-30%...
> so Lloyd desperately changes tact and starts to beat another drum 'if you don't sell you haven't lost money' which is about like saying if I insist the market has not dropped it has not dropped...
> that's either Castle Peak logic... or it's someone who owns property and is engaged in a supreme act of cognitive dissonance...
Here's the thing... if only local factors matter then why did the market crash 70% in 1998?
> it crashed because of the Asian financial crisis which started in Thailand and Indonesia... then the contagion spread this disaster to the entire region... Hong Kong was in fact one of the LEAST affected places - yet property was obliterated...
Just like if the EU crashes (Spain and Italy are FAR bigger economies that Thailand and Indo were)... and that will not be a flu... it will be the economic equivalent of the plague spreading around the world...
And in 2008 as the market crashed 25%+.... what triggered that? The American subprime fiasco of course... the toxic effects of that spread around the world within hours of Lehman going down... again - local conditions were irrelevant to the macro...
What stopped a complete implosion?
Did HK China's exports suddenly pick up? Did their two biggest trading partners start to order MORE not less stuff from China post Lehman?
Of course not.
Central Banks unleashed trillions of dollars of stimulus, bail outs etc... to prevent the complete collapse of the global financial system http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/03/20120320_armaggedon%20costs.png
They are continuing to do exactly that.
So again local conditions have nothing to do with the market... the markets are like heroin addicts... if they get more trillions of printed money they will expand... but we all know what eventually happens to the heroin addict if he gets cut off....
Yes local factors are important. But global factors are far, FAR more important.
Posted by grooveybaby (359 days ago)
Ed, the market crashed in 98 because a speculative bubble burst... and as has been pointed out the situation now is very different (just because prices have returned to those levels does NOT mean there is another bubble).
In 08 the market dropped, because of fear of the unknown. It dropped on very low volumes and quickly returned.
And, for the past 3 years... how have your global factors impacted the HK property market? Please explain.
(And, on a separate note, I suggest you review your language and show a little more respect to the posters and visitors to this site. I don't think Lloyd has a 'game'... he has opinions which he's sharing with the forum).
Posted by walkup3 (359 days ago)
I was going to share my durian if Ed came up with any position but of course he will not or rather cannot as it would mean he would have to put some figures to perspectives for Hong Kong property. There seems to be a lack of confidence in making the connection. Just shouts louder. So I have forced to eat all the durian. Never mind, it was an easy call.
Elsdon on the other hand has a currently bearish position we can have a dialogue with. Are you calling a 20%-30% drop across the board?
Posted by Loyd Grossman is Miss Venezuela (359 days ago)
Again Ed, you miss a fundamental point. If you had sold your flat just before Lehman in 2008 and tried ti buy back during your 30pc 'drop', it wouldn't have been easy. Most owners, like myself, held on and didn't panic. Probably as we were comfortable with our positions and we would have had to trade in our ultra low mortgage deals. Trading property is not like trading shares, you have lawyers, mortgages and sometimes tenants to deal with. Many Asians are also used to volatility - look at the balance sheets of Henderson, SHKP, Toyota. They have all sailed through major crises.
Posted by elsdon (359 days ago)
walkup.
Good question. No. I'm speaking mainly of the properties in Kowloon, specifically the larger housing estates here.
Hong Kong side, things will hold on a bit stronger and may only see negligible declines in their pricing.
New Territories will likely be impacted the hardest, as they have seen more paper gains over the past few years than I could have imagined.
Posted by Loyd Grossman is Miss Venezuela (359 days ago)
By their nature, property markets are always local markets. If the locals are doing okay, no need to crash lah!
Posted by OffThePeak (359 days ago)
In 2008:
====
+ Many banks cut staff, starting before the Lehman crisis
+ Rents fell, and it was not always easy to hold onto tenants
+ Many HK people got clobbered by stock price drops & I-Kill-You-Laters
+ Some people leaving HK, or paying stock related debts had to sell
+ Confidence got serious eroded, as Centaline was dropping prices 1% a week!
+ Banks cut the valuations, against which they would lend, and also cut LTV
That was enough to engineer an approx. 25-30% drop over 5-6 mos.
Can it be repeated? Sure.
But I think it if plays thru in a similar fashion, prices would drop less,
because people would see it as a buying opportunity, having missed 2008-9.
It will take a different-looking crisis to get prices lower.
Posted by ziggity (359 days ago)
Ed you state the 2008 crisis has been going on for 3 years and is getting much worse... You seem to be forgetting this thread is about hk property. In hk property there was a very short low volume drop and then a rise in value... So again I state if we experience another 'crash' likee the one in 2008 in relation to hk property values then no property investor is going to be too concerned...
To explain how the 2008 crisis ended I would point you to the increased property values since then... I think there are a few links on this thread showing that lol
The bulls aren't saying what happens in the EU is irrelevant they are saying it is a factor, but one of many, and may have as little impact on hk property prices as the 'crash' of 2008.
While the EU crash may be bigger, lending policies in hk have tightened and the SSD imposed, among other things which along with the low lending rates mean there is less pressure to sell. With the recent increase in property values the market would have to drop 60% to wipe out my increase in value on a property I bought in 2007 for example ... That wouldn't put me underwater, just back to where I started on that one.. While I'd like to think I'm a guru, I'm just an average investor so imagine there are many many people in the same boat if not in better positions. That is a big factor why a wholesale 1997 style drop in value and panic selling is less likely.
Posted by elsdon (359 days ago)
ziggity, if your property has realized a gain of ~60% since 2007, you pretty much found bottom and I don't think that many people would have done better than that.
To say that the impact of a investment banks going down vs a couple countries is similar would be naive as well. As I mentioned before, I don't think the HK property market is actually tied directly to general market performance, its tied to market sentiment and hence much more reactive than other asset classes.
If countries like Greece, Spain and/or Italy do end up defaulting, the exposure that banks will have to that is far greater than a Lehman or Merrill. This would result in a very obvious attrition rate amongst jobs globally, and could put a lot of 'local' people out of a job in HK if there is a significant reduction in force (RIF).
The way that companies hire isn't an exact science, I've spent some time in this space and typically they tend to be very conservative with human capital. Basically, if large corporates forecast a decrease in revenue, the largest cost to their business are always salaries/wages, and those get cut first. Cuts that happen would typically be overzealous, as no company would know what state we will end up in so they cut drastically first and cherry pick from the excess talent pool the candidates that they would want.
Posted by Ed (359 days ago)
Groovy: just as now few were calling 97 a bubble… just as in America in the months prior to Lehman even Bernanke and Paulson are on record as saying the US property market was not a bubble...
In HK it only became obvious when it imploded when the economy went into a tailspin caused by a banking crisis related to the regional collapse…
Do you recall hedge fund managers attacking the peg and the stock market – HK was the next domino to fall and there was a massive panic in the markets until Tsang bought up the market (see Trakker Fund).
This was a local event caused by macro-economic factors in the region...
Ziggity – if you were an investor who bought a 10M property last month and as in 1998, it dropped 70%... or even 30%... are you saying that wouldn’t bother you?
I think most speculators/investors would be pretty unhappy about losing 3-7M dollars whether in the stock market or property market...
As has been demonstrated by those unfortunate links to facts… most of the HK market is mortgaged… so I do not see how things are markedly different from 98… if you lose your job or your tenant and you can’t pay your mortgage you are forced to sell… that is what takes the market down…
If you disagree then please explain why the market tanked in 2008… if people are all so secure in their finances why did we see a 25-30% drop?
Are those not the same people that Lloyd and others are saying would not sell if things went badly in the HK economy?
Someone said fear of the unknown…
Might I suggest something different – fear of the known…
Fear that the entire financial system was collapsing… which it was after Lehman… then the Central Banks stepped in with the printing press…
That stabilized things but did not fix anything…. In fact things are worse… it’s not banks that are in trouble it is now countries… countries with massive economies that cannot be bailed out (e.g. Spain and Italy)
And the situation of both these countries is very dangerous... not a single private institution will buy their bonds because they do not expect to be paid back...
Think about that... two of the biggest economies in the world are sinking deeper into recession... and the only buyer for their bonds is the ECB - technically they are what we would refer to as insolvent.
Feel free to disagree – but if you are interested to understand what happened in 08… and the dangers that are mounting I’d recommend this 4 part series on Frontline:
Money, Power and Wall Street
1. http://www.youtube.com/watch?v=AAv13nalKbI
2. http://www.youtube.com/watch?v=PKi83WGbf0Y&feature=relmfu
3. http://www.youtube.com/watch?v=gzSTJ1Tv3Ks&feature=relmfu
4. http://www.youtube.com/watch?v=ytzixxscOYI&feature=relmfu
Posted by traineeinvestor (359 days ago)
Ed, while I appreciate the links and the debate, I have to take issue with the statement that "most of the Hong Kong market is mortgaged". The HKMA statistics which have been linked on on this thread have pretty conclusively shown that overall the level of debt associated with the residential market is actually very low. There may be some individuals out there who are highly geared, but as a whole the market is relatively lightly geared.
Posted by bing2 (359 days ago)
loyd said most property owners held their price after the lehman collapsed.....does anyone here have any data how many properties were sold from oct 08 - may 09?
10, 100, 1,000 or 10,000 units changed hands during that period?
i myself bought 3 in a very central location very cheaply....
one thing we have to understand about ed is he is just reminding us there is another side of the story and he is not predicting or calling anything either for prices to go up or down. why would anyone bash the messenger?
Posted by OffThePeak (359 days ago)
"Overall the level of debt associated with the residential market is actually very low. There may be some individuals out there who are highly geared, but as a whole the market is relatively lightly geared."
Very true.
How else can you explain how a 69% drop in prices from 1997 to 2003 did not cause a single HK lender to go bust?
And the equity in properties is even higher now than it was in 1997, so there is even more resilience built in.
As I am fond of saving, Hong Kong is a machine for building wealth, since so little money gets "wasted" on the usual nonsense:
+ Taxes
+ Military adventures
+ Long and expensive commutes
+ Over-large McMansions
+ A bloated insurance and medical racket
Posted by OffThePeak (359 days ago)
Bing,
It is not surprising that someone posting on this thread would be amongst those few folks who took big advantage of the 2008-9 drop.
The sort of drive that would cause you to be interested in debates here, might also lead you to invest on or near the lows.
But not all here are capable of that. Personally, I was holding too many flats at the time, and was too worries about what I had to take full advantage of the drop.
However, I did eventually make a profit on every flat I held, and am still long one with a very nice potentiial profit in it.
Posted by Ed (359 days ago)
TI : there was data posted on the last iteration of this thread that indeed indicated the majority of the properties are mortgaged... the data someone else pointed out referred to user-occupied property only... and did not include properties owned by speculators...
Which makes sense... most speculators are going to leverage up - you don't pay off properties and sit on them if you are looking to maximize profit...
Posted by walkup3 (358 days ago)
Re: 'one thing we have to understand about ed is he is just reminding us there is another side of the story and he is not predicting or calling anything either for prices to go up or down. why would anyone bash the messenger?'
If someone is predicting the inevitable collapse of Europe, the USA, financial assets, everything and yet is unable to translate that into any call on the Hong Kong property market, then their predictions have as much value as religious incantations and reinforces the suspicions that the whole purpose of those links is not so much about HK property but more in the way of an opportunity to call out 'Look Ma!'.
Posted by Ed (358 days ago)
To quote myself 'the only people who believe they can accurately predict the timing of future economic events are fools and economists'
What I will say is if (when...) the EU implodes - the world will go into a damaging tailspin that is much worse than 2008...
When will that happen? Ask the Central Bankers - they are the ones printing money to support the bankrupt PIGGS...
Let's turn to China... recall why the Hong Kong property market came out of a downward spiral in 2008? Yes... massive stimulus out of China rescued Hong Kong as well as Australia and other countries that sell natural resources to China...
Well... the stimulus is running out... and now China is stuck with millions of empty apartments... huge malls without tenants... an inflation problem... and a slowing economy...
Massive stimulus seems to be off the table because it will cause an inferno of inflation + if you again pump so much easy cash into the economy where will it go? How many empty buildings can you build? Perhaps they could build a tunnel from Shanghai to New York and install high speed rail.
MARKETWATCH:
Senior Chinese economists say the central government's much-touted stimulus plans will be mild compared to actions taken at the height of the global financial crisis four years ago, according to a state-media report Wednesday. The People's Daily report quoted several economic experts from academia and the government as saying the current round of pro-growth measures should be conducted carefully and won't be on the level of the 4 trillion yuan ($630 billion) package conducted during the crisis.
http://www.marketwatch.com/story/china-stimulus-wont-match-2008-spending-report-2012-05-29
Exports are falling... China appears unwilling to prop up the economy with stimulus... bearish for the HK economy?
Posted by traineeinvestor (358 days ago)
@ OffThePeak - actually one bank was subject to a run (IBA) and may well have gone under but for a well orchestrated show of support put together by the HKMA - including lots of armoured cars delivering cash in the most public way possible. I acted as escort for a friend who withdrew a multi-million dollar deposit in cash and walked down the road to HSBC with it.
@Ed - if the majority of properties are mortgaged then, based on the HKMA stats, the average balance must be very low. Even if you make some adjustments for loans that fall outside the HKMA data capture (which I couldn't find), you will get an average mortgage balance well below HK$1 million. The only way to get the average mortgage balance much higher is to assume that a lot of properties carry no mortgage. The data was posted previously.
I agree that it makes sense to leverage up given how low interest rates are, but you can't. Even before the cooling measures were adopted you still had to put down 30%. Now it's at least 50%. And almost all the loans are P+1 - the principal value is falling all the time. All my loans were taken out during the mortgage wars and currently cost me around 1% pa. I don't want to pay them back but I have no choice - the banks wont let me reschedule without resetting the interest rate to current terms - so each month my gearing goes down. One mortgage will be completely repaid in the middle of next year. I doubt if I will be in anyway unusual in having a debt free property.
Hong Kong property prices may or may not fall from present levels, but it is difficult to make a case for such a fall being caused by high gearing levels. If it happens, increased supply or the disappearance of mainland buyers are far more likely triggers.
Posted by Ed (358 days ago)
Flipping over to FT... and well... it would seem the binge of building apartments that will remain empty is at least for now, continuing....
Is Chinese real estate nearing a tipping point?
China’s property developers — who last year contributed a collective 13 per cent of GDP — seem determined to hang on. Despite months of falling prices in most cities, completions are powering ahead.
Chinese real estate investment reportedly rose 23.5 per cent in Q1, year-on-year. And yet new construction rose only 0.3 per cent and sales of residential and commercial property fell 14.6 per cent. As Patrick Chovanec points out, despite accounting for the aforementioned 13 per cent of GDP, there was little questioning of the incongruence of these Q1 2012 numbers which showed steeply rising investment in a sector that was actually shrinking in terms of revenue.
And yet, while we and others have wondered about a wave of developer defaults was imminent, there’s been only the occasional reports of smaller developers running into difficulties.
It *might* be about to change, however. Inventories are well past the 12-month mark and are forecast to reach about 36 months by the end of this year, according to Standard Chartered. Last week we wrote about some research from Nomura arguing that a month-on-month collapse in housing starts in April (down 27 per cent) signalled a turning point.
More http://ftalphaville.ft.com/blog/2012/05/28/1014611/is-chinese-real-estate-nearing-a-tipping-point/
Posted by Loyd Grossman is Miss Venezuela (358 days ago)
I don't think the connection between HK real estate and Chinese real estate is as great as you think Ed. May affect buying sentiment but exposure of your average home owner here is limited.
Posted by Loyd Grossman is Miss Venezuela (358 days ago)
Ed. Can you tell me why you think the HK and mainland mass residential markets are so interconnected - if that is what you are saying?
Posted by Ed (358 days ago)
PRC buyers are a significant portion of the HK market...
If China is slowing (of course it's slowing - it's biggest export market the EU is in heap of trouble and exports are crumbling... also as the Euro weakens vs the RMB that will impact exports further) ... and the Chinese government is unwilling to pump in more stimulus...
Doesn't that mean less cash sloshing around to buy HK property?
Also - who owns the China factories that export to the EU? Wealthy HK people... and as their revenues drop they won't likely be buying property either....
The falling Chinese property market is I believe a product of a) macro economic conditions in China's major trading partners' economies... the US remains in stall speed... Japan is in an out of recession ... and the EU is hurtling into deep recession.... and b) micro economic factors ie. the Chinese government has its hands tied re stimulus...
When Chinese buyers + HK's wealthy who's businesses are in China start to feel the pinch of all of this I suspect it will have a significant impact on the HK property market.
The HK market is primarily driven by stimulus money from Central Banks around the world including China... stop the stimulus... the exports tumble... HK stock and property markets tumble...
Posted by elsdon (358 days ago)
The HKMA statistics totally exclude properties purchased by companies or corporates (including shell companies) which could be a pretty big factor since many HK people will create limited liability companies to buy homes with to ensure that their personal savings will not get impacted if they are unable to pay at some point or there is a margin call.
I don't think that negates the fact that a highly disproportionate amount of mortgages are paid off already in HK, but I don't think the HKMA's numbers are conclusive and do represent a fair amount of error.
source: http://www.hkma.gov.hk/media/eng/doc/market-data-and-statistics/monthly-statistical-bulletin/T0307.xls
That being said, looking back at the table to get an idea of sales volume in 2008-2009, although not an exact representation of volume we can look at 'new' loans approved to get a view, percentage wise, of how many homes changed hands.
It looks like this, summating the Gross Loans Made column (1996 and 2012 are partial years):
Year Gross loans HK$
1996 73031 $109,206,000,000.00
1997 136089 $256,306,000,000.00
1998 67042 $112,414,000,000.00
1999 81771 $119,205,000,000.00
2000 83339 $116,462,000,000.00
2001 80489 $106,515,000,000.00
2002 77741 $98,545,000,000.00
2003 65103 $79,482,000,000.00
2004 88113 $133,548,000,000.00
2005 88394 $142,814,000,000.00
2006 69773 $115,117,000,000.00
2007 98621 $173,508,000,000.00
2008 92810 $184,754,000,000.00
2009 96553 $199,295,000,000.00
2010 141993 $324,216,000,000.00
2011 95854 $227,775,000,000.00
2012 10667 $24,946,000,000.00
Looking at the numbers for 2007, 2008.. It doesn't look to be over low volumes at all, but rather high volumes. 2012, on the other hand has data from 3 months (don't know how complete it is) but as you can see, definitely way under the pace from the previous few years (except 2009). Comparing Q1 for the since 97 shows:
Year Gross loans HK$
1997 32933 $56,222,000,000.00
1998 14383 $29,110,000,000.00
1999 17484 $25,151,000,000.00
2000 21862 $31,247,000,000.00
2001 15527 $20,922,000,000.00
2002 20986 $27,620,000,000.00
2003 13437 $16,317,000,000.00
2004 20386 $29,783,000,000.00
2005 23686 $38,839,000,000.00
2006 13400 $20,974,000,000.00
2007 18952 $31,229,000,000.00
2008 30729 $62,586,000,000.00
2009 11669 $22,177,000,000.00
2010 28648 $61,806,000,000.00
2011 30770 $70,580,000,000.00
2012 10667 $24,946,000,000.00
Just some numbers to mull over..
Posted by Loyd Grossman is Miss Venezuela (358 days ago)
I can see your point there, it may affect some demand for luxury properties going forward. However, I disagree with your statement that, "The HK market is primarily driven by stimulus money from Central Banks around the world including China... stop the stimulus... the exports tumble... HK stock and property markets tumble.." I think HK mass residential (I do not understand the luxury end) is driven by local HK cash that was saved over the nine years of recession, plus local businesses, plus repatriation of money from overseas, plus the fact that there lots of people here that are wealthy, plus huge downpayments.
Posted by Loyd Grossman is Miss Venezuela (358 days ago)
elsdon. I would say most weak shell companies and speculators were shaken out by the SSD and Lehman. I think betting against mass HK residential now is like pushing on a piece of string (HK side not NT). If Centadata does fall, it will be on low volume again like in 2008. Today's Property Post also reporting low volumes again. Basically, if sentiment is bad, we get low volumes which suggests owners are holding (just 1 mortgage payment and they can wait another month - assuming they have a mortgage). Don't most owners with mortgages are on super-low mortgage deals which you can't get anymore. So, in addition to the SSD and lack of sellers, there is an up-front price if you intend to sell and buy-back.
Posted by traineeinvestor (358 days ago)
@ elsdon - could you point to a link which shows that the HKMA residential mortgage data does not include residential loans for properties held in company names? I looked but couldn't see it and I know that one of the banks I use treats me as a personal rather than corporate customer even though the properties are owned by and the loans are to a company.
In any case, if we use the data you provide , we still conclude that gearing is quite low - with averages of HK$1.9. 2.1 and 2.3 million per new loan in 2009, 2010 and 2011 respectively. Add in the effect of principal repayments on the outstanding payments and the increase in values and it becomes very clear that LTV ratios are very no matter how you play with the numbers.
Separately, banks will almost always require a personal guarantee when lending to small companies - only very large investors will have much chance of getting away without giving a personal guarantee. The main reason for using a company is that you get to deduct more expenses for tax purposes - that was the only reason why I did it. (In the days when Hong Kong had estate duty, there was also a benefit there as well.)
Posted by Ed (358 days ago)
Lloyd.... quick question for you...
You've been saying since prior to the Lehman collapse that HK property owners are 'rich' so there would be no crash in the market no matter what happened in the EU or elsewhere...
Pray tell why did the HK property market tank 25% or more in the months after the Lehman collapse?
Could the tanking have been related to the Lehman collapse i.e. an external or macro-economic event?
Posted by traineeinvestor (358 days ago)
@ Ed - did the HK property market really crash 25% in 2007? I read the headlines (much like everyone else, I suspect) and tried to buy at levels well below those that had prevailed before Lehman and struggled to find anything that was discounted by anything near that level. I suspect that there were simply far more people who saw it as an opportunity rather than a crisis.
In terms of the local v global macro debate, it's also worth bearing in mind that HK investors had very significant exposure to Lehman which makes it hard to characterise Lehman as an external event. It was very local for many HK investors. The EU's woes are a different issue.
Posted by Loyd Grossman is Miss Venezuela (358 days ago)
A lot of people were expecting a huge drop like in 1997 but it didn't happen. The Centadata Index went down on very low volume. If it had gone down on high volume then I would agree that it had 'tanked'. Like I said earlier, if you had sold just before Lehman and tried to buy back in the same building a few months later, it wouldn't have been easy as most owners still had no incentive to sell or were not willing to sell cheap. I'm not saying it was impossible to buy back cheaper, I'm saying it was easy. Take a look back through all the posts on this website and see who made the right call.
Posted by Loyd Grossman is Miss Venezuela (358 days ago)
Ed, instead of hammering each other everyday, perhaps we should tabulate our arguments or put them into an Excel file or something. Let me know if you disagree with any of this:
LGMV: No hot money, just HK's people's money
ED: Hot money
LGMV: Owners have strong holding power and will tend to ride out dips
ED: Owners will sell as soon as they think the market is going down
LGMV: HK property market very local
ED: HK property market is mainly driven by international events
LGMV: Little or no leverage
ED: Lots of leverage
LGMV: Buying and holding for future/kids
ED: Will flip
LGMV: Speculators out now due to special stamp duty or weak ones have been shaken out
ED: Mainlay driven by speculation
LGMV: Money printing will push up HK property prices going forward thanks to inflation
ED: Money printing will destroy the market
Posted by elsdon (358 days ago)
@traineeinvestor
It's in the notes section of the spreadsheet linked: http://www.hkma.gov.hk/media/eng/doc/market-data-and-statistics/monthly-statistical-bulletin/T0307.xls
At the bottom it says:
Residential mortgage loans in this survey are loans (including refinancing loans) to private individuals for the purchase of residential properties, including uncompleted units, but other than those properties under the Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme. Mortgage loans to corporate clients are excluded from the survey. The authorized institutions participating in this survey accounted for over 95% of the total residential mortgage lending business.
@Loyd,
I think using the phrase 'low volumes' is a bit strong for 2008/2009, because as you can see the volumes in those years are almost higher than all years prior. There was a dip starting from August 2008, but the volume compensated for that dip all through 2010 to basically smash any previous volume records over the past 15 years.
Posted by OffThePeak (358 days ago)
LGMV: Money printing will push up HK property prices going forward thanks to inflation
ED: Money printing will destroy the market
====
If money printing destroys confidence in the Dollar, then USD bond rates may soar, just as they have in Greece, and are threatening to do in Spain.
If the peg stays in place, then money would get tight, and rates go higher here too - then, Ed would get his serious correction in HK property prices.
Cheap and abundant money at first looks great for property and other asset prices, but it can lead to something nasty. So I wouldn't want to be betting on Money-Printing as the main reason to be buying property in HK.
Posted by traineeinvestor (358 days ago)
@ elsdon - thanks, I saw the note but it does not actually answer the question. As mentioned, I know that I/my company am treated as a private individual customer by the bank and not as a corporate customer. Do the HKMA stats make the same distinction? I haven't been able to find out.
@ Ed - Quoting John Tsang in support of a position = instant loss of credibility. In any case, if her actually believed what he says, surely he would be taking steps to support the market rather than trying (and failing) to bring it lower.
Posted by Ed (358 days ago)
TI - I agree - I have sinned... quoting any government official is pointless .... the only time it's worth bothering is if you want to confirm the truth of a rumour... if the official denies... then it's true.
HK Property Market 2008 - yes it did tank
http://www.thomascrampton.com/wp-content/uploads/hkrealestate2008.png
Lloyd - you have fiddle diddled around my question...
Are you saying the global financial crisis triggered by the Lehman Collapse had nothing to do with the HK market tanking 25%+ in the aftermath?
Posted by Ed (358 days ago)
Here's a better graph... it tanked... and it would have continued tanking if not for Central Banks hosing down the globe with trillions of dollars...
http://static7.businessinsider.com/image/4d2b1d36cadcbb7d23410000/hk-chart.jpg
So I assume we are going to conclude the HK property market did sharply drop just after the Lehman inspired global financial crisis...
And therefore macro economic factors are very capable of crashing the market... and therefore the situation in the EU which exponentially more dangerous than Lehman... is very VERY much relevant to this discussion.
Posted by Underdawg (358 days ago)
Ed, what are your comments about the conclusion above that no matter how you look at the data posted here in this thread, it appears that gearing on HK property is quite low? Or because you have not commented you have, as you put it, decided to "shut up" and accept it?
Also, what happened in 2008 was by no means a crash. Why do you keep ignoring the facts that this 25% correction was based on very low volumes and prices were back up within months?
You seem to be doing more ignoring than anyone else. Whenever someone makes a good rebuttal to your argument, you just ignore it and just post another link.
Finally, you keep talking about China and these empty cities and malls. I understand that there might be some empty cities and malls, but on a per capita basis, how significant is this? Do you have any concrete data? And we've all seen the articles on Western media pointing to the empty cities and malls, but they don't have any concrete data either. I want to see numbers. Unless you have them, and from my understanding you don't have any first hand experience in mainland China either, your argument is baseless.
I have had a base in Guangzhou since the year 2000. And let me tell you, I have not seen one empty building or empty mall. In fact, foreigners now are not allowed to buy flats anymore. That's how high in demand both residential and commercial space is. The infrastructure development in the past 12 years has been an incredible growth story. You make it seem like they just build stuff that nobody uses, but clearly you have not spent much time in mainland China.
Yes, the Euro-Zone is experiencing some problems. There has been a lot of money printed. But it's not all bad. At least people are aware of the problem, unlike in 2008.
As I've said before, a punch that you are not expecting can hurt you more than a much stronger punch that you are preparing for.
Posted by traineeinvestor (358 days ago)
@ Ed - perhaps we could call 2008 a flash crash. For the reasons Underdawg gives, it wasn't particulalry meaningful in and of itself other than perhaps demonstrating that HK property prices could move down quite quickly in the right circumstances.
@ Elsdon - I've sent a query to the HKMA on the classification of loans to private companies and will post the response here as and when received.
Posted by Ed (358 days ago)
Gearing Ratios: I don’t address this because I think this is irrelevant. Because I believe that if the EU breaks up HK will go into a recession or worse… I believe that the global financial system will be bankrupted (the EU banks dwarf the US banks)… It won’t matter what the gearing ratio is if this happens.
Since when is 25% not a crash? Call it whatever you like… are you going to say that the global financial crisis did not cause this? If not then what did?
How many flats in China are sitting empty? “The media recently floated a story — denied by power companies — that 64.5 million urban electricity meters registered zero consumption over a recent, six-month period. That led to a theory that China has enough empty apartments to house 200 million people” http://www.economonitor.com/blog/2010/08/andy-xie-on-chinas-empty-apartments/
If you haven’t seen it for yourself then you will want to watch this video: China's Ghost Cities and Malls http://www.youtube.com/watch?v=rPILhiTJv7E
The EU is experiencing ‘some problems’… that’s the understatement of the year…
The following countries are unable to borrow money to meet their debt or spending obligations Ireland, Portugal, Spain, Italy… all are in deep recession and some in depression… all have massive unemployment problems… the only reason they are not defaulting is because the ECB is loaning them even more money … nearly 1.5 trillion dollars since December…
Printed money: 10 trillion and counting in 3 years… http://blogs.r.ftdata.co.uk/gavyndavies/files/2012/01/ftblog201.gif
Even if people are aware of the dangers we are facing (I believe most are not) what does it matter? What can they do?
The problems have been made far far worse in the past 3 years…
In 08 you had insolvent banks… now you have insolvent countries + insolvent banks…
And on top of that the Central Banks have used up the standard tools for jump starting economies… they have had interest rates at 0 for 3 years… they have pumped out literally trillions and trillions of dollars of stimulus…
Yet the EU is back in recession… the UK is back in recession… Japan is in and out of recession… the US is barely growing…
I am sure Central Banks are very much aware of the dangers – but they are powerless to do anything about them.
Posted by punter (358 days ago)
From today's SCMP: Home sales continued to fall last week and are expected to drop further as sentiment among homebuyers sags because of the European
debt crisis and government warnings about rising risks of a property bubble forming in Hong Kong.
A total of 167 pre-occupied flats were sold in the 50 largest estates in Hong Kong during the week ended May 27 - down 16 per cent from the 199 sales recorded in the previous week, according to data from real estate agency Ricacorp Properties.
"The market is clouded by negative news, such as the uncertain situation about the European debt crisis and the government's warnings
over the possible overheating of the property market," said Ricacorp director David Chan.
In comments posted on his official blog on Sunday, Financial Secretary John Tsang Chun-wah reiterated an earlier warning to homebuyers to be cautious, as the property market, he said, was presently sandwiched between "ice and fire" and risks were steadily growing.
The comments come about a week after Government Economist Helen Chan said local property prices had defied a slowdown in other economic
indicators to rise by about 5 per cent in the first quarter, a trend that she described as unhealthy.
In Kowloon, sales dropped significantly - down 26 per cent on the previous week at just 55 transactions. Ricacorp said buyers were lured
further afield to new property projects in other districts, including the Housing Society's Heya Green and Kowloon Development's Gardenia in Sham Shui Po, as their asking prices were closer to the prices of pre-occupied flats in their areas.
There were 24 sales on Hong Kong Island and 88 deals in the New Territories, drops of 11 per cent and 10 per cent respectively on the previous week.
David Chan said he believed secondary-home sales would fall a further 10 per cent this week, to about 150 transactions. "Lingering concerns over Europe's debt crisis and worries that the local government will implement new policies to cool property prices will see more buyers and sellers adopting a 'wait-and-see' approach," he said.
Posted by Ed (358 days ago)
And here is why the crash reversed in 2008... again it is the macro picture involved:
"The luxury residential market, however, is getting a special boost. Local property agents say prices are being driven higher by buyers from the Chinese mainland. Wealthy Chinese have ample cash and easy access to low-interest loans because of the government's loose monetary and fiscal policies, which were implemented last year to fight the recession.
About half of the buyers for luxury apartments in Hong Kong in recent weeks came from the mainland, according to reports."
"The large number of Chinese buyers means growth in Hong Kong's luxury-property market could suddenly cool if Beijing decides to tighten credit."
http://www.time.com/time/world/article/0,8599,1925806,00.html
Fast forward to today and the headlines are all about whether or not China can do a repeat act on 2008.... i.e. will Beijing tighten credit?
With dark clouds gathering over the Chinese economy, the government has started to talk about the importance of supporting growth and speculation is mounting about what actions it will take.
http://edition.cnn.com/2012/05/29/business/china-stimulus-options/index.html
So once again ... this is macro stuff... if China cuts back stimulus then this will likely have a major impact on the HK market...
And this ties together with the EU crisis... if the EU sinks deeper into recession... what does China do about it's export losses?
Is it forced to risk massive inflation to try to boost the lost GDP that results from falling exports?
Important not to forget... out of control inflation lit the flame in 1989... the authorities certainly must be fearful of that reoccurring...
All very complicated - all very intertwined - all very macro - and all very relevant to HK property...
Posted by punter (358 days ago)
I forgot, uncle Four actually agrees with Loyd. He said that it's time to buy Property Stocks. There's just some timing differences between the two...
Posted by Ed (358 days ago)
Does this mean I don't take a beating if I bring up the EU crisis on the HK property thread...
"Home sales continued to fall last week and are expected to drop further as sentiment among homebuyers sags because of the European debt crisis" SCMP
Posted by punter (358 days ago)
No Ed, Paggie Leung takes the beating this time.
Posted by ltse (358 days ago)
Some market update, I found this interview to be extraordinary, Charles Nenner is a genius, his cycles works predicts the following:
- Major War on the way year 2013
- Commodities Supercycle is over, deflation is on the horizon
- Dow will hit 5000 in "a few years"
- One more significant rally in US Bonds before the bond bear market begins.
His work is consistent with other reputable technicians who are forecasting bear market and significant deflation on the way with the trigger being when EU nations declaring bankruptcy or a major European bank defaults, when loans are not paid back, it halts capital from flowing, banks will have to write off loans and corporations will find it next to impossible to get funding, that what sets off deflation.
The focus needs to be on 2013, never mind the election year, what will set in next year AFTER the election? war and economics is almost inseparable, if the US economy falters, its no wonder why a major war is imminent. What if interest rates rises sooner than expected? that would trigger the bear market in bonds for sure.
http://www.financialsense.com/financial-sense-newshour/big-picture/2012/05/12/01/r-puplava-c-nenner-r-bernard/stock-market-still-correcting
http://www.youtube.com/watch?v=7vcTm4XE4EA
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/5/29_Richard_Russell_-_IMPORTANT_-_Major_Bear_Market_Signal.html
Posted by elsdon (358 days ago)
Hrm.. If Nenner is right (which he is most of the time), how do you think that impacts the HK Property market or HKD?
He is calling for a 30 year bear market to follow during this massive war, so I imagine we'll see USD start pumping out more money to fuel their war machine.. inflation goes up.. hyperinflation in a dwindling economy still.. all the while still at zero interest rates?? That would obliterate HKD savings in cash..
To OffThePeak's point, I wonder at what point inflation starts having negative impact on property?
Posted by traineeinvestor (358 days ago)
@ltse - Nenner may or may not be right but I will not be organising my life around doomsday type predictions. I've been hearing those from a wide variety of highly rated prophets since I was a teenager in the 1970s. Since then we've seen a wide range of economic and market conditions including a 70% fall in HK property prices and life is still going on. I'll file this one right next to the Mayan Calender predictions, anything from Harry Dent, PRC governemnt statistics, forecasts from the Hong Kong government and my latest palm reading.
Posted by walkup3 (358 days ago)
Would this be the same Charles Nenner who thinks that the market would react favorably if Greece decided to leave?
'I think the markets would react very favorably. The euro would go up because without (Greece) the euro is a currency you really want to own.'
Posted by Ed (358 days ago)
I was unable to watch the full interview because once I realized it was on Fox 'News' ... I started to break out in hives....
My only comment is this...
Last time we had such terrible economic conditions was in the 1930's... lots of parallels... people believed the worst had ended by the mid 30's... but soon after the world crashed again, deeply...
All of this culminated in the biggest war in history.... so there is precedent for a really bad outcome....
Let's keep in mind... this time there are nukes....
When I see hardcore right wing parties taking double digit vote % in France and Greece... and I see Nazi salutes... it reminds me that Hitler was a joke before he was a mass murderer...
And he was voted into power under exactly the same conditions that are putting the screws to EU countries notably... massive debts from WW1 that other countries were unwilling to forgive....
Let's hope it doesn't come to something like that...
Posted by Underdawg (358 days ago)
If you feel that there is a possible war coming up next year, then hedge against it by buying some physical gold and silver now. Also keep some food reserves at home (efoodsdirect.com). But until that happens, if you haven't bought your home, you still have to pay rent every first of the month.
Posted by OffThePeak (358 days ago)
I have looked at Nenner's work over the past several years.
And I found his record to be "mixed".
Having said that, he often scores some very accurate HITS, so that makes him someone that I want to follow.
As for a rally after GREXIT, I do think it is possible, provided Europe handles the problem of Spanish bank runs sensibly.
A friend is writing an article about this, and I have been given an advance look at it:
===========
How can they stop the European Bank Marathon ?
(The current bank runs are like an Europe-wide Marathon, where many banks are "competing", and the running goes on for a long time. Meantime, this marathon is hollowing out the banking and lending capacity within the effected countries. Small and middle-sized businesses that need credit are getting crushed, shrinking the local economies further.)
=== QUOTE / ?? ===
Can I ask what are your thoughts on were all this is going, ie what do you consider should happen as the most appropriate path as a professional investor and what you consider the Centrally Controlled nut bags in power will do against all reason
=== UNQUOTE =====
The Classic Bureaucrats' Nut bag response would be for Europe to set up a new entity to guarantee deposits in all (qualifying) European banks.
And PROVIDED THAT such entity would also guarantee to pay back Euro deposits in Euros, then it might stop and reverse the rising tidal wave of bank runs - for a while.
I think that a temporary "solution" like that, involving a guarantee of deposits is a real possibility, but maybe not with Greece still in, as part of Europe. The Greeks have abused the rules too much, and do not deserve such a safety net from Europe - they would simply abuse it again, and create more headaches for Europe in the future.
If Greece were ejected, and then the plan of guaranteed deposits was established, it would buy time. However, it doesn't really solve the problem of prices being too high in many of the the Club Med countries. If the Euro-deposit-guarantee system were established, after such a step then Europe will really be even-more-stuck with the Euro than it is now. Afterwards, the only long term solution might be for the strong countries to exit. That would leave the "old" Euro behind as a weak currency. (I have long thought this will be the eventual solution to the European mess.)
I think it is best for Germany to leave the Euro and take France and maybe the Benelux countries with it. Then the "old" Euro could be devalued without bankrupting the banks. A weak Euro currency might allow the dodgy real estate to hold most of its current value, and so soften the amount of writedowns needed. Currency controls could also be imposed blocking the money from running into Germany and its strong currency bloc.
If the Euro stays strong, then the current cycle of writedowns leading to more bank runs, rescues and more capital being needed, while squeezing the banks and bond markets - will be continued. As that cycle turns, the debts within Europe get bigger and bigger. The overall house of cards becomes weaker, and more vulnerable to complete collapse. My opinion is: It is better to save what is left, while it is still worth saving. Just "kicking the can down the road" while making the problem bigger, solves nothing.
What to do?
If you have money in Greek or Spanish banks, move it out. And in case the Euro itself becomes under threat, then you might move some money into other currencies. I favor HKD, Gold, and maybe NOK, SGD and Malaysian Ringit
Posted by dlee08hk (358 days ago)
@Ed: If the EU crashes, I honestly think the effect on HK property will be limited. Even if the economic slowdown results in mass unemployment, mortgages are still cheaper than rent in todays market. The main reason a lot of people rent as opposed to own is because of the high down payment requirements, so only those with little or no savings will need to sell.
Unless of course there is a run on the banks, but as most of the mortgage banks in HK have limited exposure or funding in EUR, I don't think that will affect us out here.
@elsdon: I am quoting from a DJ News article which quoted a comment from Nomura Securities on May 22: "Nomura says the fact that HK property prices have surpassed their 1997 high shouldn't be too much of a surprise. ""While the 1997 peak may be a psychological level for HK home owners, if one were to consider the 28% increasae in private household incomes and 80% drop in mortgage rates from 10% to 2%, is it that unthinkable that home prices should surpass the 1997 high"".. (quoted verbatim). Afraid I can't post a link as its not a public web service.
November will be interesting to see if the buyers who bought for speculaton / investment in 2009 will look to book a profit by releasing their units without the SSD penalty. That being said, there could be a lot of pent-up demand as well, so while the supply may bring a mild correction. On the other hand, if the speculators / investors are yielding 4% on renting their units out, there aren't a lot of other options out there which will yield much better.
As for China tightening - I don't think it matters. Mainland buyers here (and overseas) pay in cash with no financing. Tighter credit means nothing to them.
As a buyer, I'd wait - there will be more supply coming on, and the market is not likley going to run away from you. I think the main risk on this is policy and not market - if the gov't requires even MORE down payment, then people will have to adjust affordability expectations. That doesn't force selling either though - just makes affordability even worse...
As a seller - as an owner/occupier: sit tight. You gotta live somewhere so its all down to replacement value, so you might as well enjoy the cheap mortgage unless you really need to upgrade for family reasons.
As an investor - if you've made some good money, cash in. The trade will come good - need to wait it out a bit though. Way more downside than upside risk at this moment.
Posted by Underdawg (358 days ago)
Ed, the electricity meter argument is nothing but a baseless theory. The article you posted as evidence just says that there was this recent story by Andy Xie about the electricity meters. And the article you posted is from August 2010. So Andy Xie's research would have been even older. That is hardly up to date data. Have they checked the meters again recently? If so, what is the result? If they haven't checked the meters recently, why not? Even if there were 200 million empty flats back then, and let's say half of them or more were under construction (a construction bubble as per the article you posted), when those new flats came on the market it would have caused property prices to crash (also as per the article you posted). Now considering the original electric meter research was done well over 2 years ago, I think it's safe to say most of those flats would have already been released in the market. Prices in most cities in China have corrected already quite a bit. So we can conclude that most if not all of this supply of empty flats has already been absorbed in the market.
That's IF this theory of electric meters is even true.
Posted by Ernie20 (357 days ago)
For someone who says the Centacity index is backward looking, posting 15 month old videos doesn't cut it. They may be empty now, doesn't mean they are unsold.
Posted by Ed (357 days ago)
It doesn't trouble you that there are massive empty cities in China?
That is the mother of all property bubbles waiting to blow up in your face...
Work out the ROI on all those millions of empty apartments...
What do you think speculators (and the owners of these empty apartments are all speculators...) will do when they realize there are not and will not be tenants for those empty flats?
Eventually the ponzi scheme will run out of fresh meat (and stimulus money) and these speculators will trample each other as they head for the exists
In the US housing bubble there were people living in the houses ... and still that blew into a million pieces and is still imploding...
Posted by Loyd Grossman is Miss Venezuela (357 days ago)
So it's flight to quality time. HK property could easily benefit from this. It's not as if there isn't any demand. People obviously holding back from buying but holders don't seem to be budging - which is why we are seeing so few trades.
Posted by OffThePeak (357 days ago)
They can have mine !
(at the right price)
I will take my chances of getting the right alternative investment
Posted by punter (357 days ago)
If I have multiple properties, I definitely would sell some now. Prices going higher from this point is quite difficult to imagine.
If I only have one property and I use it as my home, I don't have any reason to sell at all.
My argument is, many multiple-property owners will be looking to sell, but they have to lower their asking prices a little bit to move their flats. But just like OTP, they're not moving because they're waiting for a better price. So LGMV is right, number of txns will continue to sputter. Who's going to blink first? If the EU problem lingers, the sellers will blink first IMHO.
Posted by Ed (357 days ago)
Lloyd... I think flight to quality at the moment involves government bonds... because when this thing blows... I think pretty much all physical assets will be crushed...
Nothing about a rush to property on Ft at least...
Rush for havens as euro fears rise: US, UK and German bond yields all plunge
http://www.ft.com/home/asia
Posted by Loyd Grossman is Miss Venezuela (357 days ago)
Maybe but I think there is a bubble in bonds. When the money eventually moves out, a lot of people will get crushed. There isn't any spare capacity in HK property and there is a lot of pent-up demand. A lot of blue chips still doing business and offering great dividends. If you had to choose between government bonds in 1 year's time and blue chips, I'd take blue chips. However, my equtity portfolio is down 25 % approx though has given me about $6,000 per month in dividends.
Posted by traineeinvestor (357 days ago)
One of the issues which we, as investors, face is where to park your money. "Safe" investments such as US or German soverign debt, bank deposits etc yield less than the rate of inflation which one can live with for a short period of time but after a while the loss of purchasing power starts to bite. Assets which offer the potential for inflation beating returns carry the risk of loss (equities, property, corporate bonds, gold etc). In the longer term, I worry more about the impact of inflation on my standard of living than about short term volatility. With the so many countries racking up so much soverign debt, continued recourse to a regime of negative real interest rates and moderate inflation would appear to be a inevitable policy and practice.
Against that background, I intend to continue holding my Hong Kong properties in the expectation that whatever happens I will still have a source of cash flow. I haven't added to the portfolio for some time - other assets look better value at the moment - but I'm happy to ride out whatever fluctuations the market may through at me.
Like Loyd, my equity portfolio has taken a hammering this year, but I'd rather buy blue chips and ride it out than put my money into bonds at current negative real yields. Where we differ is that my time horizon is much longer - 5+ years
Posted by Loyd Grossman is Miss Venezuela (357 days ago)
The thing that has amazed me the most about this crisis is the delayed reaction of markets to news we already knew about. I suppose this may be a sign of hedge fund activity.
Posted by walkup3 (357 days ago)
Holding a 10 year government bond yielding less than 2% has its own risks. The value of the bond goes down in the event of any interest rate rise and inflation. If held to maturity you get caught by inflation anyway. An index-linked bond might yield zero interest. So... if you have some money in HKD cash you might want to place it on term deposit at 0.0000001% or thereabouts and inflation will get that as well. That is why many are happy to sit on HK property assets yielding a return of 4-5% or more and discount the associated risk. I certainly would like to know more about HK company bonds. Another area is regional bonds offering higher interest rates but these are exposed to currency risk right now and I would rather stay within HK. trainee investor has a good approach IMHO.
Posted by Underdawg (357 days ago)
Going back to the construction boom in mainland China, here is an interesting quote: "It is expected that an additional 345 million people in China will move from rural to urban areas in the next 25 years — a mass migration larger and faster than any in history" (http://www.pbs.org/pov/lasttrainhome/photo_gallery_background.php?photo=2).
Ed, in the YouTube video that you posted titled "China's Ghost Cities and Malls", it was reported that ZhengZhou New City is China's largest "Ghost City". But a simple search on Google led me to the following article with pictures showing the opposite.
http://www.newgeography.com/content/002159-zhengzhou-ghost-city-alive
OK, I'm not saying that there aren't any empty malls, commercial buildings or apartment buildings. I'm sure there are many. But on a per capita basis, I don't think it is a serious problem at all. There are going to be some mistakes made when you're preparing for the largest migration in history. We're talking about a country who's population is over 1.3 billion people. Do you really think an empty mall in DongGuan is going to make a difference?
Posted by Ed (357 days ago)
Ghost City article - looks like something youd' find in HK Mag.... fluff without any meat....
Doesn't look very alive to me... there look to be thousands of apartments there... and a few cars and people out front... perhaps you can find an established media source that can provide some facts and figures... or better still someone walking through the entire project with a video as in the link provided earlier.
Surely if it was full the PRC govt would have sent their news outlets through with cams to show to the world that China does not build white elephant cities?
I am always skeptical of 25 yr forecasts... economists can't even get 6 month forecasts right...
Remember Japan - it was forecast to blow America away and become the biggest economy in the world... not only has it not done that but the country is on the edge of bankruptcy... so much for forecasts...
In any event who are these people moving to the cities? What will their income levels be?
As the video indicates few can afford to rent these apartments.... it looks to me like a ponzi scheme or better still a game of musical chairs... speculators buy apartments that have no ROI because nobody can afford to rent them... speculators flip them on as happens in an overheated market... and the suckers who take ownership when the whole thing implodes are left eating a huge loss...
I don't know how many apartments are empty but what I do know (see the TIME article above) is that China dumped massive easy money into their economy when it was going to pieces in 08...
Plenty of evidence to demonstrate that it was directed into property speculation.... similar thing happened in the US after the dotcom bust... we see how that turned out...
So my question is this:
If prior to 08 there was such MASSIVE demand for quality housing in China, why was it not being built then?
Did this demand magically materialize after Lehman? i.e. did China suddenly sprout a massive middle class that demanded millions upon millions of new fairly high apartments?
I don't think so....
Posted by Ed (357 days ago)
Lets shift to the other thread on this same topic to discuss further
Posted by ltse (356 days ago)
TI -"One of the issues which we, as investors, face is where to park your money. "Safe" investments such as US or German sovereign debt, bank deposits etc yield less than the rate of inflation "
Walkup - "Holding a 10 year government bond yielding less than 2% has its own risks. The value of the bond goes down in the event of any interest rate rise and inflation"
I am going to deviate a bit and address these points, because these are good points and I like to share my perspective with some of the things I learnt over time as a private trader. There really no good place to "park' your money and just be passive, if your doing that then your bait to the bankers and the government, but there are multiple ways to manage your capital and get good returns, you got to be active.
Does anyone here actually have a US brokerage account? I for one don't like the HK stock market, because:
1) There is no liquid options market
2) Leverage is limited
3) Most ppl can only make money by going long, and not going short, there aren't
ETF's structured to make you money on a downward market. There are only "bear
or put warrants" issued by investments banks to bet against the ignorant public.
Contrast that to what I do on the US market
- Writing Put Options, for example I did this trade last month on a stock called Occidental Petroleum Corporation (OXY), it was trading at $80, I wrote a $65 June 16th expiry Put (meaning if the stock falls to $65 or below by expiry I have to buy the stock), and for that I got paid 0.65 cents per share, thats (0.65/65 *100) 1% a month or 12% annualized! That means the stock have to fall 18.7% in a month, if it doesn't I don't take delivery and still keep the 0.65 cents per share! I did that on 10,000 shares, it paid me $6500 USD for 1 month exposure, a trade that took literally 5 minutes, beats the hell out of HK div stocks.
Secondly, I mentioned these ETF's before, these are as close as they come to a no brainer and a 10 bagger home run on your money, pls look into these!!!
1) SKF - Ultrashort Financials, if you think a financial crisis is coming that would be worst than 2008 and I think most would concur that the problems are not solved then this is the stock to own. To give your some idea of the potential, back in 2008 when the s**h hit the fan, this stock when as high as $1200 per share, and right now it is only $49.
Chk it out here http://www.finviz.com/ , just punch in SKF as the ticker.
2) Per TI and Walkup above, Bonds and bank deposits yield less than inflation, but this clearly a situation not sustainable, yields on 10 yr US Bond is only yielding 1.58% as I write, and if you believe it is possible that interest rate can rise in the future, then TBT (PROSHARES ULTRASHORT 20+ YEAR TREASURY) and TMV (DIREXION DAILY 30-YEAR TREASURY BEAR 3X SHARES) are the stocks to own and sit on.
As Charles Nenner says "We are looking at a TBT's iShares that actually goes up if the bond market goes down. And I wrote a while ago that only if you think that rates will never go up anymore can you lose on this trade"
Again to give you some perspective, when bond were less than popular the highest point for TBT was $60, right now its at roughly $15, TMV was $518 per share, right now its only $53. The Fed is issuing more and more bonds to finance the government debt, now how the hell can something that is in ample supply be this valuable? This would be the short trade of the century. I personally will be doing these trade on leverage 1:10, when the technicals tell me.
Lastly, just have some knowledge of technical analysis, the fact is it doesn't matter what you or I think in this instant or anything about the fundamentals, it doesn't matter. The technicals and charts will tell when to get in and out, moving averages are important, and if your interested on how not to catch a falling knife in a falling market pm me, I can send you the video, don't have the link anymore.
Please share your ideas as well if you have any.
Posted by traineeinvestor (356 days ago)
@ltse
I agree on options. One of the best things which the SFC could do if it had any interest in the welfare of individual investors is to ban derivative warrants - the options market would then become a much more liquid and efficient market and investors would not only be able to invest in either direction but also get much better pricing.
Which broker do you use for your US trades?
Of course, this has noting to do with property, so perhaps we should move thos to another thread?
Posted by elsdon (356 days ago)
In other news.. The River Park in Tai Wai (sort of in the Shatin area?? I'm not familiar with the area so maybe some of our Shatin peers can assist) is meant to be opening up its show flats very soon, and releasing Block 1 (Units A,B,C) and Block 5 (Units D,E,F) for sale.
http://www.theriverpark.com.hk/en/main.php is their website.
Tower 1 ABC is rumoured to be released at approximately $9xxx HKD psf, and Tower 5 DEF will be released at $8xxx HKD psf. Their show flat is open in Festival City, Tsuen Wan from 12-7pm.
I for one will be interested to see how this sells.. I think it's way overpriced for where it is, but the quality of the flat is rumoured to be pretty nice. Thoughts?
Posted by john.erick (356 days ago)
I used to live in a village house about 1 min. walk from The River Park.
The River Park is 15-20 min. walk from Tai Wai, so not really Tai Wai itself. Very close to the Che Kung Temple MTR station. There is a Welcome about 5 min. walk from The River Park. There is nothing else in Che Kung Temple. In other words it's not a good location. $9xxx sq. ft is totally overpriced for that location.
On the other hand, it has a view over a museum in Shatin (and behind that the mountains) that is unlikely to be replaced with a high-rise building. So, the view is nice. On the other hand (we are at the third hand now), the village I was living in will likely be replaced with high rise buildings sooner or later, which means if you buy a flat on the opposite side of the museum you will have a high rise building in front of you.
Better travel another 15 min. and live in Ma On Shan for $6xxx sq. ft. (in my opinion).
Posted by jobin (356 days ago)
Well, itse, i have a Schwab USA account and have found it very useful over the years. I will consider your notes and digest those thoughts of yours to see if they meet my needs and desires for better/safer returns on my USD. Some HK stocks are readily available at Schwab, others probably need International Account processing. Frankly i was miffed 2 yrs ago when Schwab was unable to trade on the Taipei Exchange. I lost out then but don't know the situation currently re Schwab and Taiwan Ex.
Posted by Loyd Grossman is Miss Venezuela (356 days ago)
Don't really know the area so can't comment but I'm not a big fan of New World Development. Their mass residential developments are not of the same quality as Henderson or Sun Hung Kai. However, they may have improved their act. Would still consider a New World Development flat if the price was right.
Posted by ltse (356 days ago)
@ traineeinvestor and @jobin
For Charting and Technical analysis + live data feeds, I use TradeStation.
They are also a broker, but I choose Etrade as my execution platform.
By the way, if you have an HK HSBC bank a/c, they now provide access to the US markets, its worth asking.
http://www.tradestation.com/
And yes, I will start a new thread to discuss stocks going ahead.
Posted by ltse (356 days ago)
@ TI and Co , I created a new thread "Lets Talk Stocks", I will be posting trading ideas there from here on.
Posted by Ed (356 days ago)
Why would it pull back?
China is slowing decelerating quickly - that means more stimulus is on the way - that is bullish for property.
And now we have the awesome news that America created only 69,000 jobs last month + revised previous months down substantially. And we know what the means - Ben surely has to pump another trillion or so (ah sorry ... it's not printing its QE...)
Very very bullish for global assets including property....
Posted by Loyd Grossman is Miss Venezuela (355 days ago)
I'm not an American but I assume with an election coming up, QE3 is a dead cert. back to property, went to see a new development on Seymour Road? Mid-levels called 'The Seymour'. It's by Wing Tai, one of my least favourite developers (I think they did Cherry Crest). Price range HKD 20,000 to 50,000 per square foot. It's quite a n interesting development, it has a unique interior courtyard and spectacular views. However, although the flats are really nice, I got the feeling Sun Hung Kai, Hongkong Land, Swire ir Henderson could have done a better job. If my memory serves me correct, the land was bought by a US fund then resold during the Lehman crisis (but not sure). During the presentation, the developer pulled out all the stops including a string quartet in the courtyard and a performance by 12-year-old Connie Talbot, of 'Britain's Got Talent' fame. She has such a powerful voice, she sounds like an adult.
Posted by punter (353 days ago)
That's what's his sleeve at the moment: "announcing" that they're going to do something. I'm sure the government is afraid to do anything that will be the cause of the property market's fall.
They can announce maybe an increase of public housing projects, and HOS projects again.
Posted by Ed (353 days ago)
I would have thought he just sit tight and wait for Europe and the US economies to continue collapsing... that would solve his problem no?
Posted by ltse (353 days ago)
Ok, this is semi- property related, the slide presentation is one that Hedge funds and IB subscribes to, fear mongering is a common things, I just didn't expect this to come from a writer who sells newsletters to the 'players'. The only thing I am upset about this letter is that the government can ban "shorting" anything in the future.
So you make make the right bet on shorting treasuries, and the Euro etc, but they can deem your trades null or invalid and even ban these instruments going forward thru the government arm SEC and make it illegal.
http://goldsilver.com/news/the-end-game-2012-and-2013-will-usher-in-the-end-the-scariest-presentation-ever/
Posted by walkup3 (353 days ago)
I wouldn't be reading that junk, especially from an author who doesn't understand derivatives. What you find is that its all just a puff for buying gold coins.
Posted by punter (353 days ago)
Meanwhile our FS again expressed some bearish sentiments:
Speaking at a meeting of the Legislative Council finance panel, Tsang said the property market was unhealthy, with prices having surpassed their peak in 1997. While the number of transactions had recently plummeted, there might be a need to tighten mortgage lending to allow the market to develop "steadily and healthily".
"The developments have reminded us that we can't blindly believe the property market is a miracle that only rises and never falls," he said. "If there is a need, the mortgage regulations will be further
tightened given that it will not affect citizens making their first home purchases," he said.
Posted by Ed (353 days ago)
Haven't read the entire report (so unlike others I shan't dismiss it...)
This from Zero Hedge:
If Raoul Pal was some doomsday spouting windbag, writing in all caps, arbitrarily pasting together disparate charts to create 200 page slideshows, it would be easy to ignore him. He isn't. The founder of Global Macro Investor "previously co-managed the GLG Global Macro Fund in London for GLG Partners, one of the largest hedge fund groups in the world. Raoul came to GLG from Goldman Sachs where he co-managed the hedge fund sales business in Equities and Equity Derivatives in Europe... Raoul Pal retired from managing client money in 2004 at the age of 36 and now lives on the Valencian coast of Spain, from where he writes."
Might be worth reading eh....
The intro paragraph is right on the money...
"The world has no engine of the world has no engine ofgrowth with most of the G20growth with most of the G20 countries approaching stall speed at the same time. The Western World is about to enter its second recession in an ongoing depression..."
The most successful hedge fund manager of the past decade recently said something similar at an Economist Magazine interview ... it was about 4 months ago that Ray Dalio expressed his concerns that 'since Europe has already been running zero interest rates since 08 and has thrown all it can in terms of stimulus at the crisis... the EU looks to be headed into recession - since all the tools have been used how does it get out?'
Well... the EU is in recession that is getting deeper by the day... in fact much of the EU including all the PIGGS are in a Depression.
Posted by Ed (353 days ago)
Actually the article is mostly graphs... pretty difficult to argue with his conclusions...
Central Banks HAVE printed over 10 trillion dollars in 3 years... their balance sheets have gone from 5 - 15T in that short time...
America is crashing. The EU is mostly crashed. Japan has been crashed for 20 years. China is grinding slower as is India as I Brazil.
Can anyone explain how this doesn't end badly?
Posted by traineeinvestor (352 days ago)
G-7 "policy action"? It's a fair bet that they will not do anything which would actually amount to a solution to the underlying cause of the GFC - countries spending more money than they can possibly take in through taxation.
If they keep printing money, at some point we will have higher inflation.
Posted by Ed (351 days ago)
I don't believe there is a solution... printing money and loaning trillions to bankrupt countries and banks only makes them more bankrupt - it is not a solution... but it's what you do to prevent them from collapsing when you have no other options...
I suppose the only real solution would be to have massive debt defaults... however they tried that with Lehman... Spain/Italy would be Lehman x 1000...
Posted by Loyd Grossman is Miss Venezuela (350 days ago)
Not sure if we'll get the same deleveraging as with Lehman. Anyway, best to stick with bricks and mortar.
Posted by walkup3 (350 days ago)
Re: '...in fact much of the EU including all the PIGGS are in a Depression.'
No it isn't. Hysterical economics. Grade F again.
Posted by Duracel (350 days ago)
"printing money and loaning trillions to bankrupt countries and banks only makes them more bankrupt"
You can't be "more bankrupt" and "less bankrupt". Either you are bankrupt or not, and for a many years no country has gone bankrupt.
Having debts doesn't mean you are bankrupt, or most people in Hong Kong would be bankrupt.
Grade F in economics.
Posted by Ed (350 days ago)
You appear to have missed the sarcasm as I have on a number of occasions compared being more bankrupt to being more dead...
Check your definition of bankruptcy... debt is not bankruptcy... inability to repay a debt is bankruptcy... the reason these PIGG countries are unable to borrow money in the private markets is because potential investors know that they will never be able to pay back what they already owe... let alone service new debt...
From Webster: In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by economists as part of a normal business cycle.
All PIGGS are in a Depression... America is in a Depression. Japan has been in a Depression for nearly 20 years.
The only reason it doesn't (yet) feel like the 1930's is because governments are ramming trillions of printed dollars into their economies... with minimal effect...
If this were not a Depression and Central Banks has printed and released 10 trillions dollars in 3 years at 0% interest (which they have done) you would have immediate hyperinflation.
Posted by Ed (350 days ago)
If you jump to the last version of this thread... go back a few months... I was posting data that showed the EU was entering a recession... and there are plenty of comments screaming that it was not...
The data doesn't lie... unemployment in quite a few countries has been in double digits for 3 years now... and amongst the under 25's its off the chart... including in the US where college grads are happily taking jobs in fast food restaurants
http://www.zerohedge.com/news/us-labor-market-full-blown-depression
One Sick Labor Market
There were so many disturbing elements to the May jobs data that we're not sure we can do justice to the litany of disappointments (with some help from our friends at the Investor's Business Daily):
The share of long-term unemployment is at its highest level since the Great Depression (42%).
Fully 54% of college degree graduates under the age of 25 are either unemployed or underemployed.
45 million Americans are on food stamps — one in seven residents.
47% of Americans are on some form of government assistance.
The employment-to-population ratio for 25-54 year olds is now 75.7%, lower than it was when the recession supposedly ended in June 2009.
The number of people not in the labour force has swelled eight million since the recession ended; absent that effect, the unemployment rate would be 12% right now (about the same as President Obama's election chances would be).
The number of people confident enough to leave their jobs fell 11% in May
for the second month in a row to 891k, the lowest since November 2010.
The ranks of the unemployed who have been looking fruitlessly for work for at least 27 weeks jumped 310k in May, the sharpest increase since May 2011.
The unemployment rate for males aged 16-19 is 27% and for males between 20 and 24 it is 13%. Draw your own conclusions from a social (in)stability standpoint.
One in seven Americans are either unemployed or underemployed.
Only one in six of the youth are working full-time and three-in-five are living with their folks or another relative (as per the NYT).
A mere 16% of the 2009-2011 graduating class has found full-time work, while 22% are working part-time. Even those hired from 2006-08, just 23% are working full-time.
According to a poll cited in the NYT, just 14% of high-school grads today believe they will have a more successful financial future than their parents Line of the day, as depressing as it is, comes from an 18-year old: "Thank God I had a buddy at Burger King who could help me out". Fast-food has emerged as the fast-growing industry in a country once led by technology. Even tech now is fuelled more by companies that produce nifty consumer gadgets and feed our narcissistic needs than those who focus on improving the nation's capital stock which is the ultimate trailblazer for productivity growth and durable gains in our standard-of-living.
If it looks like a Depression, smells like a Depression... and acts like a Depression...
It's a Depression. No matter what the MSM calls it (they after all have to maintain CONfidence...)
Posted by Duracel (350 days ago)
Bankruptcy isn't even "inability to repay a debt". Me too I am not able to repay my mortgage, in full, today. Does this make me bankrupt? Why do you think I borrowed the money? Because I have that money in the bank?
Bankruptcy is (and I made the effort to get the definition for you):
A legal proceeding involving a person or business that is unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor (most common) or on behalf of creditors (less common). All of the debtor's assets are measured and evaluated, whereupon the assets are used to repay a portion of outstanding debt. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy.
No European country is bankrupt. Period.
Posted by Ed (350 days ago)
If you do not make your monthly payments on your mortgage your banker will force you into bankruptcy.
Nobody is asking the PIGG countries to pay back their entire debt… but they are required to make good on interest payments – they are absolutely unable to do so.
Yes, the ECB/FED are printing and loaning them more money that allow them to make these payments which is only sinking them deeper into additional unserviceable/unpayable debts.
Every banker in the world knows that they are already bankrupt – that is why private institutions refuse to lend to them.
They have already seen Greece default on a chunk of their debt... they know what is coming
This is no different than if I had a salary of HKD500k per year. And I somehow built up debts of 10M… I am unable to service the debt – but HSBC says ‘no worries mate – we’ll just lend you more cash to you can pay your interest PLUS we’d like to loan you an extra 2 million so you can buy a new BMW’
I am bankrupt. The PIGGS are bankrupt.
I will take that further... and suggest greece is on the verge of becoming a failed state...
And Spain could quite possibly follow...
What has to happen is these countries stop masking their bankruptcies... and default and start over again...
Just as bankrupt nations have done throughout time...
The problem here is that French and German banks loaned he money in question... if they lose they need to be bailed out... and that brings into question the solvency of those countries
Posted by Ernie20 (350 days ago)
Any news about the Hong Kong property market on this thread? Expect secondary transactions to be down this week as a lot of new launches are on. Even the lower end of the new stuff seems way out of my league and I'm not that poor. Most of the HK people can have no chance of affording this stuff.
Posted by Duracel (350 days ago)
If HSBC says ‘no worries mate – we’ll just lend you more cash to you can pay your interest PLUS we’d like to loan you an extra 2 million so you can buy a new BMW’ then you are NOT BANKRUPT, NOT BANKRUPT, NOT BANKRUPT!!!!!!!!!!!!!!!!!!!!!!!!!
Only if the bank asks me for the money and I can't pay I am bankrupt. If the bank doesn't ask me for the money than I am NOT BANKRUPT, NOT BANKRUPT, NOT BANKRUPT!!!!!!!!!!!!!!!!!!!!!!!!!
You can repeat "bankrupt countries" for a thousand times, this doesn't make them bankrupt!
Greece had some of its debt forgiven. This doesn't make it bankrupt!!!
Posted by punter (350 days ago)
Duracel, get a life!
I agree with Ernie, prices are so high ordinary Hong Kong people can't afford to buy homes today. Only the rich can, and they do accumulate a lot of flats...
Posted by walkup3 (350 days ago)
Re: 'If it looks like a Depression, smells like a Depression... and acts like a Depression... It's a Depression.'
Ed confirms that he has no quantitative analysis of the difference between a recession and a depression. Still a Grade F.
Posted by Ed (350 days ago)
duracel... you should apply for a job as a central banker... they are masters at avoiding reality
You can call it debt forgiveness or whatever nice sounding euphemism you like... but what Greece did was default on their debt... they were unable to make payments...
Because they are bankrupt... the country is insolvent.
And so is Spain.
Walkup... instead of spouting your usual insults... you've seen the definition of a Depression... let's make it easy... explain how Greece and Spain don't fit the bill.
Posted by Loyd Grossman is Miss Venezuela (350 days ago)
Property market pretty solid. If equity markets recover and things look like getting back to normal in the 6 months, it's going to the moon. As for euro area, take a look at today's (June 6, 2012) piece in the SCMP.
Posted by Duracel (350 days ago)
Ed, I told you where you are wrong. You can't call it bankruptcy because it's not one. Why don't you try to learn, instead of continiously sprouting garbage?
Posted by Ed (350 days ago)
The problem is I am not wrong. Greece defaulted on it's debt obligations. That is bankruptcy...
If a horse is dead... and you pick it off the ground... it may look alive...
But it's still dead
Posted by Ed (350 days ago)
Technically I suppose you would refer to countries like Greece and Spain as insolvent ...
The difference between insolvency and bankruptcy is that you are declared bankrupt only once the court has rubber stamped the fact that you are insolvent...
Posted by ltse (350 days ago)
LGMV - "Property market pretty solid. If equity markets recover and things look like getting back to normal in the 6 months, it's going to the moon."
Have you been living in a cave? property market looking pretty "solid". Judging by the
exuberant response of the public on the Heya Green project, this is clearly irrational behavior. Mind you Heya Green is a real local property project, and even that is fetching for close to $8000 psf. It's never what you see in the market that will hurt you, its always going to be what you don't expect.
http://www.thestandard.com.hk/news_detail.asp?we_cat=16&art_id=122943&sid=36565388&con_type=3&d_str=20120531&fc=7
My view is that people are going to get caught much sooner than later on a real interest hike. Europe is only the preview, the USA is the main event. Spanish and Italian 10yr bonds are yielding a record 6.05% and 5.51% respectively relative to the US 10 yr @ 1.65%. I don't know what you been smoking, but the differential tells me rate hikes in the US is coming sooner than later.
Meanwhile, if you want to know when nations are officially bankrupt, it would be when the market decides that they are by not showing up in a bond auction, that is when rates would have to go even artificially higher in a negative growth environment.
The idea is always to avoid crowds, the guillotine falls when the herd is in, that is especially true in today's property market, everyone has priced in low rates until 2014, that is not going to materialize.
http://www.marketwatch.com/story/spain-bond-auction-poses-crucial-test-2012-06-06
Posted by Ernie20 (350 days ago)
Bank valuations up again today HSBC and SCB in lockstep, HSB a little in advance. Banks here don't look too scared about loaning money to HK punters.
Posted by Duracel (349 days ago)
What interest rate are they charging right now?
Posted by punter (349 days ago)
It means:
(1) Prices have reached a plateau. It's either going to drop, or remain in the same level. There's also a chance it's going to a higher level (as Loyd says, to the moon).
(2) With the anemic number of transactions, we should not put a meaning to it.
(3) Prices are too high, it's got no more support to go to a higher level.
Take your pick...
Posted by Duracel (349 days ago)
I will chose number 1: it's either going to drop, or remain the same, or go up.
You are an investment banker, right?
Posted by OffThePeak (347 days ago)
Punter, your:
"With the anemic number of transactions, we should not put a meaning to it."
The obvious meaning is that buying appetite at the current price is drying up. I can think of several things that might push more sellers into the market, and cause them to cut their prices ideas (Ed is presentlng a constant barrage of worrying headlines), but only a few which might give the buyers the confidence to pay up.
The main positives might be the cuts in rates just announced in China, and the buying that might come from those who perceive HK as a safe haven. Ca you think of any more positives?
On the negative side, I have 6 or 7 possible drivers.
Posted by Duracel (347 days ago)
On the positive side: Encouragements (through law, or stronger union legislation, or whatever) of an automatic pay rise throughout HK to match inflation (as we have in most of Europe). With an automatic pay rise of 5%, 6% or whatever, more people will be confident they can afford to pay the mortgage, even when the rates rise.
I work for a government-linked organisation, and for me the automatic pay rise I receive yearly (unless thesh*t hits the fan), was a strong incentive to buy the flat 12 months ago.
Posted by Loyd Grossman is Miss Venezuela (347 days ago)
Punter. I am a typical HK flat owner. Please tell me 1) why I need to sell cheap to please John Tsang (aka Hong Kong's worst financial secretary) 2) if I sell, what do I do with the money 3) how can I be sure of getting back in? No transactions because holders are comfortable but a lot of prople expect the market to fall (wrong in my view).
Posted by ticktock (347 days ago)
Duracell - here's two more positives I can see:
a) Bank Valuations from most HK banks are being revised upwards
b) Spanish Banks just got 100bn, and most commentators seem to be viewing that as a positive in terms of calming the markets
Posted by Ed (347 days ago)
The 100M to Spain is a band aid and nothing more...
There was no debt forgiveness... all that's happened is insolvent banks that are unable to raise funds in the debt markets were given 100m in additional loans so that they don't collapse...
Can has been kicked... we'll see how long that lasts (how many times has Greece been bailed out now?)
Euro Zone Leaders Agree to Lend Spain Up to $125 Billion http://www.cnbc.com/id/47747620
Posted by punter (347 days ago)
1) why I need to sell cheap?
There's no reason for you to sell, moreso in selling cheap. You will sell when you're forced to. E.g. when you lose your job, when your business fails, or when your other investments lose value. Another reason is when you think there's nowhere to go for prices but down. Black swan events, can persuade you to sell also. Yes, nothing of these are present now.
2) if I sell, what do I do with the money? When you sell, you will payoff your loan in the bank. Use the equity you gained in other investments that you know. If you don't know anything else except buying property company shares, then you're doomed. Some would keep the money in the bank, wait for prices to fall, then get in again.
3) how can I be sure of getting back in?
Why would anybody ensure you get back in? When Lehman fell, did anybody wanted to get back in? No, they asked the government for help. So, when you sell and can't get back in, you can do the same.
Posted by ticktock (347 days ago)
Ed, 100M would be a band aid, but 100bn is a bit more that that ;-)
I do agree with your comments though. But the perception is that it's a positive - that's all I'm pointing out. And there is a saying that perception is reality.
Posted by OffThePeak (347 days ago)
Thanks for those comments, everyone.
Here's one more factor, which I now count as negative.
At the beginning of the year the extreme Negative Sentiment was a positive, because it was so negative, that it was likely to be less so, and a move towards more positive sentiment would help the market - and so it did.
That important positive factor has now faded. I think that the future move in Sentiment (from where it is now), is more likely to hurt the market than help it.
Posted by walkup3 (347 days ago)
So down is up and up is definitely down. "I've Been Down So long It Looks Like Up To me" Lawrence Ferlinghetti.
Posted by Duracel (347 days ago)
ticktock, of course it's a positive thing. It means the financial system won't collapse, and world war 3 won't happen. Only someone with a very disturbed mind would think that the financial system not collapsing is a bad thing!
Posted by OffThePeak (346 days ago)
"So down is up and up is definitely down"
I would put it differently:
+ Up comes after negative sentiment hits an extreme, and
+ Down comes after positive sentiment hit an extreme
Posted by Ed (346 days ago)
Sorry confused the M with what should be a B... How many hundred billion has Greece received in the past two years? Yet they are in an even worse position....
How many trillion has been injected into the EU and it's banks now? And yet it's still worsening...
This 100B is nothing more than a band aid.. it solves nothing... you cannot solve debt by piling on more debt... yet that is what they have done
Posted by castingasparagii (346 days ago)
Orsum. That's cleared it right up. I now know exactly what to do with my flat.
Posted by Ed (346 days ago)
Lloyd... Spain is not paying off its debt - that 100B Euros is MORE debt... so Spain (and it's banks) are now in even greater debt.
None of the PIGGS are paying off debt... they are all still running substantial deficit budgets... which means their debts are growing....
The conundrum they face is if they try to cut their expenses (austerity) that results in recession... which means their debt actually worsens because recession means less tax revenue... and it means higher costs for social programs...
The 100B solves nothing. It actually worsens the situation because Spain's debt load is approaching the unsustainable.
The solution to debts the size carried by the PIGGS is default.
The problem with that 'solution' is the debts are primarily owed to French and German banks... they will collapse (or need massive bailouts themselves) if Spain, Italy etc... default.
There is no good way out of this.
Posted by traineeinvestor (346 days ago)
@ Ed - Greece's recent default didn't do much good but still appears to be the best option. The other solution is to just create more money (which is just default in a different form)
Posted by punter (346 days ago)
There is much joy in the most recent bailout no? I wonder why that is. It doesn't work on a personal basis (I mean, if Spain or Greece was an individual, they'd never get any more loan. Not a cent from any bank.)
One rational explanation to this is that, the decision makers think that giving out the loan is better an letting the banks/countries in trouble die and recover (financially) the natural way as we know in the past.
Because this is such a new response (reverse of the great depression response), nobody has actually seen how something like this ends. So whatever call you're making right now may not end up as you think it will. What one can do then is diversify so that when one basket burns, you have other baskets to go back to. It's time to pick your financial adviser's brain I think...but the problem is, they too don't really know any better.
Posted by Ed (346 days ago)
Punter... actually Spain and Greece are unable to obtain loans in the debt markets... anymore than an insolvent individual would be offered a loan by HSBC to make the interest payments on earlier loans...
That is why they are getting these emergency bail out funds... it is important to note that no institutional investors would touch Spanish debt ... a) because they are subordinate to the ECB in the event of a default and b) they have already seen Greece default on a portion of their debt...
A very good article in the Telegraph this morning....
"The weekend rescue package offers no fundamental relief. It is a €100bn loan package to the sovereign state of Spain, not a recapitalisation of banks. It raises Spain’s public debt by up to 10pc of GDP. There is no mutualisation of EMU debts, no move towards fiscal union. Nothing has changed."
"Existing holders of Spanish debt will be pushed further down the credit ladder with each transfer of EU money to Spain.
Europe will now pay the price for what it did in Greece, where EU bodies concentrated all loses on pension funds, sovereign wealth funds, life insurers, and others who had stood behind Greece until the bitter end. They suffered 75pc haircuts as a reward for loyalty."
http://www.telegraph.co.uk/finance/comment/9322861/Europes-democracies-must-not-subcontract-their-destiny-to-the-Bundebank.html
Posted by Ed (346 days ago)
Keep in mind the Greeks are also watching this bailout... and they vote next week.
And they have seen Spain get 100B apparently without any strings attached... yet the Greeks are being forced to swallow enormous austerity measures in return for their endless bailouts... and they are fast becoming a failed state...
Does this not increase the likelihood that they election an anti austerity candidate who refuses to adhere to any of these conditions? If that happens then that forces the hand of Germany - they either have no choice but to keep handing money to Greece to keep the country from defaulting on their entire debt ... or they make an example of them and let them go... which most believe would set off a domino effect ripping the EU apart as other countries default rather than endure austerity...
Posted by Loyd Grossman is Miss Venezuela (346 days ago)
Ed. The Spanish are already undergoing austerity. I think the Greek election is irrelevant. They vote for austerity, they get austerity. They vote against austerity, they get austerity in the form of going completely bust.
Posted by Ed (346 days ago)
Lloyd... you should be consulting to the EU... you could solve all the problems :)
Actually slight issue if Greece goes bust... they owe over 100 billion to French and German banks... so those banks would need bailing out which would then bring into question the core of the EU....
Further... if Greece walks then Spain is gonna say why are we being put into 'debtor prison'... let's just default... endure some bad years but at least we can start over... there are plenty of examples of this (Russia, Argentina etc...)
Then you have Italy who owe nearly 2 trillion $$$... don't they also opt for a sharp swift pain and wipe out this debt in one go? Rather than enduring years and years of punishing economic conditions saddled with enormous interest payments?
Now you can imagine what happens if a country decides it's not going to pay back 2 trillion dollars of debt... that is the fiasco to end all fiascoes...
The Greece elections have the potential to establish a very dangerous precedent.
Posted by Loyd Grossman is Miss Venezuela (346 days ago)
There will be either printing or a default. Same thing as mentioned above. I don't care. I'm sticking with HK property.
Posted by Loyd Grossman is Miss Venezuela (346 days ago)
Centadata up again but on very low volume. Lots of blue chips paying good dividends. You get 3.19% gross on McDonalds, 4.93% on HSBC. Not bad for an inflation and recession proof stock in the case of McDonalds. HSBC should rise if interest rates rise, so quite a good hedge. COSCO (1919) also should have quite a lot of upside if China doesn't collapse. Those are my June 11 2012 stock picks to fight this turmoil. Who needs treasuries?
Posted by Loyd Grossman is Miss Venezuela (346 days ago)
What about HK property Ed? You are spamming your own website with macro economic data that is not immediately relevant to the topic. So far, all thrse euro bailouts and Lehman collapse have had a very limited impact on the local market. It has affected sentiment but there has been no real impact. Indeed the government is threateing more policy measures to calm the so-called market which is now made up of cash-rich end-users who don't need or want to sell.
Posted by traineeinvestor (345 days ago)
And so the debate between those who belive that Europe's woes (and other factors) will lead to a severe reduction in property prices and those who belive that local considerations and money supply growth will support prices.
While we wait for the market to resolve this debate for us, two questions:
1. if one was to buy a property for investment purposes - what is the "best" area/type to look at right now? Assume puchase price is below HKD10 million;
2. for those who belive that financial armageddon is upon us, where would you invest right now? (Please feel free to include suggestions for the best brand of mattress in which to stuff your cash.)
Posted by Loyd Grossman is Miss Venezuela (345 days ago)
traineeinvestor. In some cases (not all) talking my book here so follow up with your own research.
1) Mid-levels small flats: Bella Vista on Ying Fai Terrace, Cameo Court on Caine Road and Parksdale on Park Road/Bonham Road (opposite new MTR station on Bonham Road). Tin Hau (limited supply, up and coming), Fortress Hill (new Oil Street development, great connections) and North Point (will be a new transport hub when the North Island Line is built).
2) America Movil (AMOV US) Carlos Slim's Mexican mobile phone company that squashes all opposition, big market, fairly recession proof, Mexicans talk a lot. McDonald's (MCD US) a good inflation hedge, they will squeeze suppliers and pass on costs. Often used as a treat in recessionary times but will rise in good times, China COSCO (1919). Ridiculously cheap, unlikely to go bankrupt as state-owned. Now HK$3.67, this year's low 2.80, all-time high 30 (through-train mania). At a guess, should probably trade at between 6 and 10. Very volatile but should hit massive pay-dirt once world trade picks up. Of course drug companies like GSK and consumer staples like P&G. HSBC is a good hedge against rising rates. I would think the stock would rise if rates went up as margins would be higher, but you never know these days.
Posted by ltse (344 days ago)
Traineeinvestor:
This is a follow up on the Raoul Pal presentation, this time from Eidesis Capital, which picks up where Pal left off. Because if the Big Reset told us what is coming, Eidesis tells us how to get from there to the other side...
http://www.scribd.com/doc/96356876/Eidesis-Capital
More importantly, do you have any property on hand? If you have, it'll be a good idea to sell into the rally. People always ask, "If I sell, what will I do with the money?", well you sell to lock in your profit 1st, if you don't sell, all you have is phoney wealth on paper, it can go just as quickly as it came.
There is alot uncertainty the 2nd half, how HK will transition with CY Leung is yet to be seen, he's prohibited mainland pregnant mothers from getting HK citizenship for their new born, can he also restrict mainland capital from coming into the HK property market? if sentiments gets strong enough, he may. Thats generally how socialist politicians operate, by appealing to the masses. The same way socialist French President Hollande appealed to the masses and won, by slapping a tax rate of 75% on high income earners.
And I hate to talk about Europe but I'll mention this, Greece is not even resolved, and Spain is making headlines, think about what the Germans are thinking, at some point, they don't want to be drawn into this mess, a tiny spark is all it needs, they may choose to exit the Euro before Greece!
Posted by traineeinvestor (344 days ago)
@ lloyd - thanks for the suggestions. I'll have a look at some of the properties you mentioned. Likewise with the shares. FWIW, my last purchase was Henderson (HK:12) and I am considering adding more shares in GDI (HK:270) to the portfolio. I will pass on the Carlos Slim's monopoly - history has shown that monopolies do poorly once they become subject to competition (e.g. HKT) and there are plenty of rumblings about Mexico's competition regulator growing teeth.
@ ltse - thanks for the link. With respect, "if you don't sell all you have is wealth on paper" does not make a lot of sense to me - cash and bank deposits are "wealth on paper" that is steadily depreciating - that is one of the last forms of wealth I want to hold. I agree that apart from the UK which has done a very little to resolve its problems, Greece, Spain and the rest of Euroland have done zilch and are more or less in either the same hole or a deeper hole than they were a year ago - the only real solutions are default (in which case I want limited exposure to banks) and/ore even more extensive money creation (in which case I do not want to hold money).
Getting back to HK property, has anyone looked at industrial properties?
Posted by Loyd Grossman is Miss Venezuela (344 days ago)
Trainee. If you are thinking along loft apartment lines, the I think industrial is a bit of a 'no, no' unless you can afford to buy the whole block and pay the premium to the government. You may bought out by a developer but they're not renowned for paying top dollar. Also, some liquidity concerns. Having said that, space is space and CY Leung may look at developing industrial sites. If you are thinking of setting up an industrial operation then it may be a good idea. How about a micro-brewery?
Posted by Loyd Grossman is Miss Venezuela (344 days ago)
Holding on to my property for my kids though may sell if euro collapses and I can buy a chateau in France.
Posted by punter (344 days ago)
If you only have one property and you use it as your own home, there's no need to sell at any point. However, if you would like to take a chance at selling high, holding on to the cash, and buying when prices drop; then it's your call.
On the other hand, if you have other properties aside from your own home, then you can lock up your gains, make a call that prices are going down, then buy when prices are down. Of course, no one can guarantee it.
Posted by ltse (344 days ago)
No, I am not talking from the sidelines. I still hold my principle residence, but sold my investment property back in April, if you go back to the prior post, you will see it.
Yes, I am taking a bet that property prices can fall, but if I am wrong, I am still happy to lock in the 90% capital gain I've made on this property with a holding period of 4 yrs.
Ultra-low interest rate is supportive of asset bubbles, I am aware bubbles can go on longer than expected, but like I said, I am happy with the gain, if I hold out for more and not crystalize the gain, it may vanish just as quickly as it came, and multiple factors can trigger a downturn. Right now, I am keeping my powder dry, if you have cash, you can always deploy it t the right moment.
Posted by OffThePeak (344 days ago)
"1) Mid-levels small flats: Bella Vista on Ying Fai Terrace, Cameo Court on Caine Road and Parksdale on Park Road/Bonham Road (opposite new MTR station on Bonham Road). Tin Hau (limited supply, up and coming), Fortress Hill (new Oil Street development, great connections) and North Point (will be a new transport hub when the North Island Line is built)."
That's great Lloyd. Genuinely.
Probably those are worth a closer look
Maybe you could write a book:
AN IDIOTS GUIDE to the Mid-Levels, or perhaps: Mid-Levels for Morons.
(haha- just kidding. Truly, it is worth hearing what particular buildings look like good value to people. And it would be very interesting to know the Prices per foot on those - I will cc this to the Mid-levels thread, where it will be easier to find.)
Posted by OffThePeak (344 days ago)
What rally?
Seems to have stalled out for the time being
Posted by walkup3 (344 days ago)
Re: 'More importantly, do you have any property on hand? If you have, it'll be a good idea to sell into the rally.'
Tell us what you are doing or is this advice from the sidelines?
Posted by traineeinvestor (344 days ago)
@ Loyd - actually I was think of self storage. I would not buy in France given their approach to screwing property owners. Having looked at a few industrial properties, I would not regard them as genuinely suitable for conversion without a substantial building restoration (never mind the land premium).
Posted by Loyd Grossman is Miss Venezuela (344 days ago)
Trainee/OffThePeak. With regard to the properties I suggested, BELLA VISTA on Ying Fai Terrace has been the one that really pays. Obviously, there are bigger and better ones but I'm just a small potato landlord and first generation Hongkonger. It usually rents out within a week and you can pick and choose amongst tenants - usually single young professionals that want a decent place to sleep close to Central and SOHO and are not too fussed about space. Developer is Henderson Land and management good. I don't own in CAMEO COURT but it has a good layout and it is on the southern side of Caine Road which means you usually get a great view as the hill falls quite steeply (think Old Bailey) and the flats beneath aren't that tall. PARKSDALE is actually too small. You can rent it out but it's not so easy. Having said that, it is just oppositie the new MTR station on Bonham Road and the Park Road is very pleasant and close to top schools and HKU. Anywhere else, this would be described as 'bijou'. The land it stands on is worth a fortune so there may also be a huge redevelopment play for a very low entrance fee (3-4m for a small flat). This because Parksdale is a relatively new (built 1994) small block of flats (48 units on 24 floors, 2 flats per floor) wedged in between two really old blocks (56, Bonham Road built 1968 with 18 units, 9 floors and 2 flats per floor; and Bonham Crest built 1976 36 Units, 8 floors, 2 flats per floor). Now the blocks either side can be bought up if 80% consent once they are 50 years old (namely 2018 and 2026). However, if a developer wants to to get all three sites and merge them like Swire, it would have to wait until 2044 for the Parksdale to hit the 50 year mark. Either that or pay through the nose for the Parksdale flats. Why would a developer do this? The plots maybe not big enough but there is a concentration of a small number of flats (only 102 flats in all 3 developments) on an extremely valuable site. The location is opposite the only MTR station in Mid-levels (the new Sai Ying Pun on Bonham Road), across the road on Park Road is the prestigious St Stephen's Girl School and it is the best school district. It is also a few minutes from Hong Kong University and the new Centre Street escalator. If all three blocks were bought up, merged and redevoped, I think 50,000 psf final selling price (as at June 13, 2012) would be a breeze as many of the flats would also have full harbour views. Why am I telling you this? Because I can't afford to buy up any more flats.
Posted by OffThePeak (343 days ago)
Terrific info.
Thanks, LGMV
May I start a new thread, HK Island MTR Extension - Opportunities
This sort of information should be easier to find, and deserves a thread of its own IMHO
Posted by walkup3 (343 days ago)
Re: No, I am not talking from the sidelines. I still hold my principle residence, but sold my investment property back in April'
OK, got it. I don't disagree with selling in principle, but waiting for a correction? I think I would still be looking now, especially if I was interested in a particular street and immediate area. Probably always something for sale in Caine Road, but Old Bailey Street? Po Hing Fong? Very difficult to choose one's timing. The best you can do is to tell agents you want that street and you are ready to go if something comes up.
Posted by traineeinvestor (343 days ago)
@Loyd - thanks for the information. Based what I can see on-line they are asking around HKD8,600 psf for a unit in 56 Bonham Road which is quite cheap compared to the newer developments in that area but not so cheap that I would regard it as a bargain. Bonham Crest is asking around HKD10,700 psf.
Posted by Loyd Grossman is Miss Venezuela (343 days ago)
But with 56 Bohman Road you only need to buy 4 flats and you have over 20% of the building which would be sufficient to block a compulsory buy-out LOL. Ten flats and you control it, 18 flats and you own it outright. And, no, I don't own anything at 56 Bonham Road for the sake of transparency - just one flat next door. Ultra-cheap for such prime land. Better than Causeway Bay where that guy has just sold a commercial block for HK$1bn.
Posted by Ed (342 days ago)
Too bad this site wasn't around in 1997... I bet there would have been plenty of people saying the same thing then...
Funny thing with bubbles... they expand ... and expand ... and expand... then all at once - kaboom.... they burst, often spectacularly.
Posted by ticktock (342 days ago)
Ed, I find many of your views (euro crisis in particular) useful as part of the debate here but your constant reference to 1997 and bubbles does you no favours. The DB report headline says falls of UP TO 20%. Even at 20%, it would be a "correction" which would definitely encourage those who have been sitting patiently on the sidelines to grab a slice of the action and the long term slightly upward trend would almost certainly revert. People are not over extended and do not need to sell (in general).
Posted by fieter (341 days ago)
Just wait till interest rates revert to normal... then some people may be a bit overextended all of a sudden....
A big part of HKG's silly prices are due the banks assessing ( I think) 60% of your income as available for mortgage payments. This is ridiculous. Most parts of the world its 30%. So people can get bigger loans here - and it is reflected in bigger prices - sadly - and not bigger flats!
Posted by Ed (341 days ago)
As I have said... my bigger concern is the steep spike in the prices in the past couple of years...
I am calling that a bubble... and btw so is the Economist.
Posted by OffThePeak (341 days ago)
Fieter, your:
"the banks assessing ( I think) 60% of your income as available for mortgage payments. This is ridiculous. Most parts of the world its 30%..."
That is probably accurate, but let's consider some important differences:
+ HK has a low tax rate : Maximum tax is 16% of income, and there is no tax on interest and capital gains. Compare that with California where you pay tax on everything, and state and local tax is easily 16%, and on top of that, you have to add Federal Income Tax, which could be 30% or more, for a total tax of maybe 50% - and sometimes even more than that.
+ HK People do not "waste" much money on transportation. In the US (and other countries like Canada and Australia) people are brainwashed by the media and a backwards-looking culture into spending a huge amount of money on transportation expenses, sometimes communting 45 minutes or 1 hour or more BY GASOLINE-POWERED CARS to suburban homes in outer ring suburbs. They are literally pouring their wealth into their gas tanks, and will find what's left quickly depleted when oil prices rise again. This is extremely bad planning when it is completely likely that Peak Oil is one of the biggest challenges the world will face in the future.
Americans easily waste 30-40% of their income on taxes, transportation and over-priced healthcare and insurance. After a long habit of this brain-dead suburban existence, many Americans have now little to show from a lifetime of commuting to suburban homes, which are now sliding in value. By contrast, Hongkongers find they their own homes (which may seem expensive to less wealthy people.) And the Hongkongers may also have stock portfolios, and foreign property investments.
Who is truly better off ? I think you can easily work out where I would rather be. Maybe the wealth drain will soon stop in parts of America. By living in HK the last several years, I now have the wealth and freedom to decide where I want to live in the future. If I had stayed in the US, I might be trapped by now.
Image: http://img703.imageshack.us/img703/7844/subgasstation.jpg
Posted by walkup3 (341 days ago)
Re: 'Just wait till interest rates revert to normal..'
Interest rates aren't going anywhere for some time. They have already more than doubled from early last year to help control a property price safe haven surge. H+0.7 is now 2.15. Also given the max LTV ratio of 50%, any interest rate increase even to 5% becomes ameliorated. If rates go up, this will be part of the signal that the economic situation is improving and that will mean rents increase as well.
Posted by OffThePeak (341 days ago)
".... Any interest rate increase even to 5% becomes ameliorated. If rates go up, this will be part of the signal that the economic situation is improving and that will mean rents increase as well."
EXCEPT THAT: It did not happen that way in Greece, Spain, Ireland, etc. Interest rates rose and mortgage loans became very difficult to get because of a decline in confidence, and a tightening of credit.
Posted by walkup3 (341 days ago)
Hong Kong is not a PIIG.
Posted by OffThePeak (341 days ago)
HKD is linked to the USD, which has more debt that PIIG countries.
Sure, the peg may be broken, but that would open a new can of worms
Posted by Jim Fit (340 days ago)
If I was Mr Lim in CWB, I wouldn't offer to sell my office tower for 1 billion.
I would just sit back, relax with my thoughts and wait until it was worth 2 billion.
Posted by fieter (340 days ago)
Offthepeak - of course you are right - but what you're saying is because Americans/western countries pay more money to their governments in tax it is ok over here to enrich the property syndicates that are in cahoots with government to keep supply below demand?
I don't see how the point you're making - while valid - justifies the way HKG property is priced. The point of a rich society and a low tax regime should be to have extra money in your pocket to improve your lifestyle - like in Switzerland or the carribbean - not to waste all the money you save on tax on overpriced property where the majority you pay ends up enriching developers and back in govt coffers due high land prices!!!
Also:
HKG is massively corrupt - but they hide it well - everything here is done on tenders by big corporations in such a way that it costs the absolute maximum - i.e. the maximum amount of money is paid from govt coffers to the big corporates - and thats how many here get so filthy rich.
As an example: They won't build in the new territories where there is plenty space - they will rather have a massively expensive reclamation - which the govt tenders out ( and all bids are essentially identical due collusion - I have seen this - a tender for a bus stop - a little roof and a bit of pavement $ 600 000, or the new incinerator they want to built on an island - by far the most expensive way of doing it and shown to be nowhere near the best plan - but hey - its puts money in the private sectors pockets - your tax money! )
So the construction company makes huge money on that. Then its auctioned off by govt - at a massive price - and eventually when you buy the flat they build there you pay that land premium - so add that to your 16% tax you paid on your income - it is essentially a land tax. Then the developer builds - and sells at a huge markup again due artificially constrained supply.
The above plus low interest rates and mainland money laundering all add up to HKG being overpriced.
But as I said before none of this means the market has to come down any time soon - I am just pointing out what I see as the reasons for it being artificially high.
Posted by OffThePeak (340 days ago)
F.
"I don't see how the point you're making - while valid - justifies the way HKG property is priced"
I am not interested in "justifying" prices, merely explaining them. The HK economy generates wealth (better than Western economies do) and it has to go somewhere.
Of course, if you can manage to live where you have a more difficult or longer commute, you can save a tonne of money. I have lived that way, and it suited me at the time. And now I am considering selling my property in a "more convenient location" and leaving HK for a few years "adventure" someplace else.
But I do not want to sell out too cheap, else I will be unable to re-enter HK except in a less desirable property. (I am assumining the market will trade sideways. If I assume a drop in price, then I can sell more cheaply.)
I am lucky that my "means of livelihood" and family situation gives me the flexibility to leave.
Posted by ltse (340 days ago)
"Interest rates aren't going anywhere for some time......If rates go up, this will be part of the signal that the economic situation is improving and that will mean rents increase as well."
If interest rate rises, its going to be the FEAR of DEFAULT (rather than an improving economy) that is going to drive up bond yields to attract buyers. The short term funding market ie T-bills or treasury notes is in competition with the fed funds rate (interest rate which affect mortgages), ie the overnight rate at which the Fed lends to the banks.
The interbank rate (Fed funds rate + spread) is the rate at which banks lends to one another, if the Treasury yield % rises, the Fed funds rate also has to rise, because they are competing instruments. For example, if the govt has to pay to the Fed short term T bill return of 5%, but in the private sector the Fed funds rates + spread is only 3%, why would the government not borrow from the private sector directly?
The point here is, Greek bonds last time I check gone as high as 23%, Spanish bonds at 7% for 10yrs. Higher interest rates are used to lured buyers and also to reward them for the risk they are taking by purchasing a risky asset.
I think Joseph Yam coming out to suggest that we need to end the peg heralds a new financial system for HK, its going to happen sooner rather than later, in the long term I am still bullish HK, but during the transition, there are a lot of uncertainties.
More importantly, I think deflationary forces are more powerful right now then inflation, I mean after QE and QE2 the dollar index (DXY) right now is still hovering above 80, the argument according to Robert Prechter is that given its global reserve currency status, most of the world debts especially bonds are priced in USD.
When default occurs, debtors would sell all asset classes to buy USD to settle the debt in USD. I think his theory has merit as we witnessed in 2008, I want to hold cash so if another 2008 crisis comes (and it will), I want to pick up bluechips for
10 cents in the dollar, then when the Fed announces more QE, I will ride it back on the way up.
Posted by walkup3 (340 days ago)
If it is axiomatic that property dives when interest rates go up then the obverse would be true, except it isn't. However, if you think (arising from your analysis) that HK property is going to tank then you are obliged in practice to sell asap. Otherwise the analysis is reduced to idle musings.
Posted by Loyd Grossman is Miss Venezuela (340 days ago)
Itse. Sorry. Not following. Are you talking about a US default? How is that possible? I can understand people not wanting to buy US bonds but I don't think they can default as they own the printing press which points to inflation and nuch higher asset prices (cf Brazil in the 1970s).
Posted by ltse (340 days ago)
"Are you talking about a US default? How is that possible?...I don't think they can default as they own the printing press"
And which nation DOESN'T have their own printing press? by your definition then, Weimar Germany, Argentina or Zimbabwe need not default. But yes, when there are foreign buyers of US bonds, they are stealing from the savers of other nations, mainly Chinese, but absent foreign buyers , the fed can print and purchase US treasuries, which in effect is stealing from the savers of US dollars, primarily US citizens.
I don't think they will print until they hyper-inflate the dollar, QE3 still hasn't come into effect despite the numerous fed meeting, that indicates there are opposition to QE within the board. More importantly, you now have fiscal conservatives lead by Ron Paul as the Head of the House Financial Services Committee.
There's going to come a point where savers, retirees, unions, students, which are all voters, would not tolerate the diminishing value of their dollar as reflected in higher gasoline, food and other basic necessities, the government certainly don't want civil unrest, so the Fed maybe forced to let many failing banking institutions simply default as they did with Lehman's, which is deflationary. The fed has a monopoly on the dollar, I don't think it serves their own interest to see it turn to confetti.
Posted by Loyd Grossman is Miss Venezuela (340 days ago)
Greece, Spain and the other eurozone members don't have their own printing press. That is partly why they are in so much trouble.
Posted by ltse (339 days ago)
That is not the reason why they are in trouble, but it is the reason why your hearing about them in the news earlier than the troubles in the USA. The EU requires a common consensus from all member before the ECB can print to bailout anybody, but that is a good thing, because it forces discipline and austerity on politicians to live within its means.
The same way a gold standard exerts discipline on governments to be confined to it's budget, the same way the debt ceiling works for that matter. These are tools used to keep the government in check, absent these standard like in the USA, it only allows them to kick the proverbial can down the road further only to ensure a greater crisis to unfold because the system has not been allowed to be purged of its excess consumption.
But going back to my point regarding interest rates, at some point it will rise, and rise dramatically. Current stock valuations and dividend yields make stocks attractive, but I think this is value trap to avoid because mostly the earnings and valuations is based on ZIRP (zero interest rate policy), the stress test conducted on the banks somehow never revealed the impact of higher interest rates.
Interestingly, this admission from JP Morgan's CEO Jamie Dimon when he recently testified before congress, his testimony states "Dimon told the committee. Dramatically rising interest rates and a global type of credit crisis,” he said. “Those are the two biggest risks we face.”
In short, this is highly deflationary, I am going short on financials, home builders and US treasuries. Many commentators believe the gold/dow ratio will hit 1:1 , Inflationist believes 10,000-15,000 gold/dow ratio, deflationist 2,000-3000, but I think Charles Nenner's cycle prediction of 5000 Dow is probably the most accurate which means the Dow has a long way to fall from here.
Posted by walkup3 (339 days ago)
Obviously not the Charles Nenner who when asked what the drop in the DOW would be prompted by, said:
"Well, I don't want to depress you, but I should tell you that I also do war and peace cycles and it shows that were going to have a major war at the end of 2012, beginning of 2013. And I think that's going to do it."
So get your aluminium hats on children and hold hands with Itse.
Posted by ltse (339 days ago)
Actually Charles is Jewish. Jewish ppl wear Kippah's, not tin foil hats!
Posted by Loyd Grossman is Miss Venezuela (339 days ago)
I think most HK homeowners could comfortable cope with a 300bp rise in mortgage rates. Also, the longer we wait for rates to rise, the more principal will be paid off - meaning at rate rise will have a limited effect.
Posted by Loyd Grossman is Miss Venezuela (339 days ago)
I see John Tsang, HK's worst financial secretary, has said the government will release 150 hectares of land (three-times the size of the West Kowloon Cultural District - for residential use. Thirty hectares will be converted from five industrial sites including Tsuen Wan, Fo Tan, Tai Kok Tsui and Yuen Long. In addition, the government will also develop the NE New Territories. The only area here that is quite pleasant and within easy reach of Central is Fo Tan (via the future Shatin-to-Central line). I assume Tai Kok Tsui is basically more flats around Nam Cheong but can't be sure. Doesn't look good for NT-side but I expect much impact on HK side. Very few people on the island are willing to move to the New Territories and hang out with 'Deliverance-type' Heung Yee Kuk dudes. "Squeal like a pig". LOL.
Posted by elsdon (339 days ago)
Really not sure why you think the people living on HK island aren't willing to move to NT.. It's been seen time and time again, people trading commute times for space and living standards..
The only people on HK island that wouldn't move to NT are the single 'party' expat-types and they are becoming extinct. I wouldn't bank on that anymore Loyd.
Posted by Ed (339 days ago)
Lloyd... can you explain how you concluded that John Tsang has been 'HK's worst financial secretary'
Posted by Loyd Grossman is Miss Venezuela (339 days ago)
Elsdon. Scratch your eyes out, dearie. It's to do with school districts and convenience. yes, some people do move to NT but convenience usually trumps space. Also, there is usually a big desire to stay in the same area as their parents. Also, who is going to buy all these NT flats now there is so much supply? I wouldn't and I'm a HK property bull.
Posted by Loyd Grossman is Miss Venezuela (339 days ago)
Ed. 6,000 dollars into MPF fiasco, making a series of completely wrong predictions about the world economy and the property market. Can you think of somethin he has done right?
Posted by Ed (339 days ago)
Hmmm... name one bureaucrat who predicted the near collapse of the global economy in 2008.... Take that further... name 10 economists who did as well...
I suspect the problem you have with Tsang is that has committed the unforgivable sin (as have I) of stating that the HK property market is in a bubble.
He of course is the devil from hell because unlike me, he has the power to enact policies that might create a soft rather than hard landing....
Clearly HK property is in a bubble fueled by trillions of cheap money floating around the world... when that cash slows or shuts off... you can have a crash landing as we had in 1998... or something more benign....
Thus he is putting in place policies to cool an overheated market... just as officials are trying to do in the PRC
Tsang might actually turn out to be the property bulls best friend...
Posted by Loyd Grossman is Miss Venezuela (339 days ago)
Ed. I think John Tsang and you are completely wrong about the property market. And you have to admit, you both have form. His colling measures have made it much more difficult for first time buyers with the result that the HK taxpayer will now be responsible for housing a much greater chunk of the population. All this started with the peg, but I digress. Anyway, Ed please can you tell me when this hot printed money suddenly surged into the mass residential HK property market? You are a stickler for backing up statements. I have been asking you this for ages, but alas you reply.
Posted by Ed (339 days ago)
Let's not forget the Economist... and their superb graph that is wrong http://www.economist.com/node/21553462
As for the mass residential market... I believe a slightly more complicated explanation is required....
First off... where does it say that mainlanders are only buying on the luxury end of things? I have one friend who sold two apartments both under 10M to PRC buyers... they paid cash...
On the macro scale... the HK (and global) economy is being propped up by trillions of dollars that Central Banks are printing...
Reduce the trillions that are continuing to be pumped into the global economy to prop up banks and countries and overnight stock markets will crash - property markets will implode.
Remember what happened soon after the Lehman blowout? The HK property market went into freefall... and it stopped only when Central Banks came out with a coordinated effort to try to reinflate the global economy - and provide credit...
If they didn't do that then the global financial system would have collapsed... we would be reliving the 1930's...
The global economy is 100% reliant on Central Banks. I have posted articles that indicate Central Banks have printed over 6 trillion dollars in the past 3 years - the aggregate profits of the Fortune 500 in one year is not even 1 trillion dollars...
Take away the printing and the global economy will crash into bits and pieces.
And that is how the HK mass and luxury property markets have been jolted into a bubble.
Always good to use your wits... but it can be useful to click a link or two to get some insights and understanding.... I highly recommend this 4 hours PBS series on the ongoing financial crisis
http://www.pbs.org/wgbh/pages/frontline/money-power-wall-street/
Posted by Loyd Grossman is Miss Venezuela (339 days ago)
No Ed. You are mixing up the end of the Lehman blip - which resulted in a sharp rise in the Centadata Index - with money printing as it happened more or less at the same time. The HK property market had already recovered just before the 2008 Lehman crash after about nine years of deflation and 11 years of recession - which is understandable as people had been saving and paying off their debts. When Lehman happened, the Centadata dipped sharply, but on very low volume, as only a few people sold at fire sale prices. It then quickly returned to where it was before and kept on climbing. I remember this as I was nearly banned for saying the market was going to recover (just trawl back through this post). A lot of the western media, including The Economist, has been rightly focussing on money printing as it is a major story but they do not know much about HK property. Also, the vast majority of graphs on the HK property market are now redundant as the market now in no way resembles what it was like even 3 years ago thanks to the Special Stamp duty and the credit controls. If you think mainlanders are the main drivers in the mass residential market, I suggest you knock on the door of each flat in your apartment building and see how many answer in Mandarin. Mass residential, world-wide, is overwhelmingly local. I think mainlanders are being used as scapegoats here.
Posted by Ed (339 days ago)
Let's go back to the graph:
http://media.economist.com/sites/default/files/imagecache/290-width/images/print-edition/20120428_FNC097.png
1. See the dip around 2008... that's the impact of the Lehman crash... a quick sharp drop in the market...
You can revisit the initial thread on this topic for more on this - there are comments about agents throughout midlevels putting out 'prices slashed' signs... and there is your rallying cry to the bulls about 'how even though the market is dropping if you don't sell you haven't lost money'
2. Then the market turns on a dime and screams through the roof... that coincides with massive stimulus packages that were unleashed around the world - including China which had by far the biggest stimulus as a percentage of GDP of all....
Interestingly how at the time this was all happening not one of the bulls is on record as saying 'now is the time to buy because Central Banks are going to pump up the stock and property markets with trillions of stimulus money'
If anyone is on record as saying that (and buying in based on this) I bow down to them... because they have caned it since.
You have heard the phrase 'don't fight the Fed'? What it means is that you don't want to go short on any market because Central Banks will not allow them to fall... they will print and stimulate till they are blue in the face... they will absolutely not allow deflation because that means the system breaks and collapses...
So chill... Ben has said he will disperse billions from a helicopter if necessary... so HK property is likely to keep going up...
Really - what could possibly go wrong?
Posted by Ed (339 days ago)
Let's go to the graph again http://media.economist.com/sites/default/files/imagecache/290-width/images/print-edition/20120428_FNC097.png
Indeed prices were increasing pre 08... the market was quite strong.. the HK and PRC economies were strong (America and Europe were buying loads of our exports still)... but it was not a bubble by any means.
So why suddenly was there a sharp drop late in 08? Did people suddenly have less savings?
And then within months is spikes back up big time. Did people suddenly have more savings?
Of course not - Lehman crash and fear of a depression caused the spike down... Central Banks caused the spike up with trillions of printed cash.
Central Banks are what's keeping things alive....
Let's take this down to the bare bones:
The ECB has conjured up nearly two trillion dollars in less than a year and used the money to prop up insolvent banks and buy the bonds of the likes of Spain, Italy, Portugal etc...
Let's say the ECB had instead said... we are going to allow the rules of capitalism take over... we refuse to create money out of nowhere and use it to keep these countries and institutions alive... you F^%$# up... you go bankrupt...
Because that is the way capitalism is supposed to work.
What do you think would happen if Central Banks simply turned off the printing presses?
Posted by Loyd Grossman is Miss Venezuela (339 days ago)
The drop in 2008 was caused by a small number of people who were over leveraged and got out at fire sale prices. When they had sold, offer prices returned to normal. The printing by central banks is not the reason. HK mass residential is not the natural home for US dollar printing. It trickles down and can affect sentiment but it would not ramp up local property prices so quickly.
Posted by Loyd Grossman is Miss Venezuela (339 days ago)
If the US hadn't printed in 2008, you would have seen some big collapses. However, this printing restored the US economy not the HK property market. Of course, there is a link but it is not as direct as you think. The printed money only affected sentiment here, it didn't flow into the local property market which may have been able to survive due to the large amounts of equity held by most owners.
Posted by Ed (339 days ago)
Drop in 08: I'll completely disagree with that.
US Printing: I wasn't aware that the US had recovered... what I see in the US is this: they print... the get mediocre GDP and job growth... the QE runs out... GNP drops towards 0... job creation drops under 100k per month.... they print... lukewarm GDP and jobs growth.... rinse repeat over and over... same thing is happening again now as Twist finishes up... horrible job numbers... GDP growth misses... more QE coming
To your point - of course the printing restores the HK property market.
If the US didn't print in 2008 you state there would have been some major collapses. That is quite the understatement... if the US didn't print Lehman would have been a wisp of smoke compared to what would have happened.
AIG would be gone. Goldman gone. JP Morgan gone. BNP gone. Societe Generale gone. Unicredit gone. Barclays gone. HSBC gone. Every bank on the face of the earth would have collapsed.
The Fed did not just bail out US financial institutions... they bailed out Europe's biggest banks as well http://www.ritholtz.com/blog/2011/12/fed-secretly-bailing-out-europe/
If the US doesn't print the global financial system collapses... the global economy collapses...
And yes... the Centadata Index would plunge like a 1000 tonne lead anchor dropped into the HK Harbour.
If the US hadn't printed I don't think anyone would care much about the price of property ... you'd be more concerned about where your next meal was coming from.
If you think that is hyperbole... I'll post the link to this again http://www.pbs.org/wgbh/pages/frontline/money-power-wall-street/
Posted by Loyd Grossman is Miss Venezuela (339 days ago)
That's not the point. The point is that the money was already in the HK property market before the printing.
Posted by elsdon (339 days ago)
Actually, based on the numbers in 2008 the only dip we saw was from Jul08->March09.. Comparing YoY the same time period..
1997 99931
1998 49999
1999 59846
2000 61711
2001 60302
2002 56912
2003 51350
2004 64679
2005 59165
2006 53134
2007 76340
2008 65011
2009 78828
2010 105480
2011 61501
Seems like a pretty healthy number of transactions to me.. not a 'handful' or 'small number'. (Aside: Loyd, this isn't the first time I don't think we've looked at these.. You're getting a bit Ed-like about 2008 my friend!)
Posted by Ernie20 (339 days ago)
Back to 'the graph'. So the rise from SARS to Lehman collapse was not due to printing money but the post Lehman rise, which looks at a very similar rate, is wholly and solely due to printing. Hmmmm...US must have some finely tuned judgement when it comes to HK property.
By the way, does anyone know what caused the hiccup 05-06?
Posted by Ed (339 days ago)
Money printing (QE) did not commence till after Lehman... so of course the rise from post SARS to Lehman would not have been a result of QE...
That period of growth looks to reflect a relatively healthy economy that was not 'juiced' by any spectacular stimulus programmes...
That said... the US was running very low interest rates during that period... and HK follows due to the peg... so there was no doubt some significant policy influence on the HK market...
But of course HK was not allowing someone with virtually no income to buy a half a million USD home with zero money down.... so we have not followed the US into the toilet...
Posted by Ernie20 (339 days ago)
But what I'm getting at is that there has been a mix of positive fundamentals driving the whole HK property market from SARS until today. The HK economy did not change direction 3 times in a year (08-09) and have those changes show immediately in its property market. The dip was based on fear and hence short lived. A different mix of upward forces are in play now.
There have been constant strong forces 2003-12, people with a few hundred grand chasing 500-750sf flats within reasonable commuting distance, under $5 million, but with not enough supply. They've been desperate enough to buy in TKO, Tung Chung and Yuen Long! Look what happened for Heya Green the other day. People have been getting richer here for a long time and there is much pent up demand.
Posted by Ed (339 days ago)
Hong Kong Home Prices to Fall Up to 20%, Deutsche Bank Says
Property prices in Hong Kong may fall as much as 20 percent in the next 12 months as the city’s new leader sets out to increase housing supply after taking over in July, according to Deutsche Bank AG.
“The supporting pillars for the residential market over the past two years are weakening,” Deutsche Bank analysts Tony Tsang and Jason Ching wrote in a report yesterday. On July 1, “we expect the Hong Kong property market to enter a new age, characterized by normalized supply dynamics.”
The surge in real estate prices over the past three years has been fuelled by record-low mortgage rates, a lack of new supply and an influx of buyers from other parts of China. Hong Kong halted regular land sale in 2004 to support falling home prices, before resuming the mechanism in 2010.
The city is now the world’s most expensive place to buy a home and to rent office space.
http://www.businessweek.com/news/2012-06-14/hong-kong-home-prices-to-fall-up-to-20-percent-deutsche-bank-says
Hmmm... most expensive place in the entire world....
I have a song for the occasion: http://www.youtube.com/watch?v=vFMbTUdg2Qg
Posted by Loyd Grossman is Miss Venezuela (338 days ago)
Deutsche Bank says a fall of UP TO 20%. That's a really weak call. To be honest, I don't know why they bother putting out reports at all. If they said 20% that's different but up to 20% could mean 0.5%. Utter tosh. Problem is, who is going to sell these properties cheap? The developers? Owners aren't going to cut to cut prices, that's for sure. They haven't budged during the euro crisis so why should they sell cheap if they build more flats? Owners are now long-terms holders. People don't trade flats like they used to.
Posted by Ed (338 days ago)
Any concerns with the fact that HK is the most expensive place in the world to buy a home?
Surely that signals a bubble?
Posted by Jim Fit (338 days ago)
or the fact that the wealth gap is at a 30-year high.........?
Surely CY intends to do something about that...
Posted by Loyd Grossman is Miss Venezuela (338 days ago)
Ed/Jim Fit. Using your skill and judgment, suggest what is wrong with the following headline:
++ HUGE PROPERTY BUBBLE FORMS AFTER DECADE-LONG RECESSION **
Is there anything suspicious about it? Especially when such large deposits have to be put down to buy a flat. Jim Fit. Wealth-gap and GINI coefficient have always been huge in HK as we have lots of billionaires but it is also huge in places like Chelsea, Manhattan and Zurich. I would rather be poor here than in the UK. In HK you have a functioning school system which means you can study your way out of poverty if you are smart. You can't do that in a UK comprehensive these days. Healthcare and transport here also good. I would suspect North Korea scores pretty well on the Gini coefficient if you exclude the top 20 people.
Posted by Ernie20 (338 days ago)
Interesting graph in WSJ today, Donald Tsang exit story, credit to Big Lychee:Various Sectors for pointing me to it. HK and KLN homes under 40sqm, average price over last decade or so. Lehman's crisis slowed their rise briefly. a robust sector, maybe even more robust four years on. That sector is not going down easily.
Posted by walkup4 (338 days ago)
Ernie20 right on the button. Have been following apartments in this size bracket in Sheung Wan, Kennedy Town, Sai Ying Pun and Shau Kei Wan. Relentlessly creeping up. Chances of any serious downside? Very very low. Even those who like to talk down the HK property market studiously stay away from this sector when fishing for samples. Like vampires recoiling in front of necklaces of garlic.
Posted by Ed (338 days ago)
Getting back to really the only thing that matters re: HK property.... the global macro picture...
Spain's debt costs near double at bond auction as bailout fears grow
http://www.telegraph.co.uk/finance/debt-crisis-live/9340387/G20-Summit-and-debt-crisis-live.html
Ok... so here's my prediction... someone is gonna print some money... and lend it to Spain... which will push Spain's debt to GDP over 100%... making the country further insolvent.
You can't solve a debt problem with more debt...
Keep in mind the super heavyweight is up next (assuming too big to bail Spain is somehow bailed).... Italy... they have 2 trillion dollars of debt... and their bond prices are following Spain up the ladder...
Posted by Loyd Grossman is Miss Venezuela (338 days ago)
The only problem with your direct macro link to HK property theory is that the price oh HK property has been telling you something completely different for four years.
Posted by Ed (338 days ago)
The money printing that is supporting the HK market is macro...
And of course, the EU hasn't collapsed... yet
Posted by ltse (337 days ago)
Yes, certainly HK doesn't have an over leveraged property market, I think a 30%-40% down payment is very healthy, which is why I have my residence and property investment here, compared to places like Australia or Canada where you can "extract equity" to use as a next deposit on a home is insane. I also like the stress test the banks impose on borrowers, hence I've always liked property in Hong Kong.
But here are some things to consider, under ordinary circumstances it probably wouldn't count for much, but we're not in "ordinary" times:
1) I heard (unverified of course) many mainlanders, the ones that do borrow money, they don't necessary use legitimate income proof, they may set up an empty shell with a name, and use dodgy accounting to get funding from the banks, of course the banks are not stupid, they'll probably require a higher deposit as collateral, but..
2) What if interest rate rises to the historical norm of 5%? and judging by how low its been already and maybe for another year or 2, when it rises, it'll rise a lot faster, mostly likely double digits. Suppose a busines person who has both mortgages and businesses, I am not so much concerned about the interest rate impact on their mortgages as I am on their businesses, it'll really impact their bottom line.
Most likely, when they run into trouble, property would be the asset they liquidate to pour that capital into their business, I noticed this from talking to agents about the "discount" properties that come into the market once in a while, its mostly because business people have liquidity issues with their businesses.
Considering how many mainlanders have both property investments in HK and business on the mainland, its a good point to consider, when business is good, they come in, and when it turns sour, capital rushes out.
What about the local HK people with businesses on the mainland? they may be forced against the wall as well. Just beware when interest rate rises, this may be the pin that may eventually pop the "bubble" if there is one.
Posted by walkup4 (337 days ago)
You have already answered your own question. Given that you continue to hold your primary residence and investment property in Hong Kong, this means that you have assigned a low probability to the outcomes of your interest rate scenario.
Posted by ltse (337 days ago)
Correction, I have my residential property and once had an investment property, which I recently liquidated, the 3rd time I mentioned this I think. I don't care whether my residential property goes up or down, it is not a "property", it is my home.
Posted by Loyd Grossman is Miss Venezuela (337 days ago)
Like I said. mainlanders are a factor but they are not the driving force of this market - which like all property markets - is predominantly local. Ed. Macro affects sentiment here but it isn't the bedrock of the market. The link is an indirect one, not a direct one. The direct one comes from the amount of money local people hold.
Posted by Alex2012 (337 days ago)
What will happen to property prices if the USD/HKD peg will go away? And do you think it is likely to happen? After its strongest proponent, Joseph Yam, seems to have changed his mind?
Posted by Loyd Grossman is Miss Venezuela (336 days ago)
Except HSBC is a British bank. Not really sure what that graph is telling us. Could be European trade booked via Chinese banks in HK.
Posted by Ed (336 days ago)
Ovolo.... housing does not exist as an island... like stocks and bonds... most micro and macro information are relevant... your link is useful
Posted by Loyd Grossman is Miss Venezuela (336 days ago)
No Ed. But the housing market is vastly different from the stock and bond market. There may not be many buyers out there but that doesn't mean owners are going to hit any bid with a vew to getting back in later. That may have been the case a few years back but now, it has all changed thanks to the special stamp duty. Everything is connected but you appear to be advocating a 100% correlation between overseas markets and the HK property market. Property markets are, by their very nature, local. You seem to ignore local conditions and focus almost exclusively on what is happening overseas. This is madness. Local conditions drive property markets and people in HK are not overstretched.
Posted by punter (336 days ago)
To claim that HK people are not overstretched is a stretch in itself. Loyd, you may not be overstretched as you're good in handling your finances, but you can't speak for everyone else.
Posted by Ed (336 days ago)
Lloyd I agree local factors are very relevant ... but that at present macro factors completely trump anything local in terms of influencing HK property prices....
Imagine what would have happened if Ben said no extension of Operation Twist yesterday... reality would have begun to hit home that the economy is completely reliant on Central Bank printing... stock markets would have plunged and property markets would have followed.
No money printing = economic collapse.
Posted by Ed (336 days ago)
I aim to deliver Lloyd... you asked for local conditions... I give you local conditions....
The HK economy is based on trading... so if trade drops... the HK economy suffers... the HK property market suffers....
You may want to check the previous iteration of this thread where I stated that the EU was headed into a recession (and endured heated attacks saying I was wrong...) - EU is mired in a deep recession (some of the countries are - by definition - in depression)....
I also stated that because the EU is China/HK's biggest trading partner that exports would get hammered as demand puckers up...
And so it comes to pass... exports are now flashing recession in China....
HONG KONG (MarketWatch) — China’s manufacturing activity deteriorated in June, according to preliminary HSBC data released Thursday which registered a seven-month low, indicating that global problems were taking a mounting toll on China’s export-dependant industries.
The inital or “flash” version of the manufacturing Purchasing Managers’ Index dropped to 48.1 for the month on a 100-point scale, compared with the final reading of 48.4 in May, HSBC said.
A reading below 50 indicates a weakening in business conditions at factories, while one above 50 shows an improvement.
http://www.marketwatch.com/story/china-manufacturing-weakens-further-hsbc-2012-06-21
So Lloyd... there's a local economic indicator...
Surely you will agree this is bearish for HK Property.
Posted by Loyd Grossman is Miss Venezuela (335 days ago)
It's bearish for stocks but it doesn't necessarily equate to a sharp drop in HK property prices. The US and mainland economies were doing just fine around 2005-6 if my memory serves me correctly but the HK property market was very weak as we still had deflation. You can call China manufacturing local but it is not as local as having to put down a 30%-50% deposit on a flat, a mortgage rate of about 2%, owners having come through a decade of recession and special stamp duty which has shaken out all speculators. Add in inflation, a high savings rate and no where else to put your money at the moment. HK is trading city but not everyone is directly involved in import-export which is a pretty low margin business unless you happen to be a tycoon. I expect local property owners to go into hermit crab mode and ride out the current negative sentiment. The data you mention above will affect Donguan property more than HK. Also, Adam Cheng's soap opera is due to end on June 29 so there is hope for the world economy. LOL.
Posted by walkup4 (335 days ago)
Re: 'Surely......'
Economic situation in UK has deteriorated. Property prices in Inner London have gone up.
Posted by Jim Fit (335 days ago)
There is no relationship between economic performance and property prices.
Posted by Loyd Grossman is Miss Venezuela (335 days ago)
Jim Fit. It depends. It's a question of who owns the property, what their finances are like and whether or not they want to sell. There is always limited supply in central urban areas.
Posted by punter (335 days ago)
One thing is for sure though, local HK people need affordable and more "spaces" places to live. One of the ruling government's responsibility is to help its citizens (not just the rich) afford one.
Posted by Loyd Grossman is Miss Venezuela (335 days ago)
Punter. The problem we have now is that all the urban property is taken. Very few willing to let go and only at a huge premium unless they are panicking. It's not in their interest to sell as the government has made it too hard for them to trade up. So now CY Leung is faced with having to find space and money to house a larger percentage of population at the taxpayers' expense. One of my daughters will be 18 in about 2 years time. I shall be encouraging her to apply for public housing. Might as well get on the bandwagon.
Posted by punter (335 days ago)
Who really wants to force themselves to live in the urban areas? A lot of HK people will go to the NT as long as prices are affordable and homes are bigger (in HK standards). That's all CY Leung needs to do to become the most popular HK leader among the grassroots, me thinks. Of course, he's going to "unfriend" some rich people if he can do this.
Posted by Loyd Grossman is Miss Venezuela (335 days ago)
No they won't. That's probably the last thing most local HK people will do. The reasons are as follows and in order of importance: 1) good schools and being able to get to good quality tuition classes ('Bowd-zhap') 2) convenience and transport costs 3) local network such as family & friends 4) status. I wouldn't swap 400 sq ft in Mid-levels for 1,000 sq ft in the NT. I once had the choice and sold NT. Too much hassle organising my kids' school day and after school activities. I have known expats move to NT from the island but I have yet to meet a property-owning Hongkonger who has done this - unless you include retired people that move somewhere cheap and take the rent from their island properties. They must exist but I would say very few would trade convenience for space.
Posted by Ovolo98 (335 days ago)
Loyd, with all due respect, I think you are talking rubbish with your constant "NT is junk". There are plenty of people who would NEVER trade their 1,000 sq ft in NT for a 400 sq ft in Mid-levels. I am one of them. In fact I wouldn't trade a 1,000 sq ft in NT for a 1,200 sq ft in Mid-levels! I like the open spaces, the lower crowdedness, noise, pollution, etc. of the NT and thnking that I would rather live in a crowded, smelly, polluted area for "status" (haha) is just silly.
Every time I see someone who lives in the Mid-levels I think "what are you? stupid?"
I might be unusual (to me, the ideal place to live in would be a bamboo hut surrounded by rice fields and water buffalos), but there are plenty of people who like to live in NT. As more HKIslanders get to know the NT, I am sure many will move there. The building I am living in has plenty of Mercedes, BMW and Lexus. There are plenty of people in NT who have a lot of money, and live here because of the nice living environment. Not everybody wants to live in a tiny little shoebox, because this gives him "status" (haha). What a joke!
And there are plenty of people who work in the NT and Kowloon Tong, for which living in the NT lowers the transportation costs.
And why on earth should live in Mid-level be "more convenient"?? Tell me 5 things that are more convenient in Mid-level than where I live, and I give you a kiss (through a proxy).
Jesus! Stop repeating that stuff. (with all due respect!).
Posted by Loyd Grossman is Miss Venezuela (335 days ago)
Ovolo88. Just out of interest are you a local or an expat? The school network is very important. My NT-based colleague is thinking of renting for a year in Mid-levels so he can get his kid into a 'better' local school. Okay, here are the five Mid-levels is more convenient for Central, SOHO, CWB, established schools and let's chuck in Ocean Park to make it five but there other things like government, .
Posted by Jim Fit (335 days ago)
...is that all the urban property is taken.....
Well Loyd, I guess all that pile-driving in Mid Levels is done for the benefit of all the new libraries, godowns and carparks they are building in that genteel area, rather than 'luxury' (crystal chandelier in the lobby) residential properties.
Posted by Loyd Grossman is Miss Venezuela (335 days ago)
Not that much pile-driving in Mid-levels and the stuff they are building will be going 20,000-40,000 psf. Have you seen the Argenta and The Seymour - the bizarre Wing Tai develoment on Seymour Road which had a string quartet playing for its launch? They flew in some child prodigy from the UK to sing. All big flats.
Posted by punter (335 days ago)
Those who can afford it and like to move to HK Island will do so as they wish. But look at the population in bigger NT cities, it's already proof that HK people go and live there! It's a no brainer that more will come if there are more affordable/bigger flats available.
Yes, Loyd is talking rubbish when he claims HK people will not do this. There are always those who would do differently but in my opinion, more will go this route if given the right condition and opportunity.
Posted by Loyd Grossman is Miss Venezuela (335 days ago)
Yeah, I often see streams of refugees heading to the Cross Harbour Tunnel and begging drivers to take them to Shatin.
Posted by Ovolo98 (335 days ago)
Loyd, there are two kinds of people in this world. Those who prefer to live in HKIsland, and those who prefer to live in the NT. Why you make it sound there is only one, those who want to live in HKIsland? I won't dispute that for some HKIsland is preferable. So they live there. But there are also many who prefer to live in NT.
The question is: what will happen in the future? As newer buildings come up in NT (more so than in HK because there is more space), this will attract more schools, offices, etc. and more people will move from HK to NT. Basically, HK can't get any better because it's too crowded, everything is already built. NT can become better, because there is still plenty of space. So the future belongs to NT.
Thank you very much.
I am an expat. As to the five things you mentioned: Central (one reason for not living in HK), SOHO (I don't care), CWB (I don't care), established schools (granted, but it doesn't mean because they are established, you can get your kid in! and there are also many good schools in NT, including international schools), Ocean Park (OK, but how often do you go there? Once every 10 years?).
Seriously, I am puzzled you continue saying that people don't like NT, and nobody will ever move there. Have you ever been there? It takes 40 min. to go the airport, 40 min. for Central or wherever. It's not in the middle of nowhere. Everything HK has, NT has it too, plus more space, more trees, and cleaner air. As it gets better with time, more and more people will move here!
Posted by OffThePeak (335 days ago)
For some reason, you have forgotten Kowloon...
Which now has some of the highest prices per sq foot in the SAR
Posted by Loyd Grossman is Miss Venezuela (335 days ago)
Okay, I was being obnoxious but this is a property market forum not a lifestyle forum. I just can't see the same level of value in NT as in urban. If I buy urban, it's expensive but it will usually hold its value. NT is the only place where they can build loads of flats. And in a mod to OTP, Little Beijing in West Kowloon marches to its own drummer.
Posted by Jim Fit (335 days ago)
Loyd, your 'arguments' are becoming increasingly strained.
Posted by traineeinvestor (335 days ago)
@ Jim Fit - so far the market agrees with Loyd
Posted by OffThePeak (335 days ago)
"Little Beijing" - is that what the Mid-Rons call West Kowloon these days?
A pity we don't have rival football clubs to support, it would be a good time for all
Posted by Jim Fit (335 days ago)
Yes, so far the market agrees with Loyd. So why is he so eager to convince everybody and his sister of that fact ? Why doesn't he simple bask in the glory of being the brilliant property investor that he is ? Just sit back and laugh at all the losers who didn't buy at the right time.
But not Loyd (or walkup).............
Posted by Ovolo98 (335 days ago)
Loyd, what I don't understand, and I think you are wrong, is how you can completely divorce HKIsland and NT. Surely if NT dropped by 50% many people in HK will think that they can now sell their 400 sq ft shoebox and buy a 2000 sq ft in NT, and do a 40 minutes commute daily to their office, and they will realise that they would have a much higher standard of living.
HK and NT are closely related, it doesn't take that much to go from one to the other. Yes, I fully agree that HK will always be more expensive than NT, but you seem to believe that the prices in one can drop by 50%, and nothing will happen to the prices of the other. Which of course is bullocks.
HK and NT is not like London and Southampton, or England and Spain!
Posted by traineeinvestor (334 days ago)
@ Jim Fit - possibly because Loyd has better character than that
@Ovolo - I agree with you up to a point.If NT prices crash, HK prices will also fall - given the supply side potantial in NT it would not surprise me if NT fell by more.....maybe
Posted by Ed (334 days ago)
I don't agree that the market agrees with Lloyd...
If Lloyd would have said three years ago 'you should buy now - central banks will print trillions and try to lift asset prices' then I would agree that the market agreed with him...
Lloyd simply says the market is going up for the sake of saying it... even when it was crashing after Lehman he was saying 'you haven't lost money if you don't sell into a down market'...
Posted by Jim Fit (334 days ago)
What is the point of sitting on a massive paper profit if you don't cash in ?
Posted by Loyd Grossman is Miss Venezuela (334 days ago)
Ed. I don't recall saying it's going up for the sake of it, I said it wasn't going down because there is too much money here. If you check back through this thread to 2008, you will see that I was advising people not sell which I think was sound advice. As for this comment of mine about not losing money if you don't sell, there is no requirement for an individual to 'mark to market'. If I sold when you suggested and rented, I'd have been utterly creamed. JimFit, I don't see your point. Nothing wrong with holding an asset you are comfortable with. Ovolo. If NT prices do fall (though I think they will probably tread water if we continue to have inflation), this would of course hit the Centadata Index. However, I think HK island (at least Kennedy Town to North Point plus West Kowloon) will mature into a kind of West-end London equivalent as China grows.
Posted by Loyd Grossman is Miss Venezuela (334 days ago)
And Ed, only in your imagination did the HK property market crash after Lehman. It crashed in 1997. In 2008, some people panicked and sold cheap but the vast majority held firm - though you choose to ignore this probably to conceal your shame.
Posted by Ed (334 days ago)
Depends on your definition of crash... 25-30% are the numbers I saw post Lehman... sounds like a crash... I would call 97 a collapse...
Regardless of what you are investing in - property, stocks, bonds, tulips... you can benefit from treading this... cuz you won't see this in the MSM:
Eric Sprott Presents The Ministry of [Un]Truth
We have no doubt that everyone is tired of bad news, but we are compelled to review the facts: Europe is currently experiencing severe bank runs, budgets in virtually every western country on the planet are out of control, the banking system is running excessive leverage and risk, the costs of servicing the ever-increasing amounts of government debt are rising rapidly, and the economies of Europe, Asia and the United States are slowing down or are in full contraction. There's no sugar coating it and we have to stop listening to politicians and central planners who continue to downplay, obfuscate and flat out lie about the current economic reality. Stop listening to them.
More http://www.zerohedge.com/news/eric-sprott-presents-ministry-untruth
Posted by Loyd Grossman is Miss Venezuela (334 days ago)
Ed. If the broader market had fallen 25pc, a lot of people would have been able to pick up some cheap property. This didn't happen. As it turned out, if you had sold just before the Lehman crash, and tried to buy back in the same building when sentiment was at its worst, it wouldn't have been easy - and a 25pc reduction would have been nigh on impossible.
Posted by Jim Fit (334 days ago)
Loyd, you don't see my point ?
Really ?
I think that is strange.
You spend every waking moment thinking and fantasizing about property investments. The objective being to make as much money out of property speculation as you can.
Following the adage "buy low, sell high" you should be contemplating the sale of your properties at a high price. You are in it for the the money, so why don't you -and other brilliant investors- sell when the price is high ?
Posted by Loyd Grossman is Miss Venezuela (334 days ago)
I'm a long-term investor. I am thinking about a pension and property brings in reasonable money at reasonable rents. I don't trade unless the argument is compelling. Why would anyone trade now? I would only sell in bubble conditions.
Posted by traineeinvestor (334 days ago)
Althoiugh I am not as bullish as Loyd, I am also a long term investor - every month the rent comes in and the mortgages go down a bit. I like cash flow and property provides that - as well as providing a degree of protection against infaltion. If the market goes down a bit, it wont hurt me. If it goes down a lot, I will add to the portfolio. Given the very high transaction costs, selling only makes sense if I believe that the market will fall by a lot. I don't believe the arguments for a major fall are sufficiently clear cut to support such a belief.
Posted by OffThePeak (334 days ago)
"What is the point of sitting on a massive paper profit if you don't cash in ?"
Everyone needs to live somewhere. It is better to live cheaply in a place you bought years ago, than to sell out and find that interest from your deposit in the bank covers only 10% of your rent
Posted by walkup4 (334 days ago)
traineeinvestor is right on the money. I should also add that giving up a mortgage set at Hibor + 0.7% is not to be surrendered lightly.
Posted by Jim Fit (334 days ago)
Loyd owns several properties. He is a speculator.
Not selling at the top of the market does not make sense.
Maybe the smart investors are selling right now, as we are speaking..............
Posted by Loyd Grossman is Miss Venezuela (334 days ago)
Jimfit. Okay by Bob Dylan standards I'm a speculator. However, I am pushing 50 and I'm going to need some income going forward not having a government pension or being from a wealthy family. My biggest concerns are 1) political and 2) inflation. Not much I can do about the former.
Posted by Ovolo98 (334 days ago)
Jimfit, Loyd thinks that prices will keep going up, so in his view right now is not "at the top of the market". That's all.
Posted by walkup4 (333 days ago)
LGMV does not so much think that prices are only on a one-way path, its just that chanting 'prices are going to drop' incantations is lacking somewhat in attractiveness.
Posted by Ed (333 days ago)
Lloyd
25% drop > I know of at least 5 people who stepped in and bought after Lehman. Of those, 3 bought because they anticipated QE... 2 of them work for a major US investment bank...
Walk > but Lloyd does believe prices always go up - because 'HK people are so rich'... he also believes they never ever ever go down 'so long as you don't sell into a crashed market'...
As for chanting prices are going to drop... I don't think anyone is predicting an imminent drop...
What many, including myself, are saying is.... there is huge potential downside and people need to have full information to evaluate when making such a massive investment decision...
The facts of the matter are:
- HK property is the most expensive in the world
- prices are well above 1997 bubble prices (15% or so)
- there has been a massive run up in prices since 2010 which indicates bubble
- Central Banks are supporting the global economy with money printing... not exactly sound fundamentals
- China is slowing
- India is slowing
- America is at stall speed
- Japan is a disaster
- the EU is in recession and headed deeper
- Central Banks have interest rates at or near zero so have no tools left to prime their economies
- most developed nations are mired in enormous debt
Add this all up and it's not exactly bullish for property... the only bullish indicator in my estimation for what it's worth is that Central Banks will continue to print ... but we all know where endless money printing will get us...
Posted by OffThePeak (333 days ago)
"HK property is the most expensive in the world"
Don't forget the very good reasons for this:
+ Rising incomes in HK, especially amongst the Middle Classes, and the better-off
+ Limited supply, limited space, especially in areas near the high-paying jobs
+ HK's low tax rate (16% maximum, with many forms of income untaxed)
+ HK's excellent transport system, so that people do not have to waste a huge part of their income on their cars - and can spend it on housing instead. (The average American spends almost USD 10,000 on their cars - that's HKD 75,000, and at 3% would buy HKD 2.5 million worth of housing.)
+ Rising wealth on the mainland, and a desire of wealthy Chinese to own a "trophy" in low-taxed HK
Considering the above, Hong Kong is not as expensive as other cities, like London - where property is absurdly price in relation to local incomes, and is only supported by safe haven buying and aggressive lending
Posted by walkup4 (333 days ago)
LGMV made a particular point on a few occasions. Which is that his parents' house in the UK has steadily increased in value over the years and that there is no way prices are going to revert to what they used to be in the distant past. The same is true for HK. He has stuck his flag in the sand. For all property, everywhere? No. HK North Island. My position is even narrower to the West of the Island and within a price bracket. Do I think that a walkup in Sheung Wan now costing 3m is going to revert to a 2002 price of well under 1m. Never. Ever. Well OK I will assign a less than 1% chance. Stay away from binary opinions and over-reliance on averages. The issue is how one's behaviour changes as a result of the level of perceived risk. And counter-posed to perceived risk is one's assessment and belief in the underlying product/asset. And unless someone is able to transition form the general to the particular they are blowing so much hot air. On Thursday, I happened to be strolling along Tai Ping Shan Street. The area is in the process of gentrification but it is still a process. When I read the wise-guys ranting about the coming bust, the world coming to an end, we're going back to 1997 and so on, I think about areas like Po Hing Fong and realise that the doomsters have no feet on the ground. They will not be buying at any price. Spooked yesterday, spooked today and spooked tomorrow.
Posted by OffThePeak (333 days ago)
"LGMV : his parents' house in the UK has steadily increased in value over the years and that there is no way prices are going to revert to what they used to be in the distant past."
LOL.
They were saying that in the USA, and many parts of the UK (outside London) some years ago.
Since 2007 in the USA, and 2008 in the most of the Rest of the UK, there has been a massive "reversion" going on.
London prices are not immune, and may be much more vulnerable that in the UK - because London is much more of a Bubble than HK prices IMHO
Note: I have lived for many years, and owned property in both places
Posted by Loyd Grossman is Miss Venezuela (333 days ago)
Well Ed. you've changed your tune since 2008. My biew on the fall on prices in 2008 was that it was basically inventory selling and that markets would recover quickly - for which you nearly banned me. OTP My dad bought our house for 15,000 pounds. About 2 years ago I paid 5.5m for an 850 sq ft flat in Fortress Hill. I bought off the original owner who paid 186,000 HKD for it. If you get on the wrong side of inflation, all your hard work and saving turns to dust. It still exists you know. The rise of China put it on hold for 20 years or so but it is maling a come back. That's why anyone in US treasuries needs their head examining in my biew.
Posted by Loyd Grossman is Miss Venezuela (333 days ago)
By the way, does anyone know anything about Portomoso in Malta? I am looking for a bolthole in case CY Leung becomes drunk with power. I am a UK citizen and I want to be able to work where I buy. UK is out because of inheritance tax concerns. That leaves Dublin or Makta. This Portomoso is a bit like Discovery Bay but at least it's warm and the economy is okay. I'm not really up for the craic.
Posted by walkup4 (333 days ago)
A very good friend of mine had an affair with Dom Mintoff's daughter. Maybe I can get you an introduction. I thought the HK bolthole was Canada?
Posted by Loyd Grossman is Miss Venezuela (333 days ago)
Put a word in for me. Only have a UK passport so can't work in Canada. Malta ticks most of my boxes (I'm not in the Monaco/Channel Islands league and Cyprus is not really my cup of tea). I have a penchant for small built-up entrepots. Would prefer France but it's not liquid. My CY Leung concerns have risen since watching Woody Allen's 'Bananas' on NOW TV the other day. The bit that sticks in my mind is where the idealistic Latin American revolutionary leader takes over and the power goes to his head. As the new president of San Marcos, he changes the national language to Swedish and passes a law saying eveyone has to wear their underwear over their trousers.
Posted by Ed (333 days ago)
Hey Lloyd... if you wanted a skyrocketing (bubble) market... you should have considered Bali... was asking around yesterday regarding picking up some raw land... and from what I can gather prices in some areas have tripled since Lehman....
Posted by Loyd Grossman is Miss Venezuela (333 days ago)
Bali way to risky for me. Can't work there. Don't trust the legal system. Probably corrupt with lots of hidden fees. Keeping it real dude.
Posted by walkup4 (333 days ago)
Lady Gaga was just the tip of the iceberg for Indonesia. Let's help LGMV in his search. Singapore, Gibraltar any good?
Posted by Ovolo98 (333 days ago)
I wonder what will happen in Singapore if PAP ever lose power? Would anything change?
Posted by Loyd Grossman is Miss Venezuela (332 days ago)
Would consider Gibraltar but if it integrated with the UK then I might have the same potential problem with regard to inheritance tax and domicile (I am UK-born and bred). I do not have the right to work in Singapore.
Posted by bing2 (332 days ago)
loyd, you kept talking about inflation and too much money in HK. that's true. however one of the main issues in HK is affordability to purchase a property. although inflation is almost out of control in the past 3 years salaries have stayed pretty much the same. maybe we've seen some rises in payroll over the board but no way near the inflation and the surge of property prices.
even with low tax and great transportation system in HK property prices remain way too high for a family with let's say 40K income per month. nonetheless to say for 20K-30K income per month families. majority of HK people do not make 80K per month plus benefits!
CY is dogged with so many scandals and the latest will make him even more determine than ever to be the people's chief executive. one of his main agenda will be to bring property prices to an affordable level. i can tell you this guy will not be rubbing his shoulders with our property tycoons.
in 2008 when lehman collapsed there were a lot of deals to be had loyd. i remember in nov/ dec 2008 as you know a lot of people were fired from banking. the market was so quiet and people were scared. many people sold cheaply especially those people who were fired. in dec 2008 after christmas no one was out buying anything in soho area and prices there dropped by at least 20%. i was out buying and probably one of the very few buyers at that time. it was pretty much a buyer's market for at least until june 2009.
CY will bring property prices down because he is desperately in need for the public support - if outside factors as ed mentioned above would not affect your property values.
Posted by Loyd Grossman is Miss Venezuela (332 days ago)
CY can destroy the market but he can't cool the market because it is already in deep-freeze mode. Only 10 flats sold over the weekend in benchmark estates. Barring catastrophe, these prices are here to stay. The market is supported by cold, hard cash.
Posted by punter (332 days ago)
That's melodramatic Loyd, nobody wants to destroy the property market. Even CY Leung is a property owner.
If you were HK CEO, you would want your people to be able to afford a comfortable home too. I would.
Posted by Ringo23 (332 days ago)
"If you were HK CEO, you would want your people to be able to afford a comfortable home too."
Why?
None of the previous ones have.
Posted by Loyd Grossman is Miss Venezuela (332 days ago)
CY Leung doesn't want to destroy the market but he may want to have his cake and eat it - which usually ends up destryoing things. You can't have a cheap property market with a strong economy and health government finances. When I moved down to London from the north of England, I couldn't afford a home even on a pretty good salary.
Posted by punter (332 days ago)
One good reason a leader has to help his people is to achieve a level of social harmony (it's better to have happy followers than disconted ones). Another is legacy. Look at the current CEO, do you think he's going to be remembered well by HK people?
Posted by Ovolo98 (332 days ago)
"although inflation is almost out of control"
Yes, because inflation in HK is what? 80%? 90%? LOL. Come on...
I wonder how much decision-power CY Leung has? Can he personally decide how much land to release, or is the decision made by the parliament, or any other body including more than CY Leung??
Posted by Loyd Grossman is Miss Venezuela (332 days ago)
Punter. So if you hammer property prices, how much social harmony will that bring? How many of the people who are now saying they can't afford to buy will buy then? Very few, I expect.
Posted by liebster (332 days ago)
Posted by Loyd Grossman is Miss Venezuela (1 hr ago)
CY can destroy the market but he can't cool the market because it is already in deep-freeze mode. Only 10 flats sold over the weekend in benchmark estates. Barring catastrophe, these prices are here to stay. The market is supported by cold, hard cash.
Another way to look at it: prices are meaningless unless transactions are taking place. Property market is in fantasy land right now. Landlords may support these prices until hell freezes over, but buyers can't afford to purchase with current salaries. Unless buyers are able to rapidly increase wealth, or lending conditions ease, there wont be any buying at these prices.
This situation favors buyers rather than landlords, because its a matter of choice for the landlord, and a matter of fact for the buyer. The buyer has no choice due to inability to afford, while the landlord has the option to sell.
Landlords might be happy to collect 3-5% less interest/expenses for a while, but sooner or later rates will rise, putting additional pressure on affordability.
Posted by walkup4 (332 days ago)
If I were CY Leung I would want to bring peace, love, harmony and happiness to the people of Hong Kong.
Posted by punter (332 days ago)
Apparently property is not the only consideration a CEO will think about.
If and when property prices drop, landlords holding multiple properties will lose money (remember 1997, 2008). More people will be able to afford to buy their own homes. The number of unhappy landlords compared to happy new homeowners should be in favor of the new owners. A good CEO will work towards this. With help from mainland politicians, this can be achieved. This is one reason too that they're doing the same there...
Posted by OffThePeak (332 days ago)
I think we can begin the see the SHAPE of CYL's policies:
+ He will continue to release new supply, in places like Tung Chung (where more than 50,000 new units are planned), TKO, and other places, mainly in the NT
+ He may avoid doing anything which is seen to depress the market, but if rates rise globally or if banks get frightened and slow their lending, and that depresses Home prices in HK, then this may be welcomed, rather than resisted by the new CE
In short, I think the market can continue to tick along unless and untill there is a big enough disruption to effect rates and the lending appetites of HK banks
Posted by Remmy (332 days ago)
CY wants a stable market - ie one that continues to gradually rise. He's a rich guy, close with developers, and futher knows that HK runs best when the market is slowly but steadily increasing.
Posted by punter (332 days ago)
I personally believe that HK property prices are so high, it has to go down in the future. Social wise, there are many 30-40k/monthly salaried people who can't even afford to buy their own first home. That's not good. That's one reality of HK property, another is that landlords like Loyd, would like to believe that it's never going to go down.
Posted by bing2 (332 days ago)
i am sure property prices will drop in the next 12 months by at least 5-10%. one reason is the big gap difference between the stock market and the property price. historically it is always between 4-5% gap between the stock market and property price. property prices and stock market usually go up or down together. today's gap is around 25%.
so either stock will go up to 30,000 level - which i think it's impossible - or property prices will come down by 20%.
which one do you think is more likely?
Posted by OffThePeak (332 days ago)
"i am sure property prices will drop in the next 12 months by at least 5-10%"
There's about a 10% gap now between where the "Bids are stacked up", and where the owners are offering.
So if many landlords start "hitting the bid", that would quickly drop prices 5% or more.
One of my neighbors recently did that - Maybe they were in a hurry. But after a few days of Agents trying to talk sellers down, no one else budged.
Posted by Loyd Grossman is Miss Venezuela (332 days ago)
Bing2. I think hedge funds have just been shorting the HK stock market. The local economy hasn't been so good in years. Liebster, I don't think the situation favours buyers. I think owners know there is a lot of pent up demand and that a lot of people have unreasonable expectations about what CY Leung can deliver. Ad in the fact that they are very comfortable and we have quite high inflation, and the offer prices will hold for some time. Can't see a downturn as most flats are now taken by people who can easily afford to hold them or have held already held them through several crises.
Posted by punter (332 days ago)
It's the same belief of the bulls back in '97. Property was the easiest way to earn fast money. When the asian crisis hit, it was the easiest way to get a heartbreak and lose money.
Today, prices are already high. Who are the buyers? It is the rich who can afford to maintain multiple properties at the same time. If there's no flipping, and prices are not going up or down, what reason is there for these rich multiple-property owners to hoard more? None.
In my view, in the coming fiew months, the number of transactions will continue to be low (as only a few will gamble to invest in a new property for investment. Only a few first time buyers will buy. A point will be reached wherein prices has to drop before more buyers will come into the market.
Posted by Ovolo98 (332 days ago)
"A point will be reached wherein prices has to drop before more buyers will come into the market."
Not necessarily. The expectations of higher prices in the future (e.g. a law stating that employees will need to be compensated for inflation, or the European crisis solving itself) will also bring in new buyers.
Posted by punter (332 days ago)
Prospective first time buyers don't think about fast money but consider their home purchase like a piggy bank (just like Loyd's father). They will fight tooth and nail to maintain this "first" property and as long as they have a job and are able to pay the mortgage, they're not going to give that "first" property up. Just like Loyd, they're going to or may even wait for their own children to grow up and gift them with this old property. In this case, it's not about fast money.
Back to the years leading to the asian financial crisis, the urban legend says that even taxi drivers buy multiple properties to flip. This case was about fast money.
Flipping is gone, almost. This partly explains the anemic transaction level in the past few months. Added to this reason is (1) the high level of prices, (2) incomes not going up as fast as the increase in home prices, (3) the mainlanders' diminished desire for HK flats. So buyers are waiting for prices to fall (the market sentiment points to this direction instead of otherwise). Ovolo, I believe that this current sentiment trumps the expectation of higher prices in the future. I don't expect the sentiment to turn quickly.
Posted by liebster (332 days ago)
Pent up demand is effective only when the buyers can actually afford the product. With affordability index at 50 there is no more room to rise unless people over leverage, which is now made impossible by strict lending conditions.
First time buyers flats are getting smaller and smaller, in districts further into the NT. Nearly all newer flats (<10 years) on HK island core are way above 8k psf, majority pushing past 10k psf easily. This puts a modest 400 sqft flat way out of affordability of average earners. For someone earning 40k/month the down payment alone is 3 years pre tax salary. At 5k - 7k psft, things start to become realistic, which is why we are seeing those flats snapped up quickly (release of pent up demand).
Keep in mind, a salary of 40k/month already puts you ahead of 85% of 4 person families, and as a single person above the 90th percentile of earners.
so...how are people going to afford to buy?
Posted by Loyd Grossman is Miss Venezuela (332 days ago)
Punter. With 30-60pc down and the bank rummaging through all your loans and factoring a 200bp increase in rates, it's no longer about fast money. It's more about having a stake in Hong Kong's future and access to good schools. This is the only place in China where you don't get legged over. There is value here and you need to pay up if you want a slice of the action.
Posted by punter (332 days ago)
"more about having a stake in Hong Kong's future" - That's a funny one Loyd.
Tell that to thirty-something HKonger who doesn't have a rich dad or mom who can let him/her borrow the downpayment.
It's still about affordability and perception of where prices are going. If one has ready money for downpayment (maybe after 10 years of saving...that has been extended maybe to 15 years due to current high level of prices) and the perception is that prices are not coming down in the near future, then he/she is going to buy. No question. Take out any one of these two out and definitely there's no deal.
Posted by punter (332 days ago)
Why were the number of transactions 6 months ago and earlier higher than today? Because prices were lower (people have money to pay the downpayment), and the sentiment was bullish (less chances of prices going down). These two factors (although said in simplistic manner as reality is often more complicated) are now absent.
Posted by Loyd Grossman is Miss Venezuela (332 days ago)
People have money. They think CY will push the marketlower. I think CY is an opportunist. You will get a flat but it will be in Tung Chung or Fanling. Most locals won't take it.
Posted by Ed (332 days ago)
Ahhhhhhh... so refreshing... more money printing on the way.... that should prop up the economy until the next round of money printing....
Bullish for property!!!
I am hopeful that this great experiment in money printing will eventually demonstrate that working is pointless... instead Central Governments should just print trillions forever and hand it to ordinary folk... who could then quit their jobs and live large....
What could go wrong?
Central Banks Commit to Ease as Threat of Lost Decades Rises
http://www.bloomberg.com/news/2012-06-25/central-banks-commit-to-ease-as-threat-of-lost-decades-rises-1-.html
Posted by OffThePeak (332 days ago)
"Who are the buyers? It is the rich who can afford to maintain multiple properties at the same time."
That's not what I see at all.
The people viewing my flat are Owner Occupiers, who want to live in it, and appreciate the exceptional view.
They have money on deposit with banks, earning maybe 1%, and can effectively "earn" 3-3.5% if they put the money into a flat. In fact, they will make more than that because the mortgage rates are now below Yields.
Posted by Ovolo98 (332 days ago)
"For someone earning 40k/month the down payment alone is 3 years pre tax salary."
OK, but what about in big western cities? Remembering that taxes are much higher there (probably double as much as here), wouldn't the down-payment be the same, consideing "post-tax salary"?
Of course you can't pay 30% of a flat with one-year savings. Anywhere in the world (except Abu Dhabi, if you are a local).
Posted by Ovolo98 (331 days ago)
These buildings in Rřros, Norway, are just gorgeous!http://www.cnbc.com/id/47950697
I wish in HK there were buildings like this. Instead, the only buildings HK architects can draw aresh*tty buildings that look good outside are are rubbish inside, and the only buildings HK constructors are able to build aresh*tty buildings that have to be demolished when they are 30 years old. How sad!
Posted by punter (331 days ago)
Bubbles are bubbles, you're 100% sure they're bubbles when they pop. But as they say, there are telltale signs. Not only one!
Btw, there might be some good (good in hk standards only, in response to Ovolo's comment) deals to be had with Cheung Kong in it's TKO project. Still high prices but given current levels, they've offerred an attractive discount. I wonder why?
Posted by Loyd Grossman is Miss Venezuela (331 days ago)
Punter. have you seen the location for Beaumount in Tseung Kwan O. It's actually near Lohas Park (but not that near to the Lohas Park MTR station). Lohas Park - of famed rubbish tip.
Posted by punter (331 days ago)
Hmmm, why did they offer these flats at lower prices compared to 2nd hand units? It appears that lower prices are offered to cash buyers. You have to have at least 5M in cash to get one. And who's got 5M lying around? These are the rich, some guys from the mainland, and maybe some aggressive speculators.
Posted by walkup4 (331 days ago)
In the good old days there were plenty of flippers with a wedge of money to arbitrage. For decades the cry has always gone up 'Nobody can afford these prices, its outrageous!' And then a few years down the road it all looks quite normal. When the average wage in the UK was less than 20 pounds a week, paying 1000 pounds for a house seemed completely unaffordable. When I moved to Islington many years ago, my elderly neighbour told me that she could have bought the whole house she was living in immediately after the war for 300 pounds. She was a long-term housing association tenant. Couldn't buy it now for under a million, that's 12m in HKD.
Posted by Loyd Grossman is Miss Venezuela (331 days ago)
Punter. Cheung Kong may be offloading. However, they often try to build up demand by offering a few flats cheap.
Posted by elsdon (331 days ago)
I don't think that using the UK property market as a baseline or benchmark makes sense as I'm thinking the UK property market is not normalized.
Also, some old lady in Islington talkingsh*t about made up prices from 50 years ago is probably a good 'shock' anecdote but honestly.. When you break down what she's saying, that basically means her property has appreciated ~17.61% every year, for 50 years.. Sounds like a pretty awesome bubble to me.
So what are you trying to say? London property makes sense or is about to explode??
Posted by punter (331 days ago)
Whatever Cheung Kong's underlying reason might be for selling at published prices (new rule in HK), the point I'm making is that the current sentiment is still bearish (as a rule, there will always be those who think otherwise) and still will not buy even if they have the cash. But those who have the cash and must buy (maybe they've just married or about to get married), will already bite at this "reasonably" priced flats. Those that don't have the cash, will remain in the sidelines.
Another point to take note of is if this move will trigger lowering of prices for other new developments and by how much 2nd hand units will come down. Some think that 10% is good bet.
Posted by liebster (331 days ago)
Ovolo,
Its not one year savings...its one year pre tax salary. Lets assume someone is a mega saver putting 25% of their salary away each month. If they start saving by age 25 it would take nearly 15 years before they could save enough to buy. Add in average appreciation over 15 years, and this adds another 5-7 years of saving. So they are 45-50 by the time they can afford one flat?
Fyi, savings rates in hong kong are sub 10% average, pushing the age of first buyers higher.
"big western cities" is too general, but i can comment on the U.S. Yes taxes are double you are right, but salaries are correspondingly much higher in big cities. In NYC for example, median household income for workers in manhattan is around 1 mil HKD/year, with the price /square foot in core districts like upper east/west side around 10,000 HKD/psf, or roughly equivalent to HK prices.
However, and this is a huge point, you do not need to put 40-50% down to purchase those homes, lending conditions in the U.S. are far more lenient.
Posted by walkup4 (331 days ago)
What I am saying is that Inner London property prices have over a period of decades done very well thank you very much irrespective of dips and drops. Actually the neighbour did not own the property she was living in. She never had the money to afford a purchase. Now owned by a church pension fund and is rented out to city slickers. Tony Blair used to live a few hundred metres away before he was elected in 1997. He had purchased his place for less than 170k. Sold it post-election for 700k. Now worth 1.75-2million pounds. Prices strongly resilient.
Posted by Ovolo98 (331 days ago)
Liebster, let's see,
I worked in Geneva, where the average salary may be 5,000/month. On this, you have 30% taxes (1,500):::: total 42,000 yearly salary net of taxes. A flat may cost 1 Million, which is 23 years of salary.
In Hong Kong the average salary may be 25,000 (I exclude those who have a very low salary, because they can rent/buy a government house, and pay 1,000 a month or so. I only include the average salary of those who earn too much to get a government house). Of the 25,000, you have to pay 15% taxes (3,750):::: total 255,000 yearly salary net of taxes. 23 years of salary would correspont to 5.865 million. Which would be sufficient to buy a flat.
I think in the US land and housing are cheaper. But if you look at the largest European cities (or Geneva and Zurich, which aren't very large, but very expensive), you will have a similar situation to the one in HK.
Basically, as someone said the high price that developers have to pay for land is a tax to the people. This needs to be accounted for, and therefore you have to compare post-taxation (income tax), when you compare HK to other places.
Can anybody do the math for London, Paris, Rome, Singapore, etc.? I believe the conclusions may be more or less the same. And of course life in HK is cheaper (food, clothes, insurance, transportation, etc.), than life in Europe, and this should also be taken into consideration.
Posted by Ovolo98 (331 days ago)
OK, I do it for you. Average salary in London is 30,000 a year, to which you have to pay 30% income tax::: total 21,000 yearly salary net of taxes. In 23 years you would earn 483,000 which may be the price of a two-bedroom flat.
This is based on the following links. If anybody is familiar with income, salaries, and house prices in London please tell me how right/wrong all this is:
http://career-advice.monster.co.uk/salary-benefits/pay-salary-advice/uk-average-salary-graphs/article.aspx
http://answers.yahoo.com/question/index?qid=20080531053048AAHvuFs
http://www.londonpropertywatch.co.uk/avg_prices.html
Of course food, transportation, clothing, etc. are all more expensive in London than in HK, so there you are....
Posted by walkup4 (331 days ago)
You are not far wrong on London salaries. The latest figure is 33.5k http://tinyurl.com/687gkwo, but I would be very wary indeed of building a housing price model based on incomes. London is also a patchwork of different areas with quite varying trajectories.
Posted by punter (331 days ago)
And what is the purpose of this exercise? That high prices are reasonable in Hong Kong? If so, I think that this is a case of over analyzing the property market. It might be helpful to some but I would guess not to many HK people.
If Cheung Kong's brave action is followed by other developers, there's going to be a dip in prices and it might be a good time to buy if you find a good deal.
Posted by Loyd Grossman is Miss Venezuela (331 days ago)
Right, let's put this London story to bed. Ask yourself a simple question, what would have happened to The Beatles if they had stayed in Liverpool? London is the World's World city. New York is parochial by comparison. It's not really England but if you are born in the UK, and you want to have a go, there' only one place to go. Other European cities have a better quality of life, but if you want the world condensed - go to London Town (and as a northern Englisman, it hurts me to say this). This is why Central London is expensive. Every European on the make goes there, Arabs, Russians, Africans, Chinese and US investment bankers - plus stars etc. No ID cards and no identity checks unless a crime has been committed nearby. Everyone welcome, even if you're not legit. And if you get sick, the NHS will pick up the tab if you keep your mouth shut. Brilliant.
Posted by walkup4 (331 days ago)
I can definitively answer that question. If the Beatles had stayed in Liverpool, then Revolver would have had different artwork for the LP cover. Spent a year in Liverpool as part of my sandwich degree. Introduced to Yates' Wine Lodge and getting drunk on great sherry.
Posted by Ovolo98 (331 days ago)
The point is to compare HK to other major cities, and see how overvalued it actually is. In all major cities people complain that housing is too expensive. And I agree it is. There is simply too much money going around, and/or too much inequality. My household earns more than three times the average HK salary, and people like me drive the prices up (in every major city). The majority of the population is stuck in small, crappy houses. What we need is policies to reduce inequality. This will solve many problems at once, not only the housing one.
Posted by ballerz (330 days ago)
Cheung Kong's pricing strategy with Beaumont is a clear sign of the market sentiment.
Finally, we are going to see the end of the year long stalemate between buyers and sellers. Transactions volumes were low because there is a big discrepancies in expectations. With Cheung Kong undercutting nearby secondary market by quite a big margin, this should act as a clear sign of what the current market sentiment is.
At the macro level, the big developers are racing against the clock of the HKD unpeg/repeg, which will bring upon increased interest rates, HKD appreciation, and lower asset prices. The developers are smart people (unlike narrow minded homeowners) and understand the unintended favourable environment developed since 2008 is not a privileged. And even though they have clout and think they should be privileged, it is an unsustainable economy. There is a short window where they must have to clear their land bank, construction in progress, and inventory before this date. Not to mention other external factors with China and global uncertainty, this is the start of a downward trend in the primary market pricing structure.
Posted by OffThePeak (330 days ago)
Cheung Kong cut prices, because that part of Kong Kong (TKO) is massively oversupplied, and far from jobs
Buyers know that they will have problems getting and keeping a tenant in such a remote location, and there are plenty of cheap alternatives in the area for Owner occupiers.
In fact, CK has sold one new property after another in the TKO area, each time at prices of $5000 - 6000 per sf, for new.
There will be a total of 48 buildings in TKO when they are done. Buyers know that the supply is coming and coming, so they need a bargain to take the risk
Of course, Bozo-the-Bear here just wants to cited the discount as evidence of a falling market, without considering the context
Posted by Ovolo98 (330 days ago)
The fact that Cheung Kong is such big news shows how unusual this is.
Half the units at The Riverbank at Che Kung Temple MTR (the two more expensive blocks) (http://www.theriverpark.com.hk/en/main.php#/home) have already been sold, before the building is completed. That's the blocks with the better view, sold at $9,500/sq. ft. The other two blocks are on the market for $8,500 sq. ft.
And Che Kung Temple is really in the middle of nowhere...
Doesn't seem like buyers are so scared
Posted by punter (330 days ago)
If Tseung Kwan O is far from people's workplaces, how does it compare with say, Sai Kung or Ma On Shan?
The riverbank was sold some time ago (before this latest development), so it doesn't really "count" when considering the current market sentiment. Meaning, if the units there were released today, prices will definitely be different (lower).
These arguments for the Beumont to be priced low doesn't make much sense.
Posted by Loyd Grossman is Miss Venezuela (330 days ago)
Tseung Kwan O tends to be where you go if you work on HK island but can't afford to buy there. It's also convenient for East Kowloon. Now, judging from the address (No.8, Shek Kok Road, Tseung Kwan O, New Territories) and Google Maps (I haven't been there), the nearest MTR to the Beaumount is Lohas Park. Now it looks like quite a walk to the station. Add in the inconvenience that Lohas Park is on a spur line so there aren't that many direct trains - it will usually involve changing at Tseung Kwan O - and the occasional smell from the landfill - and 6,000 psf doesn't look cheap. People will buy there to get their foot on the ladder, it would only be an investment property at 2,000 psf.
Posted by liebster (330 days ago)
Ovolo wrote:
"Of the 25,000, you have to pay 15% taxes (3,750):::: total 255,000 yearly salary net of taxes."
Your figures for calculating tax and affordability are wrong.
A salary of 25,000/month in Hong Kong would pay a tax bill far below 15%. With the standard deduction and including 1 child deduction, they would pay 11,400 HKD, or 3.8% tax.
for more info i refer you to the goverment IRD site: http://www.gov.hk/en/residents/taxes/taxfiling/taxrates/salariesrates.htm
Posted by OffThePeak (330 days ago)
TKO:
"Four teaching assistants from the mainland rented a 900-sq-ft three- bedroom flat at Lohas Park in Tseung Kwan O for HK$12,500 per month, or HK$13.90 psf per month.
"There is a big shortage of dormitories at the Hong Kong University of Science and Technology in Clear Water Bay. So flats nearby, especially those in Tseung Kwan O, are very popular with students," said Alvin Ma, chief district manager at Midland Realty.
"The demand will rise further in July and August as more mainland students arrive in Hong Kong. The rental market will be more active then."
PERHAPS that's exactly the sort of tenant new TKO landlords should be aiming for.
I used to live in Tung Chung, and was a member of the owners commitment for my building. I visited there recently, and had lunch with other members. And I can tell you TC is different from that. The place is thriving now. There are jobs near TC, and people can commute to ICC and Central, without much trouble.
Back when The Capitol was launched in TKO by Cheung Kong, prices were $5,200 per sf, and Caribbean Coast then was $3,500 per sf. I used to say to people: I don't "get" that price gap. And now they are on par with each other. That shows the importance of Jobs, and limiting supply.
It may be time to be careful with TC, since there is now talk of building 50,000 more flats there. The additional supply would impact on prices in TC, even in the better buildings. The way to help maintain prices there, would be to pring jobs to TC. Perhaps some branches of CYL's government could be moved there, or even to job-impoverished TKO.
Posted by Ovolo98 (330 days ago)
liebster, I agree. I was making it worse for HK, to show that the situation is actually not as bad as people say. I am not actually entirely sure of the price of a flat in Geneva. I worked there many years ago, and the prices now are likely to be much higher. Mine is a guestimate.
So in HK the yearly wage past taxation for someone earning 25,000 a month would be::: 288,600. In 23 years (to keep with the time I compared with Geneva and London), that would be 6.6 Million, more than enough to buy a 1000 sq. ft flat. Again, comparable prices to Geneva, London, and I guess other large European cities.
Loyd, I don't think anybody but British people think that London is the centre of the universe. Last time I went to London, it looked more like a dump to me. :)
Posted by Loyd Grossman is Miss Venezuela (330 days ago)
ovolo98. Yes, there is no quality of life and I'd much rather live in Paris, Rome or Madrid. However when others factors are added in, London tends to be the choice. I can't buy there for domicile/inheritance tax reasons.
Posted by OffThePeak (330 days ago)
"I don't think anybody but British people think that London is the centre of the universe."
Brits, Ultra-rich Tax-exiles, Hedgies, and Russian gangsters.
Ask Lloyd why he does not live in London.
Posted by traineeinvestor (330 days ago)
While HK has its problems (quite a few actually), so do most other cities. It's largely a case of choosing which problems you want to live with (trading off against the benefits of your city of choice). For HK, the negaitives are the air quality, schooling, small home sizes, language and lack of cultural activities. The benefits are a robust job market (easy to earn a high salary), low taxes, good public safety, the absence of full democracy and excellent transportation.
Most major cities have their pros and cons.
Posted by walkup4 (330 days ago)
London will be the centre of the universe this summer for the Olympics. I will then stay on for the Raindance Film Festival, the London Film Festival and the Korean Film Festival. Maybe I will get time to visit the Globe for some Shakespeare, the Barbican for a concert or two and the Tate Modern. Morning exercise strolling across Tower Bridge and weekends picking up some groceries from Borough Market.
Posted by Loyd Grossman is Miss Venezuela (330 days ago)
I left London because, like most young men, I wanted some adventure so I jumped at the chance to move to the Far East. London can be magical - like walking home past St Paul's Cathedral on a winter's night - and dangerous. A last minute decision to go for a curry meant I missed a huge IRA bomb. Who says curry isn't good for you?
Posted by Ed (324 days ago)
As we all know... gargantuan money printing is what is keeping the global economy afloat... literally trillions of dollars have been pumped out in a desperate attempt to try to re-inflate asset prices... it's been effective in some cases (HK property up double digits in the past few years)...
However we also know that money printing is not a sustainable economic model....
Let's have a look at some data that demonstrates the money printing is no longer having the same impact ... and in spite of even more printing... many of the world's biggest economies are dropping back into recession... manufacturing indices and new orders are experiencing massive drops....
http://www.zerohedge.com/contributed/2012-07-02/piling-detritus-failed-stimulus-policies
The Central Banks, because they have no other options, will simply print more... but eventually the printing will have no impact... just as it eventually had no impact in Weimar Germany...
Posted by traineeinvestor (324 days ago)
@ Ed - I agree that they will "will simply print more" but that surely must lead to a conclusion that money will continue to depreciate in real value and that, therefore, one would want to hold things which are not "money"? If not real estate, then what do you hold instead of depreciating fiat currency?
Posted by ltse (324 days ago)
@ TI. Thats not true. I've been doing more reading on the deflation case, and the more I read, the more I am convinced of a deflationary collapse. I used to think printing would prop up asset prices until the currency is worthless, that is overly simplistic.
The deflationary argument is this. Since the USA and hence the world has come off a gold standard in the 1971, the USD has lost something like 98% of its purchasing power, in other words, for the past 4 decades and more, we've had inflation and on top of that we've had continual credit expansion, credit expansion is both a function of artificially low interest rates and consumer credit demand, we've had that in spades. The current system is reliant on not only continual credit supply but also an increasing rate at which credit is consumed/borrowed.
The works of Robert Prechter and Professor Steven Keen argues that with interest rates already @ zero, it's impossible to force more credit into the system (you can't have negative interests), sure central banks can print money, but without borrowers, the velocity of credit slows and ceases to circulate thru the economy. This is the essence of the deflation scenario. In addition, not only are consumers slowing down on borrowing, but they are actually SAVING and paying down debt, when debt is extinguished either by debtors paying it off or thru default, this stops further credit expansion with our current fractional reserve banking system, and hence stop credit from circulating, which is deflationary.
“That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.”
- Marriner S. Eccles, Chairman and Governor of the Federal Reserve Board
Furthermore if you consider the austerity measures imposed in Europe, that is a classic deflationary scenario. On top off that, we have investment banks at risk of a derivatives bubble, and government at risk of a bond bubble bust, more credit is at risk of being destroyed/defaulted and interest rates is set to soar, that is why Prechter suggest holding cash, because that is what is required to pay down debt, the market has more credit/money than the central banks, I don't see the central banks trying to bailout everybody, when you have local, state governments in trouble and on top of that regional, national and investment banks alike needing credit, not to mention, nations in Europe. To give you an example, Goldman Sachs alone has derivatives exposure to the tune of $40 Trillion, if just Goldman Sach alone defaulted, $40T of credit would be wiped off the market, comparing to the puny
$1.25 Trillion from QE1 and $600 billion of QE2.
http://articles.businessinsider.com/2012-04-24/wall_street/31390709_1_pension-funds-derivative-exposure-bailout
Some may argue, these are not "local" factors. I say yes they are, the tsunami in Japan didn't just hit Japan, it had an impact on global markets, likewise, we are not alone on an island.
Bob Prechter
http://www.youtube.com/watch?v=aVm-aVA-kU8
Steven Keen
http://www.youtube.com/watch?v=sxebomn2p58
Posted by Ed (324 days ago)
TI... the one asset that does hold value during hyperinflation would be gold... very good article on this here http://www.financialsense.com/contributors/jeff-clark/does-gold-keep-up-in-hyperinflation
I am not so sure that hyperinflation the biggest concern... I think the more likely outcome is a deflationary collapse as the banking system bursts at the seams....
Most major banks are actually insolvent if they were forced to mark to reality vs the fantasy accounting they are using.... and they are getting worse by the minute...
I suppose gold would hold up quite well if the banks went down as well...
When hyperinflation hit Germany property prices collapsed...
But better to have a tangible asset vs cash as that would be worthless....
Posted by walkup4 (324 days ago)
In a period of the last 9 months when currency notes were apparently printed, gold has declined by almost 20%, something which the 'I am not a gold bugs' have difficulty explaining unless they descend into nonsense conspiracy theories.
Posted by OffThePeak (323 days ago)
LTSE,
Thanks for posting that Jim Turk interview with Bob Prechter
http://www.youtube.com/watch?v=aVm-aVA-kU8
NOTES:
Jim Turk: thinks Hyperinflation is likely. Precther thinks there are political barriers against it.
(They might disagree on whether we will see QE3, followed by QE4, QE5, etc.)
Prechter:
"Deflation could be a real threat again. The European fiasco is about to collapse."
"Ultimately, the Central banks will have to give up (on money printing.)
"Metals topped last year. Silver showed an important reversal."
"Dollar... an incredible feat: refuses to go down. All major currencies, may have deflations.
Currencies could wind up in same relationships... Big dollar debts could help USD."
"You don't want stocks or bonds. You want cash and a store of wealth in Gold."
"You want Money here." (he agrees Gold & GM may be a good way to hold it.)
At the low: "You can invest in almost anything. Real Estate at 5% on the dollar."
"We haven't seen anything yet. Unemployment will go past 1/3, could go to 50%.
Unrest: "The entitlement generation will get hit... unemployment benefits may disappear."
"People need to think about more than where their money is...
They need to think about WHERE THEY ARE."
=== ===
It is great to listen to these two "gurus" speak with each other, comparing their views.
I have known Jim Turk for many years (and we once worked for the same bank.)
If you like GoldMoney Foundation, one of the guys in this GMF-video is OTP:
http://www.youtube.com/watch?v=BpUiUB9BssU
Can you guess which one?
The comments are still relevant, I think.
Posted by Ed (323 days ago)
Central Banks are completely manipulating the stock and bond markets... so of course they are manipulating the gold market...
But that is not the point.
The question was what holds value in an era of unprecedented and unstoppable money printing... something that almost certainly is going to end in some sort of economic disaster - quite possibly hyperinflation.
Gold is the only asset that I know of that maintains value in such an environment. The link I provided demonstrates that.
If anyone knows of any other asset that maintained value during periods of hyperinflation please post the info.
Posted by traineeinvestor (323 days ago)
@ ltse - Pretcher has been so wrong so often, you could view him as a fairly reliable contrary indicator: http://articles.businessinsider.com/2011-02-25/markets/30072830_1_predictions-stock-market-robert-prechter Jim Turk is much better
History is littered with examples of hyperinflation caused by monetary expansion even when credit has been destroyed (or perhaps when the printing causes credit markets to fail). Zimbabwe is a recent example. The Weimar Republic was also a classic case - "When Money Dies" has a good explanation. My expectation is that central banks will keep printing in an effort to kick the can down the road, accross the fence and into the next millenium. Not surprisingly, Europe has just decisively broken away from austerity (although there will be some trimming of spending here and there) which. I think, makes the inflation argument stronger.
While I believe that inflation/stagflation is more likely, I'm not completely dismissing the possibility of deflation - the most likely causes of deflation are higher taxes, increased regulation, trade protectionisim and impaired credit markets - at the moment we are seeing all of these in action and they are doing a fair amount of damage to the prospects of global economic growth.
The problem for us as investors is that the best investments for one scenario are the worst for the other - hard assets and leverage will be the best for an inflationary scenario and long term bonds issued by governments which have the ability to print their own currency will be the best for a deflationary scenario. I'm mostly an inflationsist but once I retire, I intend to hold 2-3 years of living expenses in cash and fixed income.
As an aside, I actually prefer silver to gold because the bulk of it actually gets used for various purposes.
@Ed - I suspect you will find that land and collectables (i.e. many hard assets) did ok during periods of high inflation
Posted by Ed (323 days ago)
Some very good points... and I agree ... better to own hard assets than fiat currency... amongst hard assets the only one that I can find that holds full value during hyperinflation is gold... and if there is a collapse of sovereigns and the banking system... I suspect gold will be a very effective hedge...
Had some interesting conversations with a friend who worked in banking for years in HK and 'retired' in his 30's to trade on his own... he said 'everything I learned in business school is completely useless now. You cannot trade based on fundamentals any longer. The markets are completely rigged - up is down - down is up. You can still make money trading but the only way to do so is realize this and accept the lack of logic' - as he shook his head.
He has dipped into precious metals 'just in case' but continues to trade more conventional products...
Point being we are in an unprecedented - and dangerous - situation.
Posted by Loyd Grossman is Miss Venezuela (323 days ago)
So this mini crisis we had during June had zero effect on the HK property market and another poke in the eye with a sharp stick for the bears. I wouldn't use precious metals as a hedge against inflation as they don't generate income. I would buy copper stocks as a punt on a recovering economy or maybe silver as it has practical uses. Wouldn't touch gold though. Consumer durables, breweries, fast food chains and pharmaceutical stocks plus property are a better inflation hedge. If you get in at the wrong price with gold, you could be out of the money for decades with no income stream to invest.
Posted by OffThePeak (323 days ago)
"I wouldn't use precious metals as a hedge against inflation as they don't generate income.
Gold stocks are now "cheaper than Gold", and they do generate income
At near $50, Newmont has a yield of almost 3%
Posted by castingasparagii (323 days ago)
Am I the only one who chuckles when he reads people here complaining about manipulating markets and how central governments are making it harder for retired 30-year 'traders' to make a living? All of the wailing and the gnashing of teeth that goes on here about 'what will I do with my money!?'. All of the hard man 'do you have skin in the game' sporting rhetoric. All of the bemoaning financial mismanagement by others. All of the apocalyptic conjuring and doomsday drivel. All of it by people who appear to do nothing more than bet on whichever option is most likely to make them an extra percentage point of gain, with no thought to anything else. A lot of chickens playing with fire in pots and then getting burnt black by kettles. With roosts engraved on the side of them.
Posted by Ed (323 days ago)
Actually he was not complaining about difficulty making money trading ... he's had his best years since Lehman went under...
Here's an example of how centrally planned economies like the US make it easy to make cash - if you are able to understand the new reality (or new insanity)...
Buddy bought a tonne of a major US bank at 20 cents when most people were dumping assuming the bank was going to follow Lehman...
Of course in the new world of insanity the banks are allowed to mark their assets to what they acquired them at as opposed to what the market now values them at (i.e. assume account rules are no longer the rules... assume things will just be made up like on fantasy island)...
And of course the banks were bailed out with trillions... and given trillions of ZIRP money to play risky games... which also sends the message 'if you win you keep the money - if you lose the taxpayer bails you out'
'Risk on baby' cried the bankers (including Jamie Dimon of course)
Now if you were able to operate with the expectation that all the rules of economics no longer applied then you would have bought those shares at 20 cents --- waited for the bail out --- and you'd be retired now...
What he is complaining about is that this is complete and utter madness... and that it will end in tears...
Of course it will.
Posted by OffThePeak (323 days ago)
How do you make your living, CA?
What makes you think you are any better for that than anyone else here?
Posted by traineeinvestor (323 days ago)
Regardless of whether the game is rigged or not, our choice is between playing a rigged game and being poor. Central Banks have the obvious objective of inflating away their debt while maintaining interest rates which are both very low in absolute terms and negative in real terms - an environment which punishes people with safe assets and pushes them towards investing in risk assets.
As for the bankers - yep a lot of wrong things there but we have to remember that most people who work in the banking industry act as intermediaries (e.g. borrowing and lending money, conducting agency trades etc) which, on the whole, they do very efficiently. The big stuff ups that grab the headlines are done by a small minority of people who do so becuase the regulators/politicians not only allow them to do so but positively encourage them to take those risks - it is telling that a lot of the problems associated with lenidng in the US housing market occured becuase banks were told they had to lend to anyone and had government agencies (Fannie Mae, Freddie Mac) aggressively telling them to lend more without regard to ability to repay.
So by all means, bash the bankers who made a mess of things, but we should not ignore the regulators and politicians who are even more culpable.
Posted by ltse (323 days ago)
@ Ed - "When hyperinflation hit Germany property prices collapsed... "
No, during Weimar, business people, and those with hard asset, ie debtors were the winners, because effectively, their debts were wiped out, for example, if they had a mortgage of 1 million Reichsmark, they could literally pay it off in a month or less because wages rose with hyperinflation.
@TI -"History is littered with examples of hyperinflation caused by monetary expansion even when credit has been destroyed"
There is no comparison with Weimar Germany or Zimbabwe with today. There is NO precedence. History maybe littered with cases of hyperinflation for countries, BUT NOT for a country whose currency is the worlds reserve currency.
Now why is this important? because the USA has a global bond (debt) market. Let me explain, in cases like Weimar or Zimbabwe, ppl deposit their money with the banks, banks lend out credit to business, and government issues bonds to its own citizens, and if their central bank print money to avoid default, that would result in high or hyperinflation. Stealing from savers and rewarding debtors. Simple.
But for the USA which has a global debt market/bond market, its not so simple. The explanation is this, the US bond market, which issues the most debt is the golden goose of the Federal Reserve, in order for buyers (mainly foreign creditors) to continue to funnel money into it, they need confidence ie AAA rating and a yield higher than inflation. Both of these are at risk, the moment foreign creditors stop buying and no body shows up in bond auction, its game over because when borrowing stops and debt levels decreases, and to restore confidence, interest rates on yields have to rise.
But when rates rises, obviously that is very bad for consumer spending especially on a country whose personal consumption (finance by debt) consumes 70% of the nations GDP:
http://useconomy.about.com/od/grossdomesticproduct/f/GDP_Components.htm
So the deflation argument is this, absent more consumers and borrowers adding more debt to the system, printing money alone will not generate hyperinflation. Last time I checked, US Govt/Public spending as a % of GDP is 20%, now unless you expect the government to replace all those consumer spending, we're not going to have hyperinflation. Look at Japan, they had low rates for over a decade and conducted multiple QE programs to weaken the yen, but yet they are still reeling from the effects of deflation. Why? because culturally they are a nation of savers, and low interest (availability of credit) does not become money until its borrowed into existence. Unlike the West whose been on a debt binge, but deflation will set in, when more and more individuals declare bankruptcy, credit card companies are in real trouble, not to mention more banks are set to go under with continual rising unemployment and debtors not being able to meet obligations.
Another point to consider in Prechters work is social moods, we've witnessed occupy wallstreet, the tea party movement and fiscal conservatives such as Ron Paul making the stage, and is now Head of the House Financial Services Committee. Things change, and as austerity set in, more and more individuals and politicians would be against more QE, debt, and government spending, the pendulum could literally swing the other way, that is when you have banks allowed to default and real deflation to set in.
Posted by traineeinvestor (323 days ago)
@ ltse - your point about the USD being the world's reserve currency is well made although it is not unique - the same can be said of the Roman denarius (and successor units): http://en.wikipedia.org/wiki/Roman_currency (scroll down to the section on debasement) which for all practial purposes was the global currency of the western world at the time.
That said, I am not convinced that the deflation scenario will play out along the lines you mention for the simple reason that the Fed can continue buying up the debt itself. At the moment about half of the total US federal debt is owed to the Fed or other government departments: http://en.wikipedia.org/wiki/United_States_public_debt#Ownership_of_debt
As absurd as it sounds, modern banking systems allow governments and central banks to print money infinitely by simply issuing debt securities to themselves - the modern equivalent of the printing press. It may well end the way you suggest - historically countries that continue to debase their currency over long periods of time have always suffered greater or lesser degrees of economic misfortune - but I'm not sold that it necessarily will end that way.
Here's a question for you - if we have a deflationary collapse of the banking system - how do you protect your wealth? I assume that the answer has to be to hold real assets which exist outside the banking system - pretty much the same things you would hold if you expected an inflationary scenario?
Posted by Ed (323 days ago)
ltse - can you find a source that says property thrived when hyperinflation struck Germany?
This is what I have found:
Real Estate:
Owners of rental property fared no better; the government froze rents, which soon meant that tenants were occupying premises virtually rent-free.
Dipping into capital led to big losses, since cash, bonds and even stocks quickly shrunk drastically in value.
The urgent need for income had important effects on the true prices of various types of property and investments.
Farmers and holders of urban property seemed to benefit if their property was mortgaged; the inflation soon wiped out the mortgage debt.
However, they received no income, as noted above, since rents were frozen.
After the stabilization, heavy new taxes and the urgent need for cash forced most holders to remortgage their property, often more heavily than originally, so that their gains were illusory.
Still, those who held real estate throughout managed to save the capital thus invested. However, those who sold during the inflation (often through desperate need for cash) fared poorly.
Because it brought no income, real estate sold at extremely low real price levels during inflation.
Various other asset classes are discussed here http://www.usagold.com/germannightmare.html
Posted by Ed (323 days ago)
Adding to that... in a period of economic turmoil that would result from hyperinflation the jobs market would collapse...
Most people would not be in a position to maintain their residence... even if their mortgage was wiped out... because they'd need money to survive... so large numbers would be forced to sell what might be their only asset that has significant value i.e. their home...
So for large numbers of people who could not hold out - they would have to sell into a plummeting market...
Now if one was sitting on a pile of gold... which does hold value in hyperinflation - therein lies the opportunity to pick up fire sale property....
Posted by ltse (323 days ago)
@TI - the fed can certainly continue buying its own debt, and absent foreign buyers, this is certainly inflationary. But the dilemma is this, if they continue to buy their own debt and government expenditure increases to replace diminishing consumer spending, this would severely debase the USD, which means for the average consumer, crude prices goes up, along with food, rent and a whole host of other basic necessities.
Which is why I mentioned the point regarding social moods, if this was the path they choose to take, then they are risking widespread civil unrest. Who would have the political will? As absurd as this may sound, if they choose to do the right thing, they may actually come out with an outright default on all bond/debt obligations, trillions of dollars of credit would be destroyed in the process, sending the USD thru the roof.
As absurd as this may sound, remember bond holders don't get to vote, better screwing foreigners than its own voters correct?
In a deflationary scenario, the safest option is cash, if the supply of credit contracts, which is what deflation is, then goods relative to the currency would be cheaper as the currency increases in purchasing power.
Posted by Ed (323 days ago)
Actually I don't think that scenario is so far-fetched... and it has come up in discussions I've had on this issue offline...
The US is armed to the teeth... what's to stop them, when things really go badly.... from just saying 'we are defaulting and starting over - what are you going to do about it?'
Of course that would result in a massive economic depression but better than with the opportunity to re-start... than to be in the position of Greece and other PIGGS who are now officially debt slaves forever...
The reason I see hyperinflation as a more likely outcome (as opposed to deflation) is because Bernanke has said under no circumstances will he allow the economy to deflate... he's even written a paper that says he'd 'dump cash out of helicopters if necessary' ... which is essentially what he is doing....
http://www.thestockenthusiast.com/opinion/how-bernanke-got-the-nickname-helicopter-ben-why-it-matters-right-now/
As this article demonstrates... deflation can lead to a spiral to economic hell... Central Bankers fear it even more than hyperinflation ... because once it grabs hold there are no tools to fight it...
As ltse points out... cash is king is such an environment
http://www.telegraph.co.uk/finance/economics/3478630/Deflation-why-it-is-dangerous.html
Posted by Loyd Grossman is Miss Venezuela (323 days ago)
Ed. You may be losing it. The probability of all these things happening is pretty slim. It reads a bit like one of those airport novels. I am taking a punt on world trade and picking up shipping stocks.
Posted by ltse (323 days ago)
From Wiki "The Russian financial crisis (also called "Ruble crisis") hit Russia on 17 August 1998. It resulted in the Russian government devaluing the ruble and defaulting on its debt. Declining productivity,... and a chronic fiscal deficit were the background to the crisis. The economic cost of the first war in Chechnya that is estimated at $5.5 billion (not including the rebuilding of the ruined Chechen economy) was also a cause of the crisis"
Declining productivity, deficit spending on wars.. sounds familiar. The hedge fund Long Term capital Management collapsed with its exposure to Russian bonds. If there is one thing about markets we can be certain of, is that you can never be certain. It will always deliver surprises, which is why there is a market, no body thinks the same way. No one contemplates an outright default, not even a partial default, which makes it all the more highly probable.
Posted by Ed (323 days ago)
Lloyd... check this out...
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/03/20120320_armaggedon%20costs.png
Keep in mind things are now far worse... not better... and they will continue to get worse... and not just in the US.
Do I think the probability of one of those outcomes is slim?
No.
I think one of these outcomes (inflation, stagflation, deflation or massive defaults) is virtually guaranteed.
I simply cannot see how these very deep problems that took decades to build can be resolved without some major pain.
Let's take a moment to review the term normalcy bias:
The normalcy bias, or normality bias, refers to a mental state people enter when facing a disaster.
It causes people to underestimate both the possibility of a disaster occurring and its possible effects.
This often results in situations where people fail to adequately prepare for a disaster, and on a larger scale, the failure of governments to include the populace in its disaster preparations.
The assumption that is made in the case of the normalcy bias is that since a disaster never has occurred then it never will occur.
People with a normalcy bias have difficulties reacting to something they have not experienced before.
People also tend to interpret warnings in the most optimistic way possible, seizing on any ambiguities to infer a less serious situation
http://en.wikipedia.org/wiki/Normalcy_bias
The scenarios we are discussing HAVE occurred many, many times in history...
Posted by Loyd Grossman is Miss Venezuela (323 days ago)
Yes but you are betting on a series of events. It's a bit like betting on a single number in roulette. The US housing market looks like recovering. Once it looks like rates are going to ruse, the American housing market will quickly recover as buyers lock iinto ultra low fixed rates. Everything else should follow from there. It may make more sense for the Fed to increase rates.
Posted by Ed (323 days ago)
Lloyd - the US housing market is still going down... it is not recovering...
Case Schiller: "April’s data indicate that on an annual basis home prices fell by 2.2% for the 10-City Composite and by 1.9% for the 20-City Composites, versus April 2011."
And don't forget banks are holding massive numbers of foreclosed properties off the market - if they released them it would collapse...
Who is going the buy these homes? There are no jobs - 60,000 last month when 120k is required just to stay even...
College grads are saddled with massive debts - and are working at Starbucks... are they buying homes?
Record numbers of people are on food stamps. Are they buying homes?
The Fed is buying a big chunk of US debt - because nobody else will...
Interest rates will never rise... they cannot - work out the interest payments on 15 trillion dollars of debt at say 4% ---- wait no need --- here's your answer = insolvent.
America is not recovering... it is stalled on the top of a very big hill and the breaks are failing....
We could talk about Europe and Japan if you like... they are really booming aren't they....
What do you mean by betting on a series of events? Isn't buying property betting on various outcomes? Isn't any investment?
Hyperinflation - Deflation - Stagflation - a Banking Collapse... You may not feel that any of these are serious threats (see: normalcy bias) but many do... people are searching for safe havens... physical gold has proved to be that throughout history...
I have not seen anyone recommending putting every last cent into precious metals... most are advising at most 20%...
Bad things happen. They may not this time.... but there are massive dark omens hovering everywhere... ignore them at your peril...
Posted by Loyd Grossman is Miss Venezuela (323 days ago)
Okay. So no one is ever going to buy a property in the world's largest economy again. Why is the property developer ETF 'XHB' doing so well?
Posted by Ed (323 days ago)
No Lloyd... that is not what I said.
What I did was correct your unsubstantiated comment that the US property market was recovering...
When prices drop month after month after month on a year on year basis... that is not a recovery.
How many trillions now? And still property prices are dropping.... reminds me of http://www.youtube.com/watch?v=7Kg5NdwH8zE
Posted by traineeinvestor (322 days ago)
Plenty of support for the case that the US housing market is recovering. This is just one of many articles that popped up on the first page of a Google search :http://economywatch.msnbc.msn.com/_news/2012/06/21/12338530-housing-market-recovery-on-track-despite-bumps?lite
There were far more articles talking about a recovery than continued declines in the first two pages of search results.
I can't claim any expertise in the US market, but speaking to people in and from various parts of the US, there is clear anecdotal evidence to supoprt both an improvement in the market and an expectation that things will continue to improve - low interest rates, at least stability in employment numbers and a growing population certainly help. The important caveat is that the US is not a single market and there are considerable differences between the more boyant areas (like Silicon Valley, Washington DC and Manhattan) and the more depressed areas (like Detroit).
I have no views either way, only pointing out that there are plenty of articles pointing out that the US housing market is in recovery as well as plenty which express the view that it will continue falling to the point where, like time shares, you have to pay people to take houses off your hands.
Posted by Ed (321 days ago)
Whenever you find yourself thinking there might be a recovery in the offing... worth keep this in mind... QE and ZIRP are the most extreme policies Central Banks can utilize... and in spite of years of both... growth has stalled or is negative in most major economies:
Quantitative easing: a sign of deep desperation
http://www.guardian.co.uk/business/2012/jul/05/quantitative-easing-analysis
"Meanwhile, the recovery in the US seems to be grinding to a halt; and the anxious Chinese authorities are cutting interest rates to avoid a so-called "hard landing".
It is not quite the global loss of nerve that followed the collapse of Lehman Brothers in late 2008 and early 2009; but there is no doubt that there is a deep malaise in many of the UK's major markets."
Posted by Loyd Grossman is Miss Venezuela (321 days ago)
Just buy up equities, sit tight and wait for the money to flow out of US treasury bonds - as it inevitably must.
Posted by ohmmmm (321 days ago)
Japan has a lot of private money in low interest paying bonds and its stock market has not recovered since its peak a few decades ago.
Posted by Loyd Grossman is Miss Venezuela (321 days ago)
Ohmmm. Yep. I just think the US is more flexible. By the way, if I wanted to benefit from ships taking the Arctic route (ie along the north coast of Russia now the ice pack is melting) as opposed to Suez canal/Cape of Good Hope route), which stocks would benefit most?
Posted by Ed (321 days ago)
The money has already flowed out of US treasuries.... the Fed is stepping in the fill the whole... PIMCO and others were burned badly by this...
What Bill Gross and other masters of the universe seem to have forgotten is that the US owes 15 trillions dollars... if the Fed doesn't step in to buy then the only way to attract buyers is to increase interest rates...
Any significant interest rate rise would result in a massive increase in debt servicing costs to the US government... which would be disastrous....
So the Fed will keep buying (printing)... until it cannot.
Posted by traineeinvestor (321 days ago)
My view is that low interest rates are going to be with us a lot longer than most people think - in 2008 the experts were telling us that interest rates would start rising in late 2009. In 2009 they were talking about late 2010 or early 2011 and so on. Now we have the Fed saying that interest rates will remailn very low until "at least" 2014 so we can reasonably expect at least two more years of ZIRP. The best argument for interest rates remaining low for longer: http://en.wikipedia.org/wiki/File:GAO_Slide.png Like Japan, the US simply cannot afford to pay higher interest rates on its debt (unless it wants to make substantial cuts to entitlement spending).
A couple of other intersting observations from the chart - even the boom tax years of the Clinton administration and the contraction in tax revenues during the Bush administration mattered a lot less than the continued increases in spending (including debt servcing costs) - in effect shwoing that no amount of tax increases is going to solve America's problem. Absent direct or indirect default, the only sustainable solution is to make substantial cuts in spending incuding entitlement spending.
In any case, my HK$0.02 worth is that we will only see higher interest rates in the US if/when the US returns to much better economic growth.
Posted by traineeinvestor (321 days ago)
@ Ed - yep the subsidies are ridiculous (as are those of many other countries) and the US tax code should be tossed out and rewritten. Maybe we could have contest to see who can write the best tax code in 100,000 words or less. Do away with the exemptions, extrateritoriality and double taxation.
@ Loyd - waiting with bated breath. FWIW (not much), HSBC recently lowered their on line mortgage valuations....by less than 1% in the case of our home.
Posted by ltse (321 days ago)
The housing recovery things is a complete myth. People look at the charts of the stocks of the US home builders and think all is well. With all the lobbyist from housing, ie the National Housing Trust, National Low Income Housing Coalition etc seeking government hand outs of course it gives the illusion of recovery.
http://www.youtube.com/watch?v=UvMGHzB37lo
But this is at a cost. From Henry Hazlitt's book "Economics in One Lesson", he gives an example of a thug breaking a window of a store owner, the shop owner then spends $5000 on repairs. Some will conclude that the thug has contributed growth to the glass making industry, after all absent his behavior that $5000 expenditure toward glass repair wouldn't exist. But what if the owner had initially decided that $5000 saving he had was to be used towards purchasing a motor vehicle to aid his business by offering home delivery to his customers? The glass maker gains was at the COST of the car makers lost.
Likewise when government spends money to prop up housing, they are depriving other sectors of the economy, which is what you don't see, people focus on "half truths" the credit side, but rarely the cost/debit at which it is being derived. When loans is diverted to housing by government, it means productive sectors ie the private sector of the economy are deprived, small businesses can't get loans, that is how you get rising unemployment but yet high inflation, ie stagflation.
Furthermore, this is money that is going to have to be paid back, low interest rates is not going to do it, the US is going to breach it debt ceiling again soon, most will assume they can raise it indefinitely, who is dumb enough to continue to lend indefinitely? this is when you will get a bond crisis and deflation will set in when debt levels cannot possibly go any higher.
Posted by Ed (321 days ago)
Ltse - superb.
TI: double taxation - I assume you mean where companies owners pay tax on their income + companies pay corporate tax...
I have had this discussion - with a lawyer none the less... and here's where I stand:
Limited liability Corporations are treated as entities separate from their owners under the law - for good reason... because in the past when they were not ... and that meant if your company lost a massive amount of money YOU were liable for that loss...
Of course that makes people less willing to start and operate a business... it amplifies the risk massively...
The limited liability company of course limits your personal loss to your holdings in the company.
And that is why there is taxation on the corporation (one entity) and the owner (another entity)...
I have no problem with that.
In HK there are no taxes on dividends... I could pay myself a dollar a year in salary and the rest of my income could be in the form of a dividend meaning I pay no taxes. I am not ok with that - I think dividends should be taxed.
Posted by Ed (321 days ago)
Ringy dingy... here's the thingy...
The EU crisis is taking the whole world down with it... this goes beyond the banking and sovereign insolvencies which are a big enough threat on their own... but as the biggest aggregated economy in the world the EU is a huge importer of US, Chinese and Japanese products...
And as the EU heads deeper into recession imports are plummeting which is causing manufacturing indices in many export countries to crash into territory that indicates recession
80% of the World is Now Contracting
http://www.ftense.com/2012/07/europes-virus-is-now-global-contagion.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+ftense%2FsymR+%28The+Future+Tense%29
Recall Ray Dallio - most successful hedge fund manager of the decade said about 4 months ago 'Europe is in recession and has exhausted all the tools that are normally used to escape recession - so I don't know how they will get out'
I would replace EU with 'the world'
Posted by liebster (321 days ago)
ed wrote:
In HK there are no taxes on dividends... I could pay myself a dollar a year in salary and the rest of my income could be in the form of a dividend meaning I pay no taxes. I am not ok with that - I think dividends should be taxed.
ed,
It doesn't work out the way you described. Yes, dividends aren't taxed at the personal level, but profits are certainly taxed at the corporate level. As these dividends are counted as profits beforehand, the corporation will end up paying 15% on it anyway.
Posted by traineeinvestor (321 days ago)
@ Ed - with respect, your double tax argument is utterly flawed. In your example, the company will end up paying more tax because the dividend is not tax deductable whereas the salary is. You have not gained anything (absent any difference in marginal tax rates which in Hong Kong would give you a considerable advantage in paying yourself a salary instead of paying yourself a dividend).
The limited liability arguement also fails the giggle test - for small private companies you generally have to guarantee your borrowings. I certainly have to. Limited liability has nothing to do with double taxation. As a lawyer myself, I find the assertion that limited liability is a justification for double taxation laughable.
Several countries recognise and accept that it is inequitable to tax the same income more than once - Australia and New Zealand have dividend imputation systems, many countries have done away with inheritance taxes, few countries tax wealth directly and many do not tax capital gains (unless derived as part of a business). For the most part, these are better places for people like us to try and get ahead in.
We need less and simpler taxation to encourage business start ups, investment and job creation. Not contractionary and divisive policies like those introduced by Obama, Hollande and Gillard which make it much harder for people who want to create jobs to do so. They may be good for those feeding off the taxpayers but they are ultimately harmful to all. I'd highly recommend reading Berstein's "The Birth of Plenty" for an explantion of the linkage between taxation and economic prosperity.
Posted by liebster (321 days ago)
Residential transactions for June totaled 5,886 which is down 35% yoy, and off roughly 60% historic norms. Still not much traction in the market, although at least we aren't seeing those dreadful 3k numbers anymore...
Posted by Ed (321 days ago)
Of course if you co-sign a loan for a company you are liable... beyond the limited liability rule (as you should be)
And I don't find the justification laughable... it is not my justification ... the justification I outline was put forward by the courts over a century ago... and I believe it makes perfect sense.
Prior to limited liability owners were on the hook for all losses... and they ended up in debtor prison if they could not pay - see http://en.wikipedia.org/wiki/Debtors%27_prison
Limited liability was a game changer that resulted in a huge pick up in economic activity... individuals were willing to take risks and were not so concerned about failing... because it didnt mean the end of life if the business did not succeed.
The trade off for the separation was that each entity pays taxes...
If owners want to pay tax as one entity then fine - I think they should be treated as one in the event of bankruptcy... each is liable for all debts... you can't have your cake and eat it too...
Of course that would hammer economic activity as few would want to start an enterprise...
In any event I agree the tax code is a mess...
But companies like GE who pay 0 tax on 5B domestic and 10B overseas profits are I believe part of the reason tax codes are so complicated... it is they who lobby for these tax laws which their army of 1000 tax accountants and lawyers sift through to find loop holes...
http://www.nytimes.com/2011/03/25/business/economy/25tax.html?pagewanted=all
Inheritance tax: the reason for inheritance tax is to prevent the accumulation of enormous wealth... because enormous wealth creates dynasties who then use their money to influence the political process....
That is to my understanding the justification most governments have for taxing estates that involve huge numbers...
And I have no problem with that.... beyond the dynasty issue leaving huge sums to one's kids usually does them new favours...
Posted by Ed (321 days ago)
liebster... AsiaXPAT is a separate entity... a corporation... the corporation pays the 15% taxes... not me...
Thus when AX pays taxes I do not consider myself as having been taxed... the corporation - in exchange for the benefits provided (see Advantages http://en.wikipedia.org/wiki/Limited_liability_company) and in exchange for this status it is taxed.
That is my understanding of how it works... if that is correct then I have no problem with this.
Perhaps a tax attorney could step in and provide further insights.
Posted by Ed (321 days ago)
One other thing... if you don't want to pay corporate tax + tax on dividends and salary ... simple solution ... register as a sole proprietorship...
I believe you will be taxed as one entity... but I also believe you will be liable for all debts in the event of a bankruptcy...
Again if a tax account wants to correct me feel free...
Shall we go back to the property/economy discussion
Posted by Loyd Grossman is Miss Venezuela (320 days ago)
Yes Ed. I'm sure the property markets in Dongguan;Boise, Idaho and Barcelona will get hammered. Meanwhile in HK, business is good. Went for lunch in Central today (Saturday) as a treat with my wife. At 3pm, couldn't get a seat in Landmark cafe, couldn't get a seat in Mandarin Chinnery bar, got kicked out of Captain's bar for wearing open-toed sandals, finally got in at Mandarin Cafe after a 15 minute wait. Never seen it so busy in the 18 years I've been here. This is a rich town so why should property be cheap?
Posted by hareme (319 days ago)
Lloyd,
What does a 'Harder landing in China' mean for Hong Kong? Property transactions are down to SARS levels, but the Centadata is up. What is going to give here? International events will impact here, the HSI is down to its Dec 2006 value.
Everyone agrees HK property is in a bubble, the disagreement is how far will it fall?
Posted by Xerxes (319 days ago)
Congratulations Lloyd - you've just answered everyone's question in the last thread. Typically before a crash, things are at a high point, high prices, restaurants full, malls crowded, etc, etc....This is exactly what you've experienced with your splurging in Central.
I recall exactly the same thing in 1997 (prior crash), couldn't book a restaurant. properties were breaking record prices, malls full, etc, etc......Notice the similiarities Lloyd?
Posted by Loyd Grossman is Miss Venezuela (319 days ago)
No many xerxes as before the 1997 crash, everyone was overextended. Now I just see money instead of borrowed money. Hareme. I don't agree it's in a bubble. Have been saying so for ages.
Posted by Ed (319 days ago)
Lloyd - you keep making the claim that everyone was over-extended in 97.
Did you just make that up just like you continue to make up the claim that most residential properties are not mortgaged (which has been demonstrated to be false)....
If not can you provide a source that backs up your claim that 'this time is different'...
Btw - although you don't like to read I highly recommend the book by that title...
It demonstrates how time after time after time with investment bubbles there are those who... even when faced with the obvious ... claim 'this time is different'
It never is.
http://www.amazon.com/This-Time-Different-Centuries-Financial/dp/0691142165
HK Property
- highest priced property in the world
- transactions are at a trickle
- price to income index is the highest in the world
- prices are well in excess of the massive bubble in 97 (not more in real terms but still off the scale)
- 80% of the world's countries are contracting - the EU our biggest trading partner is in a deep recession and worsening... the US is on life support
But of course HK people are so rich therefore this time it is different.. the market cannot possibly crash :)
Posted by Xerxes (319 days ago)
Lloyd: In 1630's Holland had a Tulip crash. It was solely depended on peoples saving (no credit, not overextented). Their puchases of Tulips were paid for in cash. Using your logic, a crash should have never of happened. But it did. The only reason it did was because people began to realize the absurdity in the "bubble" of tulips and it just took one investor to proclaim that his investment (he finally realized) was not the intrinsic value he actually paid for. We know what happened next....
Bubbles are not caused by "overextentsion" but "herd" mentality syndrome. Case in point: Nasdaq crash of 2000. Eventually in HK , someone is going to wake up and realize that paying 15K, 20K, 25K HKD per sq.f is absurd relative to what is happening globally (also his income level).....That's when a crash happens.
Posted by Loyd Grossman is Miss Venezuela (319 days ago)
Ed. When did I say residential properties weren't mortgaged? I said over half of end-user properties weren't weren't mortgaged (ie non investor). When was I proved to be wrong? Hardly the same thing, is it? Also, if everyone thinks the housing market is a bubble, how can it be a bubble?
Posted by Loyd Grossman is Miss Venezuela (319 days ago)
Xerxes. Where's the absurdity in buying property when compared to tulips? You can't live in tulips.
Posted by Xerxes (319 days ago)
investors in property dont buy property to live in them....but to flip it to the next highest bidder. Isnt that what this market is all about. If people bought property to live in them, then we would be paying 2K HKD per sq.f...
Posted by Xerxes (319 days ago)
Lloyd I guess you are aware that average home prices in HK from 2008 lows til now have gone up 80%.....you mean to tell me that the land banks have decreased dramatically or the population of HK almost doubled in numbers?
Neither has happened. This is purely a herd mentality market, but in this case the herd are the Mainland Chinese (also the fact they are illegally trying to hide their cash holdings from Mainland officials). Check what has happened in Vancouver, Sydney and all major cities around the world....Mainalnders are looking to park their ill gotten gains and will buy property and any price. Sounds to me to be pure specualtion....Do you honestly think that an illerate Mainlander (with grade 2 education) uses historical facts like...."You don't get bubbles after 15 years of deflation and recession, you get price increases." to determine property purchases??? I dont think so.....they'll buy just because they have to hide ash*t loads of cash..
Posted by Loyd Grossman is Miss Venezuela (319 days ago)
No I mean prices have recovered. Only up 5% percentage points since 1997. It's local monry. Mainland money is a fringe benefit.
Posted by Ed (318 days ago)
Sorry Lloyd.... wrong again....
Mainlanders account for just under half of properties USD2M and up and over 60% of properties 10M and up... http://www.youtube.com/watch?v=_SgXvlvDT6Q
I can't find data but surely not all mainland buyers can afford top end property... they must be active in the lower end of the market as well....
Posted by Ed (318 days ago)
Lloyd... you did say over half of residential properties weren't mortgaged... then someone posted data correcting you that stated half of end user properties weren't mortgaged... you can scroll back up this thread and the previous one where you made this comment twice - and were corrected twice...
Posted by Xerxes (318 days ago)
Correction Lloyd: There is no bubble in the US treasury market as you mentioned a couple of threads ago. The definition of "bubble", in the framework of financial / asset markets is based on the concept of sharp rises in prices due to pure speculation. The sharp rallies we have experienced in Treasuries (and oher sovereign treasuries) was based on fear and not specualtion. People were parking their cash in Treasuries because, if you recall during the Financial Crisis all asset clases were collapsing ( A perfect storm Scenario) and the only class that could guarantee safety were Govt securities. The safety came from the notion that the Federal Reserve had an "infinite" balance sheet and could alway print more money. Its the only institution that "technically" cannot go bankrupt. Everyone else was going bankrupt during the crisis or the perception of going bankrupt. Fear is another phenomena that can also explain asset inflation besides the typical "bubble".
Posted by traineeinvestor (318 days ago)
@ Loyd - in real terms, prices in Hong Kong are still well below their 1997 peak (with the exception of the luxury end of the market).
@ Xerxes - there has been plenty of discussion on the level of gearing in the Hong Kong property market and the very clear conclusion was that on the whole gearing is quite low by any standard. Check out the previous discussions and/or have a look at the HKMA statistics on outstanding mortgage loans and divide by the number of properties in Hong Kong. Looking at it differently, the combination of high deposit requirements and the fact that just about all mortgages in Hong Kong are P+1 also supports the low gearing in the market. If the market falls, it would be very surprising if it was becuase of debt levels - increased supply, a reduction in mainland buying interest or (more remotely) the ending of the HKD/USD peg are more likely culprits.
Flippers are largely gone thanks to the special stamp duty. FWIW, all of the HK property investors I know (including myself) are renting out their properties and using the rental income to make the mortgage payments.
@ Ed - its not statistical but I am aware that at least some mainlanders have purchased mid market/mass market flats for their children. I have no idea what percentage of the market they make up.
Posted by Ernie20 (318 days ago)
Another week passes, the points scoring continues, the Centacity index continues its inexorable rise, more transactions, more flats selling at higher prices.
http://thestandard.com.hk/news_detail.asp?pp_cat=1&art_id=124151&sid=36970241&con_type=1
So where is the cast iron, absolutely guaranteed, must happen like 1997, 70% decrease in property prices? That's what the sideliners are waiting for.
If you had bought and held for two years at any time in the last 9, you would be up on the deal. For much of that time it cost pennies to get in. I bought my house for less than $50k out of my own pocket. People are being scared out of the HK market by concentrating on the global picture and may end up being life-long renters as a result.
Posted by Ed (318 days ago)
Perhaps the rationale for those who are waiting would be that they know what happened in 1998 when prices were at record highs... and they are again at record highs...
Also many are aware that when the current global financial crisis started in 2008... HK property prices were collapsing by over 25% before Central Banks rushed to the rescue and reinflated the global economy with trillions of printed money....
And many are aware that effects of this unprecedented deluge of stimulus is now wearing off... without the crisis having been resolved...
The global economy is again worsening... in spite of all the printing... countries and banks are insolvent... unemployment is worsening... recessions are taking hold in many major markets...
Meanwhile Central Banks are running out of options to prop up the dead horse...
So might I suggest that some prefer to take a wait and see approach anticipating that the crash that started in 08 will resume in the near future....
Posted by traineeinvestor (318 days ago)
@ Ed - "all the printing" = inflation = should not hold paper = negative real interest rates = should not hold paper....I keep coming back to the question of where to invest? Bank deposits and bonds look safe as far as volatility is concerned but are guaranteed losers in anything but a deflationary scenario which I consider to be much less likely than the inflationary scenario - for the defaltionsits out there, it's worth remembering in all the reminsicing about the deflation that HK experienced post 1997 that overall the real purchasing power of the HKD has fallen by around 20% since then. If the real value of my wealth falls 20% every 15 years, that will cause me some financial pain in my old age. If we get even two percentage points of inflation a year (less than half the current rate and well below post WWII developed world averages) the results will be prettty devastating.
I have not purchased any property for a few years now (on a yield basis it is expensive) but will continue to hold what I have as a means of protecting myself.
Posted by ERC (318 days ago)
Ed, I am actually wondering if you yourself believe what you write. You have been saying that the Housing price is about to collapse for a very very long time, and it has done the opposite.
Do you think that when governments stop printing, they will ask the money back, and therefore housing prices will collapse?
Besides, what you write is usually either a distortion or an exageration. For example:
- highest priced property in the world (not if you look at disposable income. It's quite average really)
- transactions are at a trickle (so?)
- price to income index is the highest in the world (not if you look at disposable income. It's quite average really)
- prices are well in excess of the massive bubble in 97 (not more in real terms but still off the scale) (exactly, not more in real terms, which is what counts)
- 80% of the world's countries are contracting (do you have any raw data to prove this?)
- the EU our biggest trading partner is in a deep recession and worsening... the US is on life support (at the very least this is an exageration, but I think it's a complete distortion).
Posted by ERC (318 days ago)
Here: http://web.worldbank.org/external/default/main?theSitePK=659149&pagePK=2470434&contentMDK=20370107&menuPK=659160&piPK=2470429 there is a link to a June 2012 excel file where it says that the world economy is expected to grow by 2.5% this year. But of course it's prepared by such people as 'economists' who obvioulsy don't know anything. Right?
As for the world economy slowing down and the impact on China, I think that many products produced in China are what economists call Inferior Goods, which are "goods that decrease in demand when consumer income rises". As the recession lowers incomes, people will buy more Chinese goods, instead of better quality European goods. So all is well for Hong Kong and China.
I will drink to that!
Posted by Loyd Grossman is Miss Venezuela (318 days ago)
The 'crash' of 2008 is Ed's smokescreen. There was off-loading of inventory by a few investors. However, if you had sold in 2007 and tried to buy the same property back cheaper in 2008, it would have been very hard. The only crash was in 1997 plus a deep trough around SARS. Then you could have got in cheaper. Wwe had cheap property for a decade. Now it is going to be expensive unless there is some kind of mega political upheaval.
Posted by xpatwilier (318 days ago)
It's not really rocket science. Interest rates are at record lows, so even if you consider that prices are expensive now, there is little pressure on individuals to sell off their portfolios, given that interest costs are minimal.
Yes, in the event that interest rates shoot up dramatically, this will have a real impact. But the US is likely to keep rates low for at least until 2014.
Next, look at the HK end-users psyche. The default rates for massively affected negative equity home owners in HK was still very low compared to US... culturally, HK Chinese weathered the storm after 1997... nearly all my friends who were affected kept their flats as long as they had sufficient cashflow.
So finally, what would be the tipping point? Lack of cashflow, i.e. extensive job cutting... during SARs, there was massive blood-letting because people were being laid off left right and center, and businesses (restaurants, cinemas, real estate agencies) were seeing a huge decline in business.
This is, in my view, unlikely to happen again. If it does, only then will you see the repeat of a SARs like 70% decrease in HK prices.
All this talk from Ed about global turmoil, whilst not totally incorrect, neglects the 2 fundamental things that affect individual HK property owners' decisions: 1) Leverage (which is low) and 2) Ability to pay financing costs (which is intrinsically linked to maintaining employment and interest rate levels).
I personally do not see this as a good time to enter the market, as I feel that upside is limited and there are other better assets available on a risk adjusted basis. However, I feel the doom mongers are also unlikely to be correct with regards to their downside predictions.
Posted by traineeinvestor (318 days ago)
@ Loyd - agree there was no "crash" in HK property in 2008 (unlike most of the US)
@ xpatwilier - I agree - the catalysts for people to sell just are not there. My expectation is that the size of the US debt/deficit problem will dictate low nominal and negative real interest rates well past 2014
That said, I like pesamists - they help keep prices down for the rest of us
Posted by Ed (318 days ago)
25% down is not a crash? Hmmm... that pretty much wipes out your down payment...
ERC - I have made no specific predictions on the market.
Although I do believe a mega economic crash is almost certain ... timing as always is impossible... what I do know with certainty is that all major banks are immediately bankrupt if they were to follow general accounting rules... I also know that many trillions of dollars are being pumped into the economy to prop it up.... and I do know that there is little or no growth occurring in the developed world....
There is no precedent for any of this utter madness....
I have posted articles and comments that there are huge risks in the market ... primarily to counter the constant stream of disinformation posted indicating that 'there are no risks - property only goes up - hk people are so rich how could the market every crash'
Re: 80% of the world is contracting... http://www.zerohedge.com/news/80-worlds-industrial-activity-now-contracting
Posted by Loyd Grossman is Miss Venezuela (318 days ago)
Ed. There was no mad rush for the exit in 2008 with regard to HK property. Some panicked sellers doesn't equal a crash. Virtually no negative equity.
Posted by Loyd Grossman is Miss Venezuela (318 days ago)
Ed. Of course, anyone selling then would have got a duff price - which explains the Centadata fall - but that doesn't mean you have bought something cheap. In fact, you probably couldn't. Look back at my predictions versus yours for 2008 on this thread.
Posted by Ed (318 days ago)
Once again.... your disinformation is demonstrated to be exactly that Lloyd... just as when you claimed the majority of properties in HK were not mortgaged...
In any event, getting back to the comment earlier today... some people are aware of what was happening in 2008... the market was tumbling down a cliff...
If Central Banks don't step in with trillions ... the 25% almost certainly would have been much much worse... this is not a regional crisis as was 1998 (70% drop in prices)... it was the entire global economy that was perched on the precipice...
I've asked numerous times... let's have another go... can someone find a comment from a bull on the earliest version of this thread that said "Central Banks are going to print trillions of dollars to inflate the global economy - this will carry HK property prices to record highs - now is the time to buy"
I can't find that comment... all I can see are gems from the bulls like this "if the prices collapse and you don't sell you haven't lost money"
Anyway... for those who believe that 2008 was just the warm-up in terms of the global financial crisis ... perhaps they are just waiting to see where all this money printing leads...
Like the graph above says... 80% of the world is contracting - in spite of the trillions... and Central Banks already have interest rates at or near zero... there is very little they can do to reverse the trend...
Doesn't sound like a very bullish scenario eh?
Posted by traineeinvestor (318 days ago)
Was there a crash in 2008? Depends on your definition of a "crash". From Wikipedia on stock market crashes:
"There is no numerically specific definition of a stock market crash but the term commonly applies to steep double-digit percentage losses in a stock market index over a period of several days."
Applying the same definition to real estate, then there was a crash in 2008 - but if you blinked you would have missed it.
China's PMI is still above 50: http://www.moneycontrol.com/news/world-news/china-pmi-reports-underscore-case-for-policy-easing_725983.html
In any case, a contracting economy does not necessarily mean that asset prices will decline (i) asset prices tend to be forward looking whereas the PMI data are backward looking and (ii) weak economic fundamentals will often be met with monetary expansion (aka QE) which is good for asset prices.....at least in the short term and some of the time. They may decline, but it is not a given that they will decline.
Posted by ERC (318 days ago)
Ed, the world economy is growing by 2.5%/year, which means that it's not true that "80% of the world is contracting", even if you find that written in some websites. Or do you really believe that everything you find on the net is true?
Posted by Xerxes (318 days ago)
ERC: Contraction does not mean "negative" growth....It can also imply growth, but a slower pace than the previous reporting cycle. Ed is correct in saying that 80% of the world economy is in contraction mode......this analysis came from IMF and the EIB. Although, I take everything with a grain of salt, especially from institutuions that have special interests on the matter, it seems that these figures are trending in the same direction (whether its 80%, 70% OR 60%). The trend is your friend...
Posted by Ed (318 days ago)
You will note the graph I posted is from Bloomberg... not exactly 'any old website'
A contracting PMI historically indicates a recession is imminent.
I recall posting data on negative PMIs for a number of EU countries some months ago... and those countries are in recession now...
It takes a few months for negative PMI to filter into the real economic numbers...
http://www.wisegeek.com/what-is-the-purchasing-managers-index.htm
The purchasing managers index (PMI) is an indicator that shows the conditions of the manufacturing sector as well as the overall health of the economy. The information for calculating the index is obtained through a monthly survey of numerous purchasing managers in different industries. These managers are asked to state whether the activity has increased, declined or remained unchanged in the following areas: new orders, production, employment, vendor performance and inventories.
When released, the purchasing managers index will read above 50 if the economic activity is growing, it will read below 50 if the activity is contracting, and if the reading is simply 50, it will mean that activity has remained neutral.
In the manufacturing industry, purchasing managers are responsible for buying the products needed to manufacture goods.
When the economy is growing strong, the orders for manufactured products will normally rise. Thus the purchasing managers will respond by ordering new supplies necessary to produce goods so that they can meet the increased demand. If the economy is doing poorly, then the demand for manufactured products will decline.
These managers are well positioned and able to gauge activity in the manufacturing sector.
Posted by ERC (318 days ago)
Xerxes, you are correct. But Ed makes it sound like "contraction" is the end of the world. An economy which grew 9% last year, and 8.9% this year, is "contracting", and yet, what is the problem? Unless you think that expanding is the only good thing for an economy, and should happe every year, in which case in 1000 years the world economy will probably grow by 2000% a year. Would that even be desirable?
Ed, check up the definition of "recession". That might help...
Posted by GString (318 days ago)
I am an expat, moved to HK in '98 straight out of university for a job (investment banking). At first I rented but by 2003 I had enough cash to buy my first flat (straight after SARS), in 2004 I bought another and in the following years I bought 4 more flats (so, 6 in total, selling some here and there as I went). I can attest to the fact that in 2008 there was not this huge supply of flats that had suddenly dropped in price by 25%! At the time, my bf (of 1 year) and I were in fact trying to buy a joint place to live in together (he did not want to move into the flat I was living in that I had bought prior to meeting him - male pride and all that) and it seemed like it would be a great time to buy because on paper it looked like prices had dropped. In reality, there was almost no supply at these supposed low prices because most people would not sell. Lloyd is very much correct in saying that there was no 25% crash in '08 and Ed is basing his assertion on eroneous data. Ed probably does not know how to look at property data and what is relevant and what is not because he probably has never bought property, which is exactly why he is hell bent on trying to convince us, and very likely himself, that armageddon is imminent. It is just a way of attempting to make himself feel better about having missed the boat time and time again
Posted by GString (318 days ago)
Btw, I have been following this property thread for a long time as I am very much interested in HK property, having been an investor for almost a decade. My bf (the same one as above) and I are looking to buy again (the last one we bought in '08 at NORMAL, not 25% below, prices, neither of us is enamoured with for various reasons), but there doesn't seem to be much supply out there?? Given that there are many people who expect property prices to fall due to the global economic situation (e.g., Ed), I actually expected there to be lots of owners offering up their property for sale, but I am getting very few places to view from the property agents I am using (around 10). Is anyone having the same experience or have I just happened to have chosen 10 dud property agents?
Posted by Ed (318 days ago)
Gstring... I am not trying to convince myself of anything... I am simply looking at the data points and suggesting that they indicate huge risks...
And i didn't miss the boat... I bought loads of property in 2008... in Bali... which is also in a massive bubble tripling in 4 years (however unlike property bulls in HK I am acknowledge this is an insane bubble...)
Of course there was not a deluge of property on the market in 08 because Central Banks rushed in with trillions of dollars to support the global economy... however if they hadn't we'd have seen a bloodbath ... as we saw in 1998.
I didn't have cash at the time but I have friends who were gleefully gorging on fire sale stuff afterwards... I recall one mate buying 2000+ sf on Jardines with a roof for 5M... it's worth around 30M now (oh the joys of dipping into a crashed market)
At the end of the day volume is not what determines a crash - price is.
If you tried to sell in 08 as the Centadata chart indicates the market was down 25%.
Of course if we subscribe to Lloyd's Rules of Accounting that 'if you don't sell you haven't lost money' then I guess the market never crashes...
ERC - I did not say it was the end of the world and I did not say it was a recession.... I said industrial activity was contracting and that PMI contractions below 50 have an almost perfect correlation with imminent recession.
And the point being... if a global recession is on the way... is that bullish for property prices going forward?
Posted by GString (318 days ago)
But Ed.. that is exactly the point Lloyd is trying to make.. that most property owners DON'T NEED to sell. Yes, HAD you needed to sell property in '08, you may have had to drop your price by 25%, but most ppl weren't dropping 25% to sell because they didn't need to. They were holding tight because the mortgage payments they were making were well below what they were getting as rental income (or, in the case of owner-occupiers, what they would have had to pay as rent for that same place). I was also in that position. The fact is, in REALITY, no, if you don't sell, you don't lose money. It has never happened to me so far that any of the properties I bought went down in price even on paper, but say, if I had bought property in '02 to live in, which then plunged in '03, since I am not selling the place but using it as my abode, it doesn't matter one jot whether the market price of the place is 10m or 20m. The price only matters AT THE POINT you are selling. The same with stocks or any other investment. I have bought stocks which have gone down in price after I bought, 30% or whatever, but if I don't need to liquidate because I am not cash-strapped, I can hold on until the stock price bounces back (of course, I am not saying that it always does). Once it has bounced back and has reached the point I think is a good exit point, THEN I sell. If the price is higher at the point I am selling than when I bought, I have made money. What the price has done in the interim period does not matter. Even if at one point it was down 50%, if I don't sell at that price, I have not lost money. The only thing that is relevant for normal investors like us is REALISED gains or losses which only happen at the point you sell the asset. Paper value fluctuations while you are holding the asset might make you feel richer or poorer or happier or more depressed, but at the end of the day, they do not affect your actual absolute wealth
Posted by Ed (318 days ago)
If you applied real world accounting rules you have to mark the asset to market - so you have lost money.
If you went to the bank and attempted to take a second mortgage on a property bought at the height for say 10M - and the market dropped to 7.5... the bank will value the property at 7.5M.
You have lost money. Yes, you might get the money back if and when the market goes back up - but you have lost money until that time.
However if the market takes over 10 years to regain the loss - something that happened after the 97 crash - you have still lost money. Work out the opportunity cost of a property that went from 10M to 3M which is what happened in 98.
If you have been following this thread you will have seen the conversation I posted between myself and our corporate lawyer ... it went something like this "that &^%$# piece of &&^% I got stuck with when the market turned in 98 is just now getting back to even...
I think he what he meant was that he lost money...
Posted by Loyd Grossman is Miss Venezuela (318 days ago)
Ed. Looking back at 2008, no one was talking about money printing on this thread because it is supposed to be a property thread. You say you have bought in Bali, I assume you have never owned a H K property. Is this correct?
Posted by Ed (318 days ago)
Well... someone should have been - because that is what has driven the HK property market (high double digits in a couple of years)... and the global economy. Massive unprecedented stimulus measures and money printing...
(If you revisit the first thread on this... most people were discussing the prices slashed signs going up on estate agent store fronts)
I don't think you will find an economist who will disagree with that - but I am sure you will.
I have not owned HK property. One of the primary reasons is that I refuse to breath toxic air ... also I refuse to spend USD2M or more to live in a 1000sf shoebox when I can live on a 1.5 hectare property in a house of teak overlooking a river and jungle for less...
Posted by GString (318 days ago)
As for your (Ed's) comment "if global recession is on the way, is that bullish for property prices".. It's anyone's guess whether there will be a full blown global recession of the kind you are talking about. I have noticed a funny inconsistency in that you say only fools and economists think they can predict the future but then you post links left, right and centre of something some economist or other has said and act like it's gospel. Anyway, the point I am trying to make is that no one, no economist, not you, not me, can predict what is going to happen to the global economy. There are certainly lots of data out there that suggest there will be a recession (PMI that you mentioned, and others) to whatever degree, and I am definitely not saying that everything is rosy in the world and/or that HK property will continue to charge on regardless of anything else that is happening around the world. To be perfectly honest, I have no idea what will happen to property prices in HK this year. It is very possible that it will go down. But the way I see it is this: given that there is no genius in the world who can always with 100% accuracy, time the falls and rises of the market (be it the market for stocks or property or gold or wine or anything else), one could do worse than to choose real estate as their long term investment because (in my view) real estate, more than any other type of investment, has proven to go up in value in the long run. Meaning, you may get your timing wrong (as we all will at some point in our lives), but as long as you invest prudently (not gearing up to the hilt, for example), property is probably the most forgiving of such timing mistakes because in the long run, there is a very very high chance that the value will rise. I have lost money in stocks (some didn't bounce back however long I waited) and currency, my 2 biggest areas of investment after real estate, but I have yet to lose money on any property that I have bought. I will not deny that there has been an element of luck involved (happening to be sitting on some cash immediately after SARS, for example), but a huge part of it is that in the long run it is very unlikely for a property to lose value and as long as you don't overextend yourself so that you are forced to liquidate at an inopportune time, you can, ride out bad periods (and suffer paper losses) without having to incur actual realised losses
Posted by OffThePeak (318 days ago)
GS, your:
"I am getting very few places to view from the property agents I am using (around 10). Is anyone having the same experience or have I just happened to have chosen 10 dud property agents?"
The agents that I am touch with are telling me the same thing, there is very little supply on the market.
BTW, we are more sellers than buyers, considering the following strategy:
+ To sell our property, and buy something smaller.
+ Then take some of the money with us overseas (to either Canada or the US), to buy a Comdo which is bigger and cheaper than the one we live in now
If you have a high-paying job in HK, this strategy may not work for you. You may prefer to stay in HK, and take advantage of the low interest rates here.
We have had a number of offers for our property, typically 3-5% below our asking price. I am not willing to cut my price, because I continue to get offers, and some changes nearby us may improve the desirability of our property in the very near future.
If someone wants to know more about what we have, send me a PM. There's a chance that we could bridge most of the price gap, by forehoing the agents commission, which if we swallowed the whole thing, could allow us to cut our price by 2%.
Posted by GString (318 days ago)
Ed - but you ARE breathing toxic air. In a rented shoe box. Ok, you have not spent any money on buying a property in HK, but you are putting money into the pocket of someone who has, in the form of rent which is basically money down the loo. I am assuming that you live in HK. If you do not in fact live in HK, I apologise
Posted by Ed (318 days ago)
Once again I am not predicting.
I am simply acting as a balance to the property bulls who have this mantra of 'property always goes up - HK people are rich so the market can never go down'
Of course nobody can be certain a recession is coming - Central Banks may - and likely will act and print trillions of dollars more - or maybe they won't ... or maybe the printing will eventually lead to a liquidity trap and have no effect.
Sure we can put our heads in the sand and ignore the warning signs or deny the relationship ... but the fact of the matter is a negative PMI has a near perfect correlation with imminent recession and it is flashing red across 80% of the globe... http://smworldnews.com/wp-content/uploads/2012/03/3753d__Eurozone-PMI-graph-vs-GDP-001.jpg
Surely that is an ominous signal and something to take into consideration when dropping a big chunk of change into what many are calling a bubble market?
Back to 1997... many thousands of people were not so lucky... and I am sure plenty went bankrupt or suffered badly when the market collapsed 70%...
Posted by Loyd Grossman is Miss Venezuela (318 days ago)
Ed. Are you actually sure you own the place in Bali? Indonesia isn't that strong when it comes to upholding foreigners legal rights (cf Asia Pulp & Paper). You see with you not owning, having owned or even planning to own in Hong Kong, for us it's a bit like being parent and getting a lecture on child-rearing from a non-parent. You may have some valid points but there is a lot of basic stuff you are not up to speed on.
Posted by Ed (318 days ago)
Re: Toxic Shoe Box...
I'm usually in the mountains outside Ubud... from time to time I do go to Hong Kong but I don't pay any rent... because we have quite a few relationships with hotels and serviced apartments...
Posted by Loyd Grossman is Miss Venezuela (318 days ago)
Ed. I, for one, have never chanted this mantra. You're making it up. I'm currently negative on HK New Territories (see posts passim). Maybe you have some Zorro/John Tsang complex where you instantly leap to defend against dangers that probably aren't really as great as you think.
Posted by Ed (318 days ago)
You can own... through a nominee structure... the key is to have a good lawyer ... and make sure the nominee is solid. The fellow who we work with is nominee for about half the expats who own in Ubud and has been in the business for 3 decades... it's a small place so if he'd done someone wrong I'd know....
Posted by GString (318 days ago)
To be really, completely, totally honest, I don't give a sh*t what my property is worth on paper if I am not going to sell at that price. Banks mark to market because they are basically a public entity (which is why they are regulated by the government) and the public/central bank/other banks doing business with that bank need to know what the balance sheet of any given bank looks like. Fund managers mark to market to show their investors how their invested money is doing so that the investor can assess whether the fund manager is doing a good job (but actually it doesn't matter in this case either, if the investor is not planning to redeem his funds at that given point in time, and in reality, a lot of investors indeed do not care what the funds are doing in the interim period). For personal investors managing their own money, the only thing that matters is the end result - at the point I sold the asset, did I sell it for a profit or a loss? As you mentioned, yes, my bank would care about the paper value of my wealth if it is trying to make an assessment based on my balance sheet whether to grant me a loan or not. But that is the only situation I can think of where the paper value would matter. So I guess if you are planning on getting massive loans from the bank, you'd better be careful about the assets you purchase and take into consideration whether the market value of those assets are likely to fall much. But otherwise? Why on earth would anyone care? Sure, the stress is not good for the mind while you are sitting on those paper losses, but you have not lost real money in the tangible sense
Posted by Loyd Grossman is Miss Venezuela (318 days ago)
Ed. Being a human being and not a company, I don't file accounts. I'm just a small potato landlord. If I'm not extended, have cash/marketable securities and rent then paper value is a good guide but is more or less irrelevant unless I'm really looking for a quick sale. Real estate and shares aren't the same. It takes time to sell a property and the investment horizon is usually a lot longer.
Posted by Loyd Grossman is Miss Venezuela (318 days ago)
Ed. Have you, or any of your friends, ever sold anything in Bali for a profit - ie seen a sale go through with cash received? What happens if the nominee, God forbid, dies and say a dasterdly son takes over? Are you married to a local?
Posted by Loyd Grossman is Miss Venezuela (318 days ago)
We have a similar risk in HK. It's called the Chinese Communist Party. They could just throw their hands up and seize everything but I think they have so much money here, they won't bother. A bit like Switzerland during WWII.
Posted by GString (318 days ago)
Ah I see. Whether you live in the country you are buying property in, or not, makes a huge difference, at least to me. I don't mind buying a property that may go down in the short term if I am buying a place to live in. You've got to live somewhere. And if you don't own a place, you have to pay rent which in most cases is a much much larger sum of money than the interest you would have to pay on your mortgage loan if you bought the same place. Even if you are buying purely for investment purposes, it is a lot easier and cheaper to manage if the property is in the country you live in. You have local knowlege so you know where to buy, you know the local economy and the sentiment around you so you have a better idea when things might turn, you are physically closer to the property if you need to deal with tenants or whatever... Buying a property in a different country to the one you live in has a lot of extra hidden costs which can offset a lot of the profit. I had a property in London which was originally purchased as my residence but became a tenanted investment property when my work circumstances changed and I did not return to the UK as I had expected to. It was a complete pain in the a*se managing it from HK. Most of the profits from rent went to Foxtons and I wasted many nights being on the phone to London, etc. etc., ugh. I think I can understand a bit better why Ed is so much more negative on HK property than most of us on this thread who are living in HK.
Posted by Ed (318 days ago)
Doesn't matter if you are a big or small entity... accounting rules don't distinguish between big and small.
Alhough if you are big enough e.g. a US bank... you can make a phone call to Bernanke and Obama and ask them to change the rules so you don't have to mark to market and you can instead make up your marks...
But as a small potato and you tried to call HSBC in 2003 and said 'I bought this property at 10M in 97 and I'd like to take a second mortgage based on the 10M price....' they'd show you the door
Posted by GString (318 days ago)
Surely, if banks look at individuals' wealth/balance sheet on a mark to market basis as you (Ed) say they do, they SHOULD grant you a second mortgage based on the market value. And that is, in fact, what happens in the UK. Have no idea about HK though. But if they show you the door, that basically means that banks do not mark to market individuals' assets because then they are basing their assesment on the original, non-market to market value of the asset
Posted by GString (318 days ago)
Sorry, my example was assuming that your property px had gone up. For example, I bought the place I am currently living in at 6.6m in '04 and got 70% mortgage from Standard Chartered. Now the bank valuation is 18.5-19m. I couldn't go to Stan Chart and say, hey, now my asset's value is 12m higher than when you gave me the original loan, can you give me a top up loan for the additional 12m, could I? Like I said, you could do it it the UK (and US, I think). Don't know about HK
Posted by Ed (318 days ago)
Agree... if you are living in the place that changes one's perception... even though I expect Bali property prices will drop I don't sell...
GS > agree - they'd only show you the door if you insisted on a second mortgage based on the purchase price... if the price dropped by 70% though you'd be in negative equity so no chance of a second mortgage
If the price went up not sure what they'd do... it would make sense to be able to base the second mortgage on the current market price - anyone know?
Posted by Ed (318 days ago)
Bali > yes I know quite a number of people who have made money in Bali. Some HK guys recently sold a big chunk of beach front land to a fund - don't know details but they did very well.
I know another HK expat who bought in 1998 right when the turmoil was happening in Indo and the Rupiah went to 16,000... he bought at the very very bottom of the market with the currency bump... I think he paid about 200k ... it's got a house on it now ... but valued at 3M... so the land is probably up 20x.
I had a serious offer a couple of months back of triple for what I paid but declined - what to do with the profit? Also I have put 3 yrs into getting the landscape and house done so not keen to move... Deals are cash here - no mortgage available.
I am not married to a local so must work through a nominee... if he dies I have one year to find a replacement. The nominee issue is not as problematic as it once was - there are people who do this as a business and they know if they rip one person off that is the end of their business... also there are a couple of Australian barristers who work with local partners who can be trusted...
Posted by Xerxes (318 days ago)
Conrats G-string....you own 6 or so properties. Many did in 97'....They had the same mentality, "as long as I am paying the rent, who cares what the paper value is..." Well, for someone who claims to be an I-Banker, paper value is just as important as "point of sale". I would'nt want to be owning an asset that is less than my mortgage. In 97' there were 2 types of speculators who lost big. 1) People who bought investment properties and lost their jobs or 2) Their investments were less than their mortgages - so they hand the keys to the bank. I assume you do not fall in any catagory for the time being, but we will have this conversation again once the situation changes for you. You kept on to your properties during the 08 crisis, albeit a short crisis in HK, purely on the fact (assuming u had a mortgage) that rates continued to be very low. Otherwise, I'm sure you would have been in panic mode.
Eventually, the music will stop and a someone will find himself/herself without a chair to sit in.....
Posted by HKLEV (318 days ago)
Ed,
Out of interest, if you do sell for cash in Indo and you do everything above board, how much ends up going to the Indonesian taxman?
Posted by GString (318 days ago)
I do not currently own 6 properties. I buy and sell along the way and at any point in time the most I've owned at the same time is 3. Currently I own 2: One place is my home on which I got 70% borrowing on the purchase price (6.6m), but the mortgage loan, after having been paid down some over the years, is now only 2m-ish and the bank valuation of the property is now 19m. So, unless the property price drops by 90%, there is no way in hell the property value is going to be less than my mortgage. The other property is an investment property and that I own outright, no debt. This is what I mean when I say if you invest prudently, you can weather whatever bad times that may come. When the music stops I will already be firmly planted on my chair. Plus, I cannot lose my job. A few years ago, I decided that I'd had enough of banking and retired. I now just look for good real estate investments (my specialty is buying horrible old places, doing them up and letting to expats or selling for a profit) and run my fashion business. The only thing that allowed me to retire from my day job at the age of 33 was profitable real estate investing (of course, investment banking bonuses were what made this possible in the first place)
Posted by GString (318 days ago)
To ppl like Xerxes... I don't understand why you guys seem so elated at the prospect of the property market crashing. You say "we will have this conversation again once the situation changes for you...Eventually, the music will stop and a someone will find himself/herself without a chair to sit in.....".. so much hostility and venom. I can tell that you are eagerly awaiting the opportunity to say to us "Ahaha! Where are you now? Didn't I tell you so?" Well, sorry to disappoint. For the reasons I gave above, it will never happen. Anyway, you don't see me saying to you "oh, you poor sod, you didn't buy property when you should have, and now you are caught without a single property to your name and it's too late to get on the ladder because prices keep running ahead of what you can afford... Let's have this conversation again when prices have gone up even more and you are still living in a rented hovel" do you? There is so much sour grapes and ill-wishing going on in this thread against those who have been investing in property and doing well from it. Why the animosity? I really do think it's because the ones who have missed the boat are pissed off at having missed it and are now wishing that everyone who gained from property investment would be forced to give up their gains so that they don't have to feel quite so bad about their own situation
Posted by Xerxes (318 days ago)
Gstring: Actually I haven't missed the boat. I own my property ( no mortgage ) - one at the Albany and the other in Fanling, a free standing home. I believe the Albany was last valued at 75M (i paid 35M) and the home in Fanling was approx 42M (I inherited this one from my father). I'm not even being "SOUR" about anything, but I have seen this type of "arrogance" about people investment successes that they strike it lucky/rich the first time around, then all of a sudden they have becomed seasoned veterans. This is the type of conversations I've heard over and over again over peoples infallibility over buying properties and claiming that they have a good handle on the situation, even if things turn south. The fact is, all those who made that claim, have literally bailed out of their properties because things didnt turn out the way they planned. In my case, although, the market is overpriced and is due for a correction, I'm not selling for the reason is that those properties i have are very unique and not easily replaceable in case I sell now and buy cheaper.....They do not come in the market very often (even in bad times) As for Fanling, its a free standing home and is unique in that district. As for most in this thread, I believe your investments are purely that - investments, and can be easily bought and sold.
Posted by GString (318 days ago)
Oh, what a shame that ALL those that have made the claim that they had a good handle on the situation have bailed out of their properties because things didn't turn out the way they planned. You must know a hell of a lot of unlucky (or incompetent) people if literally everyone you know who has invested in property got arrogant and then failed (everyone apart from you, it seems), jesus... Ah well, good thing that you and I are ok then, although in the event that something awful does happen to me (your voodoo doll just might work) and I have to bail out of my properties too (I have 10% debt in one and zero in the other, and plenty of cash, but never mind that, I wouldn't dare be so arrogant as to suggest I might be safe) , I'll be sure to let you know so that you can add me to the universe of all these people you know that have had this happen to them, hahaha. Anyway, I don't reckon I'll be selling my properties right now.. I'll take the chance and risk losing everything rather than keep everything in cash which has a negative real return after inflation. It's nice to have a place to live too
Posted by Xerxes (318 days ago)
I wud'nt say unlucky.....I beleive they are more seasoned than you. They required cash so properties are the first to go....I believe since u were a successful I-banker u wud happen to know Miko Chan (from PCCW), Francis Yuen (from Hutch), Canning Fok (Hutch)....they all lost a fortune in 97"....but, they came back stronger...Francis Yuen bought the former Belgian Embassy on Baker Road.
For a retired Banker such as yourself, you must have come across them, right?
Posted by GString (317 days ago)
Xerxes - yes, I have come across them in my work, but er.. what do they have to do with this discussion?? You think name dropping would somehow make your case stronger or something..? I am not quite understanding what you are getting at here. Also, I don't think the likes of the PCCW and Hutch guys whose names you so glibly drop as though they were your bosom buddies are pertinent to the discussion in this thread as to whether normal people like us should be buying property at this juncture or not. They can withstand a lot more losses than us! The kinds of property they would be investing in would also not exactly be in the same market as most of us would be... As for the fact that Chan, Yuen and Fok made big losses at one point but came back stronger, again, your point is...? Anyone can make losses in property, even smart people and even rich people. I never said property was a risk free investment. I merely said property has a pretty reliable tendency to go up in the long term and because of that, unlike, say, stocks, it is more forgiving of timing mistakes, which is important because most of us are not very good at timing seeing as we are not clairvoyant.. Your last post, as far as I can tell has nothing to do with what we are discussing and the point completely eludes me, except maybe that you really wanted everyone to know that you are acquainted with these rich important people..
Posted by Xerxes (317 days ago)
no...my point is your are just as fallible as most simpletons out there. the fact that those "heavy hitters" lost is just telling you that if it can happen to them, then I can assure you it can happen to you with less market dynamics. I believe you were the one bragging that you are somewhat immune if things turn around....you ain't.
Posted by GString (317 days ago)
ok, cool, if that was your point. like i mentioned already, i am very aware that i get things wrong. that is precisely why i said i prefer property to stocks or currency trading because (for me at least it seems that) with property, timing is less critical than for the others. i am not saying timing is irrelevant for property investment, but if you go long or short a currency at the wrong time, you can literally get wiped out within days if you take a big position. same with stocks. i've invested in stocks of companies which went bankrupt and delisted, haha, and all i held was a piece of paper worth nothing. all i am saying is that with property those scenarios are less likely to happen, especially if you have low gearing so that you can hold for a very long time if you need to. my point is actually that being a mere mortal with no ability to accurately see the future, property is relatively safer compared to many other things. how the hell can that be construed as bragging that i am immune to the vagaries of the market?? i am actually saying the complete opposite. maybe you have problem understanding english, i don't know..
Posted by Xerxes (317 days ago)
my english is perfectly fine. i believe your point made reflected your limited wisdom as you retired at an early age due to your "beginners" luck in the property market. Now u are sitting on a cloud claiming wisdom and insights that none have on this thread. folks like you come and go with each passing tide...Speaking of tides, I believe Warren Buffet stated..."when the tides go out, you'll know whos been swimming without trunks...."
Posted by GString (317 days ago)
hahaha, xerxes, you make me laugh. you do not know me at all, so please don't claim to know what i am thinking or feeling, that is just plain ridiculous. and who are you to talk about my "limited wisdom", "beginner's luck", etc. etc.? i take it that you are the guru or god himself. it seems to me that you are the arrogant one, patronising everyone, calling them simpletons because you believe you are above us all, a superior investing being. come on, let's be objective here, i am not the one who is being arrogant claiming wisdom and insights.. that person is you. i am not sure why you are being so rude and insulting.. seems you have an axe to grind for a reason that i cannot fathom. anyway, you believe that the property market will tank but will sit on your properties because they are unique and you will not be able to buy properties like that again once you sell, but you believe everyone else should because their properties are just "purely that - investments, and can be easily bought and sold". thanks for your input. you are truly omniscient to know even what kind of properties everyone else is holding. i repeat again, i have no idea what the market will do this year or in any kind of short term, i do not claim to know. i will hold my properties only because a) i need a place to live, and living in a place i have bought is a lot more pleasant and economical than renting and b) regardless of what happens in the near term, i think in the long term i will not make losses on the properties and the long term is what i care about because i have no particular need to sell in the short term. i don't think what i am saying here is arrogant.. i am completely baffled by your accusations that i am
Posted by Ed (317 days ago)
HKLEV... nothing goes to the taxman... because if you sell using the nominee structure the property does not actually change hands.. unless you change the nominee... in that case I believe the fee is 3% of the sale price.
Posted by OffThePeak (317 days ago)
Ed,
It is possibly that the "sputtering" might be good for HK Property prices, at least in the short term, if it leads China to cut rates further.
Today's SCMP showed the very High Real Rates that borrowers in China are paying now. No wonder the economy is slowing down.
Posted by Ed (317 days ago)
Agree... that's part of my PHD thesis entitled 'When Bad is Good"
As markets cough and sputter Central Banks are forced to react with more stimulus... more money printing... which inflates asset prices...
However as the article above indicates... that works in the short term... but eventually (now in most markets?) that theory no longer works... money is being offered by banks but there are no takers...
Posted by traineeinvestor (317 days ago)
It's notable that in spite of all the wailing about the collapse of PRC property prices that PRC property companies have been one of the better performing sectors of the stock market so far this year (if not the best) and that they continue to have few difficulties in raising capital (debt or equity) as needed and (as far as I am aware) not developer of any substance has encountered financial difficulties.
Posted by Loyd Grossman is Miss Venezuela (317 days ago)
The government now in a bit of a bind over the MTR's rejection of all tender bids to develop the Tai Wai site. Obviously, this is prime land with a direct line straight into Admiralty when the Shatin-to-Central line is completed. The government wants to build smaller, mass residential flats here but there is not enough profit in it for the developers given the large amount of supply anticipated in the New Territories. So either a) the tax-payer takes over and builds public housing or b) the tax-payer gets shafted by selling the land too cheap. Brilliant CY.
Posted by traineeinvestor (317 days ago)
Yep - Hong Kong's political leadership in action. I am already yearning for the good old days of the Tung Che Hwa administration.
Posted by OffThePeak (317 days ago)
Tai Wai: "The government wants to build smaller, mass residential flats here but there is not enough profit in it for the developers given the large amount of supply anticipated in the New Territories." - LGMV
This does tend to confirm our idea on AX that the NT will get hit by massive building projects, while built-up parts of HK Island and Kowloon will see more stable supply.
Nam Cheong (1 stop past Olympic Station) got cancelled once, but SHKP wound up buying there, and it looks now like it will be one of the last areas within 3 stops of Central, where large new property projects will go up.
So maybe we see : pressure on NT property prices, while "established areas" in HK and Kowloon hold value well.
If I were CYL, I would be thinking of moving some HK Govt jobs to Tung Chung, or even TKO. Move the jobs to where the (cheap) new flats will be built.
Posted by Loyd Grossman is Miss Venezuela (317 days ago)
As usual the developers will make out like bandits. They will get this land cheap and then sell at a huge profit. Being directly on top of the MTR link (and passing through the Hung Hom hub), Tai Wai should be able to price relative to HK-side (15pc back as a total guess?) as opposed to NT. However, developers will convince govt it is just another NT site. LOL.
Posted by GString (317 days ago)
Does anyone have any views on Pokfulam? It is one of the areas we are looking at for our new place. It is a bit too far out from Central and Soho where we work and play for our liking, but there is very little supply in our current area (we live on Conduit) so we are looking further afield. Where do you think prices will rise more over the long term - Central Mid-levels (Macdonnell/Kennedy), Western Mid-levels (Robinson/Conduit), further West (Bonham/Babington/Lyttelton/etc.) or Pokfulam? These are the 4 areas we are currently considering. Thx
Posted by OffThePeak (317 days ago)
Where do you think prices will rise more over the long term - Central Mid-levels (Macdonnell/Kennedy), Western Mid-levels (Robinson/Conduit), further West (Bonham/Babington/Lyttelton/etc.) or Pokfulam?
Tai Kok Tsui, in West Kowloon
Mid-Levels is over-rated and over-valued (for reasons laid out in the ML thread):
http://hongkong.asiaxpat.com/forums/hong-kong-property/threads/135960/whats-wrong-with-the-mid-levels?/
The future of HK belongs to the Mainland Chinese, who see fewer merits in ML, not in the hands of expats, whose housing allowances will stay under constant attack.
Posted by Loyd Grossman is Miss Venezuela (317 days ago)
For a large flat, try Skylight Towers on Bonham Road. It's opposite the new MTR station on Bonham Road.
Posted by traineeinvestor (317 days ago)
For Pok Fu Lam, you could look at Belcher's - the transportation in to Central is reasonably easy and the facilities are good
In Mid Levels West - Parkway Court which straddles Park Road and Bonham Road provides reasonably good efficiency (so long as you don't need wheelchair access)
I suppose a lot depends on what you are looking for and your budget. There are still a few older buildings which offer more space for your $$
Posted by GString (317 days ago)
hahaha, off the peak, agreed that there are areas outside those i mentioned that would see better price gains, but you've still got to live where you want to live.. it's not *just* about the investment value, more, finding the best investment value out of the places that you would like to live.. we just wouldn't go to the other side because we are a young(ish) childless couple who spend most of our time getting pissed on wyndham street - you know the type :-)
lloyd and trainee - will check out the places you mentioned, thank you for the suggestions. we are looking for something around 1700-2200 sq. ft. we do like the colonial style low-rise older bldgs.. more character and charm than those skyscraper new developments which we find soulless and a bit too futuristic looking. we particularly dislike large complexes (like bel-air or parkview). we want to feel like we are living in a home rather than a resort if you know what i mean..
Posted by elsdon (317 days ago)
Hi GString,
First of all, welcome to the forum. I always enjoy the flurry of activity from long time lurkers-become-contributors.
I've been reading over your past few posts and I think that your view on HK property is correct for your area of focus (west HK island). It should be noted though, that although the domestic property market is quite small geographically here, there can be pretty large variations in the degree of activity seen in other zones in Hong Kong.
As I previously mentioned regarding walkup's views, I believe pockets of HK property will remain fairly resilient under market pressures but not all (East Kowloon, NT, even east HK island)
When you spoke of 2008 and the lack of supply, yes, I completely believe that there would have been a lack of supply in the east HK island at low cost for reasons mentioned already (cash rich, no debt, etc.) I would be careful to speak in the general sense though as other zones did feel some of the downward pressure.
It wasn't just a 'select few panic sellers' like Loyd mentioned, the number of transactions during that period of time was quite normal, only about 5-10% down from median. (8-10k per month)
Posted by Loyd Grossman is Miss Venezuela (317 days ago)
I'm pretty sure it's Skylight. If not, it is very close to it. There is one development with large flats on that strip between Parksdale and HSBC on Bonham Road. There is of course, Villa Veneto, my dream home which is at 3 Kotewell Road - the only place in Hong Kong to remind me of Camberwick Green for some reason.
Posted by GString (317 days ago)
i suppose you are right, elsdon. i will concede that my experience has been limited to west hk island, and when i talk about "property" i am pretty much thinking only in terms of that limited area.
i've been looking around the area that you mention, loyd (parksdale to hsbc) and the streets between hsbc and conduit (babington/lyttelton/kotewall), and i like that area very much. very quiet and quite a lot of green leafy views.
i've been thinking about the "would mid-levelers move to west kowloon or to the nt" debate, and among my acquaintances, VERY few have done that. the one couple i know who has done that, used to live in one of the british consulate housing flats (the girl works for the consulate) right next to the consulate - it was about 3k sq. ft. and beautiful. but what the consulate does is that after a certain number of years, you lose your expat status and you become a local employee and hence lose privileges like getting housing. having lived in that huge place for years (for free!), they just couldn't face moving into a smaller (normal) place, and the only place they could afford a place that size was the outer islands, so they are now in mui wo. the other factor for them was the fact that during the period they were living in that huge castle, they had accumulated (rescued) 4 big dogs, so moving to a smaller place was just not an option for them. so, the point of my story is that yes, i suppose it does happen, but i really don't think many ppl go down that route (moving far out for the sake of space) unless in very special circumstances such as the one i described. i do know of expats who come out to hk and decide from the outset that they want to live in db or saikung or whatever and go there and live happily ever after. but i think it is very difficult for someone who has already got used to the conveniences of mid-levels to then go move. i also know plenty of ppl who initially went to live in a far out place but then realised that they were isolated from all their other expat friends in the mid-levels and all the usual hang out places, and moved to the mid-levels to be closer to the action. i admit that i am just talking anecdotally here, but i do feel that there are more cases of ppl moving FROM the further out places to mid-levels rather than the other way round
Posted by ltse (317 days ago)
- "that is exactly the point Lloyd is trying to make.. that most property owners DON'T NEED to sell."
- "Fed saying that interest rates will remain very low until "at least" 2014 so we can reasonably expect at least two more years of ZIRP"
Many owners who are business owners don't have to sell, that is UNTIL, their businesses run into trouble, when deflation sets in, demand falters, you can expect a fire sale. The Fed doesn't dictate interest rate, they are at the mercy of the markets,
namely bond holders.
Now normally with QE and artificially low interest rates, you would expect inflation to be major headache, perhaps in HK it is, but outside of HK, the USA, Europe, Australia and even China are experiencing slow paces of growth and lowered inflation.
Why is the Australian central bank (RBA) still cutting interest rates? why is China also cutting rates? why are they also lowering their Bank Reserve Ratio? despite all the QE and low rates? what forces could possibly be counteracting all this inflation?
The answer is Deflation, you are seeing credit destruction acting as the counter balance. There is no easy way to navigate today's markets, but the path of least resistance remains deflationary.
http://www.financialsense.com/contributors/thomas-j-smith/lower-inflation-causes-bankers-to-respond
Posted by traineeinvestor (317 days ago)
Ummm, ltse the article you linked to is one about lower inflation, not deflation.
Perhaps you meant to link to something else?
If credit is being destroyed, doesn't that leave us in a real mess as far as investing is concerned - we wouldn't want to hold credit assets (bonds, bank deposits) because of both the default risk and the erosion in real value being caused by even low inflation?
While the divide between the inflationists and the deflationsists persists, the reality is that lower inflation is still inflation. Deflation has not put in an appearance yet...and there is not certainty that it will. At the risk of suffering an instant loss of credibility, John Tsang was saying he expected HK inflation to drop to 3.5%. 3.5% pa over time will kill your purchasing power.
Posted by Loyd Grossman is Miss Venezuela (317 days ago)
In the bond market, a load of large Japanese companies have suddenly issued - or are about to issue - loads of dollar bonds. They can borrow in USD and swap back into yen very cheaply. This is quite rare as they can borrow ultra cheap at home. That suggests there is a bubble in the US treasury market. Takeda Pharmaceutical took USD 3bn out yesterday and Mitsubishi Corp USD 750m. Mizuho ans SMBC are also lining up deals.
Posted by traineeinvestor (317 days ago)
Loyd - that suggests that either they have matching USD obligations or that they are bullish on Yen/USD. Given how cheap borrowing in Yen is, it's difficult to see how they are avoiding taking the risk the Yen falling.
Posted by Loyd Grossman is Miss Venezuela (317 days ago)
JBIC has just joined the feeding frenziy with a 5yr dollar global bond. Not sure what is behind this but it must be the basis swap.
Posted by Ed (316 days ago)
Hong Kong warns property bubble risk remains despite slower growth
Low interest rates and a flood of buyers from mainland China have pushed up Hong Kong real estate prices in recent years, fueling broader inflationary pressures in the territory.
The risk of a sharp correction in the city's property market has grown as Europe's debt crisis deepens and as the global economy sputters, reducing demand for goods from China and Hong Kong.
Hong Kong's private sector output fell for the second straight month in June, with new business from mainland China declining for the third consecutive month and at the sharpest rate since last November, according to a purchasing managers survey released last week.
Hong Kong's domestic exports fell 26 percent in January- April compared to the same period in 2011. For the month of April alone, domestic exports fell 23.4 percent compared to a year earlier.
More http://articles.chicagotribune.com/2012-07-10/business/sns-rt-us-hongkong-economy-property-bubblebre869086-20120709_1_john-tsang-hong-kong-property-market
Posted by traineeinvestor (316 days ago)
@ Loyd - that would make sense but I would assume that the issuers are still exposing themselves to the risk of the USD appreciating against the Yen?
@ Ed - "fueling broader inflationary pressures" - clearly whoever wrote that takes statements made by our esteemed financial secretary as contrary indicators - just this week he was going on about Hong Kong's inflation heading lower (3.5% was his short term forecast). Lot's of other nonsense in that poorly written article.
Posted by Ernie20 (316 days ago)
That's to cover the 6% rise in asking prices at the Beaumont. CK are confident.
Posted by traineeinvestor (316 days ago)
@ Ed....er isn't "incremental growth" still growth or have they fudged the English language as well as the data? Much of the EU is indeed in recession but the US clearly is not (slow growth is not a recession) but the polticians are doing their best to push it back in that direction.
I can't access the article on China PMI you link to (requires subscription) but the last data published was still (just) above 50 which indicates economic expansion: http://www.bloomberg.com/quote/CPMINDX:IND China's expansion is unquestionably slowing which will cause some pain but it is still expanding.
I'd be a little cautious in relying on anything from Zero Hedge (or Financial Sense) - there is some good stuff there but also a lot of scare mongering from people who should never have been allowed to step onto the soap box.
@ Loyd - I'd be happy to give them an 8% rise IF the MTR was allowed to increase fares by at least the same 8%. The MTR has to be one of the developed world's best and cheapest public transport systems.
Posted by Ed (316 days ago)
It is still growing but it is growing much more slowly... i.e. growth is contracting... just as growth was contracting in the EU starting last year and they are now in a full blown recession...
China PMI:
The HSBC China Manufacturing Purchasing Managers' Index fell to 48.1 in June compared with a final reading of 48.4 in May. It was the eighth straight month of a reading below 50, which indicates contraction, though Qu Hongbin, HSBC chief economist for China, noted that the pace of slowdown had eased slightly.
The drop was mainly driven by a further deterioration in new export orders, which fell by 2.6 points to 45.9 in June—the lowest reading since March 2009. Total new orders also slid to a seven-month low of 46.8 in June compared with 47.9 in May. China's economy slowed to 8.1% in the first quarter of 2012 compared with a year earlier, the slowest pace since the spring of 2009, and a number of analysts are expecting a further decline in the second quarter to roughly 7.5% year-over-year.
Zero Hedge - on the contrary, I believe Zero Hedge is the only news source that is not obfuscating ... they tell it like it is...
Unlike the MSM which has a penchant for a) publishing press releases full of lies and bullshit without questioning them and b) refusing to tell the real story for good reason - if people really knew what was happening that would be the end of CONfidence and the economy would definitely seize up...
ZH consistently breaks stories before MSM including calling out the JPM fiasco months ahead of when it happened and pointing out that the loss was likely much higher than 2B...
I believe the reason they are able to do this is because they cooperate with major players who 'leak' info or state opinions that they normally wouldn't because they do so anonymously...
I saw an article in the Globe and Mail a few weeks ago about how some guy bought the bullshit he read in the MSM about Bankia... so he put his live savings of 45,000 Euros into shares in the bank... and he got HAMMERED...
That demonstrates the danger of drinking the kool- aid...
Posted by OffThePeak (316 days ago)
Ed,
Your:
"Hong Kong warns property bubble risk remains despite slower growth
Low interest rates and a flood of buyers from mainland China have pushed up Hong Kong real estate prices in recent years, fueling broader inflationary pressures in the territory."
I don't get that.
How can HK Property be in a "bubble", if:
+ Yields are 3-3.5% or even higher,
+ Interest rates are around 2%
In other words, Yields are above Mortgage rates, so it is cheaper to Buy than Rent. In such a case, it makes sense to buy, so long as you expect prices to remain stable. For me, a bubble is when yields are BELOW mortgage rates, and property prices MUST rise further just to breakeven - ie people are betting heavily on further price rises.
That is not the case today.
If property prices are "in a bubble", then it is because interest rates are too low. If Jhn Tsang thinks that, and that it is unhealthy, then there are things he could and should do with interest rates.
Perhaps he is warning people that he will change rate policy sometime in the future.
Posted by traineeinvestor (316 days ago)
@ Ed - I guess there are different PMI numbers out there. Regardless - a slow expansion or a slight contraction is not good news for China but does suggest that more monetary easing and fiscal stimulous is likely.
I also spent my lunch time revisiting Zero Hedge and I have to agree with you - it is much better than I previously thought (my recollection was a series of comspiracy theorists and gold bugs). I agree 100% on MSM.
As to people putting/keeping money into banks in PIIGS - the only thing that amazes me is that there is any money still in them. Short of a guarantee as to both credit and currency from a government which is not in danger of defaulting, my money would have been long gone at the first sign of trouble.
@ OffThePeak - I agree that we are not in a bubble for (among others) the reason you give. HK property may be expensive but market conditions do not reflect a bubble. With negative real interest rates and positive inflation, people can argue that HK property is expensive (IMHO it is) but claiming it is a bubble is more than a bit far fetched. That said, just because interest rates were higher than net yields would not automatically indicate a bubble either - consider what happens if interest rates jump to 20% while property values halve. By your definition that is a bubble - but I think you will find that most people would disagree with you there.
I wouldn't pay any attention to John Tsang.
Posted by elsdon (316 days ago)
That's interesting.. My definition of bubble (naive) was always built off the volatility and degree of swing potential in an asset class.. The whole concept of a bubble, something that is there, bursting, then not being there is what I always mentally sort of reverted to.
By my simple definition, I'd be very interested to see what happens in the HK Property Market if interest rates go up. This of course, can't happen until we unpeg from the USD (can it?). I wonder what percentage of HK homeowners are stretched.. even a small percentage such as 2-3% of homeowners defaulting/being pressured would automatically force 80k-120k homes (~4 million homes in HK) onto the market at discounted prices. I think that's more supply than has been in HK for the past 5 years??
Posted by traineeinvestor (316 days ago)
The basic definition of a bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values" (taken from Wikipedia).
The Hong Kong market currently exhibits neither of those characteristics - volumes a low and there is a positive carry for borrowers. The relatively limited gearing in the market also suggest no bubble. In terms of the impact of rising interest rates, I would expect some impact but not as much as might be the case - for the simple reason that gearing is relatively light. Looking back to 1997-2003 when we had much higher unemployment, 60%+ falls in values, much higher interest rates (nominal and real) and plenty of people believing that the end of the (economic) world was on us, mortgagee sales were a lot less than one would have expected. At some point some people will default in the face of rising interest rates and/or job loss but history suggests that the impact will be a lot less than many people expect. You would need a pretty cataclysmic economic dislocation to see the level of forced sales that your numbers would suggest. Interest rates going to 5-6% combined with 5-6% unemployment would not see all that many forced sales. Things would have to get much much worse than that to see the kind of numbers you suggest.
If prices do crash, I will be queing up to buy more.
Posted by Ernie20 (316 days ago)
'If prices do crash, I will be queing up to buy more.'
So says everyone I hear. What effect will that have on prices? It may not be a crash of lengthy duration. Many will wait and ride it out.
Posted by Loyd Grossman is Miss Venezuela (316 days ago)
Buy developer shares, buy developer shares. The North Point tender has just gone for HK$6.9bn, 16% below the expected price. Government giving land away. Another great victory for the taxpayer. Well done CY.
Posted by punter (316 days ago)
Hopefully the lower land price will translate to lower flat prices. However, there's a chance that when construction is complete, prices will be on the higher side once again.
On the other hand, this sale will add to the negative sentiment on current property prices. But will property owners sell? I don't think so as there's no reason to sell. Most will continue to hold.
Posted by Loyd Grossman is Miss Venezuela (316 days ago)
Only 700 flats. Right on the waterfront, next to MTR station (Island Line and TKO line) on top of shopping mall and a shirt walk to Tin Hau restaurant scene. If they build the North Island Line, it will be a major hub. Do you expect this go cheap? At least 15,000 psf. CY and John Tsang have talked the taxpayer out of billions. Not much secondary market in North Point. Just local end-users. Going to ask my daughter to apply for public housing in 3 years to get some tax back..
Posted by Ed (315 days ago)
Huge Hong Kong plot sold to Sun Hung Kai for only $890 mln
HONG KONG, July 11 | Wed Jul 11, 2012 3:16pm IST
(Reuters) - Sun Hung Kai Properties , Asia's largest property developer by market value, agreed to pay HK$6.9 billion ($889.8 million) for a huge waterfront plot in Hong Kong, a price far less than the market had expected
http://in.reuters.com/article/2012/07/11/sunhungkai-northpoint-idINH9E8HF00C20120711
Posted by Jim Fit (315 days ago)
Cheung Kong selling below secondary-market prices.
Government withdrawing Tai Wai lot because of lack of developer interest.
Government selling North Point lot for far less than market expected.
Now, what could all THAT mean................................?
Posted by traineeinvestor (315 days ago)
@ Ernie20 - I've done it before but not everytime. The usual mistake is buying too soon (or blinking and missing the 2008 flash crash)
@ Ed - and SHK's share price jumped yesterday on the news. I think Loyd is right on the developers doing well
Posted by Ernie20 (315 days ago)
Good for you traineeinvestor, I wish I could join in myself, maybe just.
In the previous crashes I'm not sure there were so many people waiting poised on the sidelines for the crash to happen. No data for that, just a feeling from what people say.
North point, great site, visit there on the Ferry a couple of times a week from Kowloon as it has immediate access to HK Island transport. I think SHK have a bargain, some may call it corporate welfare. I'm not sure why, like MTR Corp, the tender can't be withdrawn if a satisfactory price is not reached. It is public money after all.
Posted by traineeinvestor (315 days ago)
Interesting article by Tom Holland in the SCMP this morning - explaining why HK property prices are not in a bubble
Posted by Ed (315 days ago)
Singapore is also now on the cusp of recession.... as noted, 80% of the world is contracting...
Singapore GDP Growth Probably Slowed as Europe Crisis Hurt Asia
Gross domestic product rose an annualized 1 percent in the three months through June from the previous quarter, less than the 10 percent pace in the period through March, according to the median of 14 estimates in a Bloomberg News survey. The report is due tomorrow.
http://www.bloomberg.com/news/2012-07-12/singapore-gdp-growth-probably-slowed-as-europe-crisis-hurt-asia.html
Posted by Ed (315 days ago)
Another canary...
FT.com: Bankers in Asia braced for more jobs cuts
Bankers in Asia are bracing themselves for another round of jobs cuts after disappointing levels of trading and issuance activity especially in equity markets this year as markets continue to suffer from the global economic slowdown.
John Wright, founder of Global Sage in Hong Kong, said it was the worst hiring environment he had seen.
http://www.ft.com/intl/cms/s/0/dc8cf44e-cb18-11e1-916f-00144feabdc0.html#axzz20Hkdxv00
Posted by Ed (315 days ago)
And again from FT.com:
Current debt crisis merely a warm-up act
It is sometimes possible to believe that suffering is worthwhile, a way of paying for past sins. In this light, the age of austerity in which we supposedly live has a sort of redemptive quality. Grit our teeth and we’ll come out the other side, purified and ready for robust economic recovery.
However, after five years, we are in a worse place than when we started.
http://www.ft.com/intl/cms/s/0/418ceb14-c45d-11e1-9c1e-00144feabdc0.html#axzz20Hkdxv00
This is an outstanding article... if you aren't a subscriber and want to read it all you can open google... insert the headline: Current debt crisis merely a warm-up act
Then click the News option.... you can then access the full article...
Posted by OffThePeak (315 days ago)
JimFit, don't throw a fit.
Your:
Cheung Kong selling below secondary-market prices.
(They often do that - and it makes sense here, where the new property was FURTHER WAY from the MTR. Since the first prooperties offered, they have raised prices 5%, and 10%. So they must be seeing good demand)
Government withdrawing Tai Wai lot because of lack of developer interest.
(The specifications required in the tender were unattractive to builders. There were bids, but they were below the desired level. We have seen this before, in areas like Nam Cheong, where specs were retooled, and the next tender went weel.)
Government selling North Point lot for far less than market expected.
(SHKP may have got a bargain, and it wont be the first time.)
You left out, last week's 0.5%+ jump in the Centaline Index
Posted by Jim Fit (315 days ago)
'sniff sniff'.....what's that ?...................a sense of unease.........
Posted by Loyd Grossman is Miss Venezuela (315 days ago)
Actually I listened to the RTHK 11pm news wrap-up last night (July 11). It had some guy saying the price SHK paid for the North Point site was in line with what Cheung Kong paid for the nearby Oil Street site. The reason being that SHK also has to provide a bus terminus, a town hall and a care facility for the government. He said on a gross floor area it was about right. I still think they got it cheap.
Posted by elsdon (315 days ago)
Hrm.. So about the Beaumont, anyone go to check it out? I've been. They've only got the 3br's up for sale at the moment. Honestly? I wasn't impressed. They're currently all in the high 3s - low 4s psf which is about a 3% increase from before (from the agent, I have no idea.)
Ultimately, still flats for sale there in spite of being cheaper than secondary market.. People are wary I suppose.
Posted by punter (315 days ago)
Luxury brand sellers and jewellery company Chow Tai Fook seems to be not doing very well. Tourists from the mainland are big buyers of such items. Will property be next? (Meaning, will less mainland buyers buy HK property due to the downturn in the mainland?)
Posted by Loyd Grossman is Miss Venezuela (315 days ago)
Yes, I know I have railed against cutting and pasting but the South China Morning Post's Tom Holland makes an eloquent argument for why we have high property prices in HK. Anyway, unlike many of the writers who have predicted bubbles, Mr Holland actually lives and works in Hong Kong. I don't know his background but he seems well-versed in finance and economics. Here is his July 12, 2012 SCMP article from his Monitor Column on the back page of the business section.
"Hong Kong government officials are still warning about the dangers of a property market bubble. Speaking before the Legislative Council this week, Financial Secretary John Tsang Chun-wah insisted "the risk of the property bubble remains".
Well, buying a home is certainly expensive. The closely followed Centa-City Leading Index of residential prices hit an all-time high last week. Prices have now risen 86 per cent from the depths of the financial crisis in 2008, and are up by 232 per cent since the dark days of Sars in 2003.
According to property consultancy Demographia, a typical Hongkonger would now have to work for 12.5 years, saving every cent of his or her income along the way, to afford the average city flat.
But still, what we are seeing is not a bubble in the ordinary sense of the word.
A bubble is what you get when speculators - often highly leveraged - pile into the market. They buy solely in the expectation of making quick capital gains, creating a positive feedback loop that sends prices spiralling rapidly higher.
That's not what is happening in Hong Kong. The number of buyers flipping flats back to the market before actually receiving title is minimal: just seven in June, compared with thousands each month at the height of the 1997 bubble.
Nor are buyers highly leveraged. On average in May new mortgage loans were worth just 55 per cent of the underlying property's value, a far cry from the 100 per cent mortgages seen during the US housing bubble.
But if the city isn't seeing a speculative bubble, the other explanation often advanced for the steep rise in home prices - a desperate housing shortage - doesn't stand up either.
According to government figures, last year there were 2.34 million households in Hong Kong and 2.57 million homes. In other words, the city had a housing surplus of 230,000 homes.
Something else is going on. Clearly, a lot of purchasers have been buying flats, not because they need to live in them, nor because they are hoping to make a quick buck by selling them again immediately, but as a long-term store of value.
That makes sense. With consumer inflation running at 4.3 per cent and the interest rate on a one-year time deposit just 0.2 per cent, the return on holding cash is deeply negative in real terms. The stock market, down 13 per cent over the 12 months, is even less attractive.
However, with mortgages available at an interest rate of just 3 per cent, taking your savings out of the bank and putting them towards the down payment on a new flat looks like an attractive option.
But not even that calculation explains why the property sector has seen the heavy inflows of international capital that have played such an important role in propelling prices higher, especially at the more expensive end of the market.
After all, interest rates are low all over the developed world, but only a handful of other markets, including Singapore and London, have seen sizeable investment inflows, and nowhere have property prices risen so far or so fast as in Hong Kong.
It cannot be because international investors are especially bullish on the city's growth prospects. Hong Kong is a geared play on the global trade cycle. With demand from the developed world softening, many economists believe the city could soon face recession.
Yet international interest in Hong Kong property investment remains strong. Part of the explanation surely lies in the relative health of the city's public finances.
Almost alone among developed economies, Hong Kong boasts small government and a net public debt level of zero. In fact the government is sitting on net liquid assets worth almost 70 per cent of our gross domestic product.
In contrast, according to Leigh Skene, of independent economics consultancy Lombard Street Research, most other developed-country governments in the world are insolvent, with liabilities that far exceed the break-up value of their assets.
The only solution to their debt problems, he argues, will be an extended bout of deleveraging and deflation. That will be extremely painful for asset prices in the affected countries. No doubt governments will add insult to injury by seeking to raise tax levels on assets into the bargain.
As a result, cashed-up Hong Kong looks like a rare safe haven in uncertain times.
No wonder capital has flooded into the city's property market. High prices are part of the price we pay - or, if you prefer, the reward we get - for our government's fiscal prudence."
tom.holland@scmp.com
Posted by Loyd Grossman is Miss Venezuela (315 days ago)
Ad, whilst we're at it, here's the SCMP columnist, long-term HK resident and former stockbroker Jake van der Kamp's view on the Chinese economy. Again from July 12, 2012.
"There is a certain peculiarity of economic statistics that can really help journalists out on a slow news day. The oddity is that they rarely show smooth changes of trend. They tend instead to go up and down erratically from month to month.
This makes it easy to say that commercial rentals, for instance, are way up (or way down) this month compared with the previous month, or that restaurant sales show a startling decline (or startling improvement). Just name it and you can find it.
I'm not accusing my colleagues here. I'm just entering my own confession for days gone by when the boss hovered around with that "What-have-you-done-for-me-today?" look on his face. It was no different when I jumped to stockbroking, by the way. All I discovered was that jumping from the frying pan puts you in the fire.
But it did teach me the use of moving averages if I really wished to see a trend. They tell you late, but they tell you true.
All of this is just to say that if you want to see the trend in a country's export figures, most times you really cannot do it with a moving average of less than six months. If you want to see the trend in a country's trade balance, and not be thrown off by seasonal distortions, you probably need to raise this to a 12-month moving average.
The first chart shows you a six-month moving average of the export growth rates of both China and the rest of Asia in US dollar terms (the benchmark for all trade figures).
Three things immediately stand out: (1) these figures generally go up and down at the same time; (2) they are all going down at the moment; (3) China's exports are holding up much better than the rest of Asia's.
In fact, the only country in Asia showing higher export growth than China at the moment is Vietnam - 28 per cent on a six-month average basis - but the absolute numbers are still tiny and you can pretty reliably attribute it to overseas Chinese investment, mostly in Ho Chi Minh City. The foreign-invested sector shows 43 per cent export growth.
It's not just an Asian story. This is the worldwide trend. Trade growth has slowed down dramatically everywhere, which leads to the obvious conclusion that there is nothing Beijing can do about it. The normal cycle will of itself take trade growth up again at some point and China's export numbers will then soar again. Intervention in the meantime will be a waste of money.
And now to those trade balance numbers. The trade surplus last month was the fifth highest on the historical record at US$31.7 billion and, as the second chart shows, on an annualised basis, China's trade surplus is holding relatively steady at US$180 billion.
Take note of this because there is a theory current at the moment that, rather than be awash in US dollars as it has been for the past six years, China is now running into a dollar shortage, which is why the yuan has been generally weak this year.
I wouldn't call a US$180 billion annual trade surplus a shortage of US dollar inflow. It may be true that the US dollar capital inflow of recent years has now turned to an outflow, but the trend in foreign reserves says it's only a flow, not a flood.
But, hey, if it's a slow news day, why not indulge in a little doom and gloom?"
jake.vanderkamp@scmp.com
Posted by Jim Fit (315 days ago)
Oh my, oh my, aren't we grasping at each and every little tit-bit of news that, somehow, with a good deal of imagination and fantasy, could be construed as, possibly, being supportive and in favour of our dearest hopes and wishes, even if we don't quite believe it ourselves ?
Yes we can.
And, yes, we are.
Posted by OffThePeak (314 days ago)
There is no point in responding to JimFit.
He seems incapable of debating anything
Posted by Ed (314 days ago)
Lloyd... you are aware of who the owner of the SCMP is right?
One of the biggest property developers in Hong Kong....
SCMP has pretty much zero credibility when it comes to property articles... the paper is a shill for property developers.... (and for the mainland government these days from what I am seeing)
Posted by Loyd Grossman is Miss Venezuela (314 days ago)
Ed. You're either being tenditious or veering towards conspiracy theory. These columnists aren't in thrall to the owner - one of them is known to be independently wealthy - and the owner doesn't care. Kerry is involved in all sorts of business (logistics as well as property and media). They are only a second tier HK developer and probably have more business on the mainland. The idea that Robert Kuok gets on the phone and asks his columnists to talk up the property market is highly unlikely.
Posted by traineeinvestor (314 days ago)
@ Loyd - agree. There is plenty of material in the SCMP on a daily basis which is critical of the establishment. That said, there are some writers who have clearly vested interests - as is the case with all publications, internet forums etc
@ Ed - I'm surprised you haven't posted on Singapore's recent GDP number
Posted by Ed (314 days ago)
TI - I'd posted something re SG the other day but as the negative GDP number is now official here we go... the entire world is sliding into recession... and keep in mind recessions don't get reported usually until they are well under way...
Singapore GDP contracts
Singapore's economy unexpectedly shrank 1.1% in the second quarter from preceding three months due to weakness in the manufacturing sector.
http://www.marketwatch.com/story/singapore-economy-contracts-11-in-second-quarter-2012-07-12
HK/China is an export driven economy - the major export markets are all in, or headed into recession...
Bullish for the HK economy? HK property?
What do you think bulls...
Posted by traineeinvestor (314 days ago)
@ Ed - I agree that things look a lot worse than they did six months ago and I'm starting to feel a bit less optimistic about muddling through. I still have no intention of selling any of my properties.
As for journalists - eveybody has a viewpoint and their own biasis. I just don' think the SCMP is any worse than most of them. Some of their writers are pretty good (and some are pretty awful) but I would say the same about most publications. Even the FT and Economist have their bad patches.
Interesting to see SHK suspended this morning.
Posted by Loyd Grossman is Miss Venezuela (314 days ago)
Ed. Again, a normal statement about editorial slants - which many papers have - and then extrapolating it to the nth degree. The columnists are well known in HK and their work could stand in any financial publication. Not all SCMP property coverage is good - I think the property section is pretty awful, but these two columnists are respected. As you can see, their articles are balanced and well-researched and unfortunately disagree with what you have been harping on about for the past 4 years. I really doubt Robert Kuok, or Kerry, micromanages their columns or uses them as a vehicle to boost the property market. I think you have been watching too many Superman/Daily Bugle movies.
Posted by OffThePeak (314 days ago)
Lloyd... you are aware of who the owner of the SCMP is right?
One of the biggest property developers in Hong Kong....
== ==
All newspapers have a built-in bullish bias, since Property Sellers buy ads, not those seeking cheaper properties.
But that does not discredit the information, it just means you have to "look through the spin" sometimes
Posted by Ed (314 days ago)
The problem with Holland's analysis is he fails to address the macro picture.
The world is heading into recession - the primary methods of escaping recession - low interest rates and stimulus have been used up - we have had rates at 0 for nearly 4 years - and trillions of dollars of stimulus have been unleashed.
Yet still - we have no sustainable growth.
In light of this can someone explain how we escape this recession? What mechanism will pull the world out of it?
The global economy is already on life support fed by money printing - a recession will collapse insolvent banks and sovereigns and lead to a depression.
That will crush global stock and property markets.
Tom doesn't seem to be taking this into account in his rather myopic article. This is, IMNHO, is the biggest head wind for the HK property market.
Posted by traineeinvestor (314 days ago)
@ Ed - the other tools used to escape recession and promote growth are deregulation, lower taxes and infrastructure projects (in order of effectiveness).
One of the problems the world is facing is that many countries are increasing regulations and raising taxes - acts which history has repeatedly and consistently shown to be tools for reducing growth.
If the world wants better economic conditions then - plentiful access to low cost ccapital, deregulation and lower taxes have, time and again, proven to be the right policies. Bernstein's "The Birth of Plenty" summarises this up very neatly (although there is no shortage of other materials). Regrettably, most of the world's political leaders seem to be graduates of the "let's stick our heads in the sand and make everybody poor" school of economic thought.
Posted by Loyd Grossman is Miss Venezuela (314 days ago)
Ed. Isn't the whole article about macro? Other countries have large debts and HK has none. Everyone else has to deleverage but HK doesn't.
Posted by Ed (314 days ago)
Those are long term fixes if they are fixes at all... the standard tools used to try to exit recession are lower interest rates (easy credit) and Keynesian stimulus... both have been exhausted.
http://www.theglobeandmail.com/report-on-business/economy/central-banks-running-out-of-ammunition-to-stimulate-growth/article4414154/
I don't see the primary problem being too much regulation - in many respects it was a failure to enforce regulations that got us to where we are...
Reinstating Glass Steagall would be a start to getting rid of this ridiculous banking casino we are exposed to
I believe the problems are far more complex though... crony capitalism is a huge issue ... enormous inequality ... massive unfunded entitlements... unions run amok in certain instances...
There are a number of great books on this topic... one of the best is FT book of the year http://www.amazon.com/Fault-Lines-Fractures-Threaten-Economy/dp/0691146837
I have another deeper concern here... when I look at growth over past decades it would appear that it has been generated only through debt... for instance France has not run a surplus budget in 35 yrs!!! I think America has had only 2 yrs since the 70's... I suspect most other developed nations are in the same boat...
Now we have obviously reached the debt thresholds for many developed countries... most are approaching or have passed the 90% debt to GDP ratio at which growth stagnates (Reinhart Rogoff http://www.moneyshow.com/investing/Jubak_Blog.asp?aid=Jubak_blog-18642)
So we got 30 years or so of 'growth' from borrowing - and now nobody is willing to lend - so Central Banks are left with no other option other than monetizing their debts i.e. printing and buying their country's debt...
We ain't gonna get 30 years of anything doing that...
So what I am wondering is - how do we start growing again? I am wondering if the 'system' has stalled out... as is inevitable when you live in a finite environment....
These concerns lead me to this book - he makes some very solid arguments to support hsi position ... http://richardheinberg.com/bookshelf/the-end-of-growth-book
Posted by Ed (314 days ago)
Lloyd - he's missed the point completely...
"The only solution to their debt problems, he argues, will be an extended bout of deleveraging and deflation. That will be extremely painful for asset prices in the affected countries. No doubt governments will add insult to injury by seeking to raise tax levels on assets into the bargain."
If other countries have massive sovereign and private debt that chokes off growth i.e. sends them into recession/deflation ... they buy far less stuff from China/HK...
Which pushes us into recession... which of course takes down the stock and property markets...
That is really a pathetic article by Holland... hence my suggestion that he was asked to slant (invent?) it by his editors...
Surely he is not so incompetent as to not be able to make obvious connection outlined above???
Posted by traineeinvestor (314 days ago)
@ Ed - it depends which regulations you are talking about. The banking sector needs fewer, simpler and better regulations. A selective re-enactment of Glass Stegal would IMHO be fine (we definitely do not want the whole thing reinacted). In contrast, FATCA and most of Dodd Frank should be tossed out the window - all they do is make non-US banks reject US persons as customers and create jobs for people like me. They do nothing for either banking stability or tax evasion (which is what they are suppose to do).
More bad regulations - Hollande's new laws making it harder to fire employees. If you can't fire them you won't hire them (or will do so elsewhere). At the same time, he imposed a special tax on (among others) the oil refining companies at a time when that industry is suffering from over capacity and new pipelines under construction will allow distributors more choice in sourcing product. Oh, yes, and the amount of the tax was about the same as the profits for the French on-shore oil refining industry as a whole. Predictable result - mass lay offs and, quite possibly, oil refining shifting off shore. Some have suggested that France will not only end up with less jobs it is likely that the net tax take will fall as a a result.
Another example - California's high state income tax and punitive environmental and planning laws create a position where California's middle class population is leaving in droves either to find jobs in other states or, once retired, to be able to pay less taxes and afford better housing in other states. The number of people leaving the state to dodge the high cost of housing and high taxes gets regular headlines in the US.
Something closer to home - HK's shiny new soon to be enacted Competition Oridnance - it is so watered down that the only thing it will do is create another bunch of overpaid civil servants feeding off the taxpayers and impose a compliance cost on businesses. It is so weak that only the most extreme forms of conduct have any chance of being caught. Most of the things people complain about are outside the scope of the new law.
It's a pretty endless list.
Posted by Ed (314 days ago)
Agree - there are plenty of nonsense regulations out there... however I don't think those problems can be fixed (because industry has bought the politicians and regulators) without a massive reset of the global economy... if at all...
And now Italy gets downgraded just a hair above junk status... so we have Spain which everyone said was too big to bail... about to be joined by the far larger economy of Italy...
This is truly disturbing no? Sort of like a frog being slowly boiled in water....
http://www.telegraph.co.uk/finance/financialcrisis/9396843/Moodys-slashes-Italys-rating-by-two-notches.html
Posted by traineeinvestor (314 days ago)
The Euro zone is a failed experiment which is causing untold damage to the world economy - one way or another many Euro zone countries will default on their debt - either Greek style haricuts or by dropping out of the Euro and watching the new currency devalue or by fiscal integration followed by devaluation of the Euro as a whole.
The whole notion of the Euro was predicated on the belief that a bunch of countries which had consistently run deficits and carried debts higher than the prescribed limits would suddenly become more responsible if they were given easier and cheaper access to the credit markets and deprived of the market discipline of a free floating currency. Nobody should be surprised at the resulting mess.
But don't worry - higher taxes, more money printing and more regulation will save the [civil servants' day]
Posted by john.luddell (311 days ago)
The EU in a recession? That's news to me. Do you have any data to back that up?
The US in a recession? That's news to me. Do you have any data to back that up?
Posted by addfs (311 days ago)
If you don't know you have cancer doesn't mean you have cancer, does it? So why the fact that economists don't know there is a recession means there is a recession?
Yes, the US is fine, positive growth at 2% or so. The EU economy is growing too. EU is not the same as Euro Area. EU means Eupoean Union, which includes countries that have not adopted the Euro.
And check what recession means: http://en.wikipedia.org/wiki/Recession Negative growth doesn't mean recession.
Posted by addfs (311 days ago)
Why in terrible shape? They are growing or staying the same, right? So, why would that be bad?
As people use products, they will need to buy new ones, which means that Chinese products that transit through HK ports will need to be replaced. So the HK economy will still grow.
Who said that "A PMI of negative 50 indicates recession is imminent...."?
Posted by Ed (311 days ago)
Actually I just made that up... PMI doesn't predict recession.... it's simply a fluke that GDP always follows PMI - check it out:
http://www.news-to-use.com/wp-content/uploads/2012/04/image_thumb27.png
The freaky coincidence is surreal eh?
Why in terrible shape?
Every country in Europe is in recession or has growth of about 1% or less - even Germany... http://blogs.reuters.com/macroscope/2012/04/30/europe-in-recession-an-interactive-map/
The US is barely been growing and even though the PMI is meaningless... a number of economists are stating that the US is already in negative growth (which will show up in the next quarterly report)...
Average job creation over the past 3 months is 75,000 per month... that is barely half of what is needed to absorb new entrants into the market...
The US and EU economies are shriveling.
Ben - please print more money.... keep the ponze going a little longer will ya...
Posted by Ed (311 days ago)
"We can evade reality, but we cannot evade the consequences of evading reality." Ayn Rand (the crazy old bag)
Posted by Ed (311 days ago)
Just kidding... I didn't make it up...
What PMI Means for Investors
PMI is a very important sentiment reading, not only for manufacturing, but also the economy as a whole. Although U.S. manufacturing is not the huge component of total gross domestic product (GDP) that it once was, this industry is still where recessions tend to begin and end.
For this reason, the PMI is very closely watched, setting the tone for the upcoming month and other indicator releases.
The magic number for the PMI is 50. A reading of 50 or higher generally indicates that the industry is expanding. If manufacturing is expanding, the general economy should be doing likewise. As such, it is considered a good indicator of future GDP levels.
http://www.investopedia.com/university/releases/napm.asp#axzz20lkkiMsh
Posted by Ed (311 days ago)
The problem, as I see it... is the trend is recessionary... and the tools to escape have been exhausted:
How many trillions have been printed to stimulate these economies?
How many years have interest rates been at zero or near zero?
Yet still... recession is grabbing hold. Even vaunted Germany is barely above 9 GDP.
So if printing didn't work - and ZIRP didn't work - where does growth come from going forward to pull countries out of recession?
And if our export markets continue to sink further then how does HK/China stay immune to this?
Posted by addfs (311 days ago)
"Every country in Europe is in recession or has growth of about 1% or less - even Germany... "
1. Ed, try to find out the meaning of recession: http://en.wikipedia.org/wiki/Recession The economy shrinking doesn't mean recession.
2. The economy growing by 1% means that the economy is growing.
Posted by addfs (311 days ago)
"The US is barely been growing"
2% is not "barely been".
"80% of the world's economies have a PMI of below 50"
Cool. We have too much rubbish in the world already. Let's give our environment a break and stop buying rubbish for a while.
Posted by Ed (311 days ago)
Once again...
Many countries in the EU are ALREADY in recession http://blogs.reuters.com/macroscope/2012/04/30/europe-in-recession-an-interactive-map/
Spain and Greece are for all intents and purposes in Depressions with massive unemployment and endless quarters of negative GDP.
And PMI is contracting in all EU countries...
So those such as Germany and the UK that were barely growing LAST quarter are almost certainly now in negative growth...
That is in spite of trillions of stimulus and ZIRP.
Whether or not you agree they are in a full blown recession doesn't really matter...
The trend is towards worsening growth - in spite of the massive stimulus.
Doesn't exactly point to a rosy future does it?
Posted by addfs (311 days ago)
Once again...
No, negative growth doesn't mean recession. And even if it does, and you are looking at the colors in this image, 11 countries are in red, and 12 in blue, which means that most of the EU is NOT in recession (negative growth, completely different from recession).
Once again, try to find out what recession means!
Also, since you are at it, try to find out what depression means.
Those countries, such as Germany and the UK that barely grew LAST quarter, are now more likely growing by 20 to 50%. Anybody can come up with some "most likely" and than say something off the blue. And you said that only economists and fools predict the future? Which one are you?
And as you say, it doesn't matter if you agree they are in full blown recession, because they are not, and the numbers you yourself post show that they are not! So, are you an economist (who doesn't even know the meaning of the word 'recession' even though you repeat it all the time) or the other one?
Posted by addfs (311 days ago)
By the way, Switzerland, Norwary and Iceland are doing just fine. Which brings the countries with positive growth to 15, compared to the countries with negative growth at 11. Most of Europe is growing. Thank you for your concern.
Impact on HK property market?
Posted by Ed (311 days ago)
"80% of the world's economies have a PMI of below 50"
"Cool. We have too much rubbish in the world already. Let's give our environment a break and stop buying rubbish for a while."
Be careful what you wish for...
Posted by Ed (311 days ago)
Better safe than sorry
Hong Kong, home to thousands of financial professionals who buy property for investment and speculation, people are not confident about buying property assets and are waiting to see how developments in Europe play out.
Ronnie Chan, chairman of Hang Lung Properties, a leading developer in Hong Kong, says that property developers and investors in Asia Pacific have to continue to be defensive, not aggressive, as Europe’s financial crisis is just beginning.
“I recommend you be defensive before you are attacked,” he said at Real Estate Investment World Asia 2012 in Singapore recently.
He likens the crisis in Europe to a cancer, while the United States is recovering from a heart attack. Both had enjoyed prosperity for so long, they couldn’t see a crisis coming.
“I believe that the crisis is getting worse. This is just the beginning. It will last a long time. There are tough times ahead for us. Only those who can protect themselves can win.”
More http://www.bangkokpost.com/business/economics/302699/better-safe-than-sorry
Posted by Loyd Grossman is Miss Venezuela (311 days ago)
Ed. You can protect yourself by buying HK property. That's what Tom Holland was saying people are doing. I am not an expert on HK but I get the impression you know even less. HK is not just about financial professionals, it's about long-established and often very conservative businesses. A bit like the German Mittelstand plus tycoons. This is huge trading town and people know trade ebbs and flows. Just because trade is down doesn't mean asset prices are going to fall here for the simple reason they are backed by cash. And it is not just HK, there is also Guangdong money and beyond. You have been completely wrong about HK property now for 4 years. That's 20pc of a 20yr mortgage blown in rent. But then again, you live in Bali.
Posted by Ed (310 days ago)
From what I read Holland looks to be saying that HK is immune to the macro picture... that it will actually benefit from worsening economies in the EU and US.
"The only solution to their debt problems, he argues, will be an extended bout of deleveraging and deflation. That will be extremely painful for asset prices in the affected countries. No doubt governments will add insult to injury by seeking to raise tax levels on assets into the bargain."
He seems to forget that HK's prosperity is based on exporting to those regions...
How does buying HK property offer any sort of protection - if the EU breaks up we are all in trouble... if the US crashes into recession again surely we will soon follow?
Speaking of HK's export markets... we all know the EU is a mess... the US (HK/China's other huge export market) is also worsening:
"The 0.5% drop in sales followed declines in the previous two months. Retail sales haven’t fallen for three straight months since the fall of 2008, at the height of the financial crisis."
http://business.time.com/2012/07/16/us-retail-sales-fell-0-5-percent-in-june/
What's Ben doing - job creation is in free-fall, the US is headed back into recession.... doesn't he know that his money printing machine is the basis of the global economy now? We need stimulus to keep the giant ponze alive.
Push the button Ben.
http://www.zerohedge.com/news/ombs-stockman-were-fiscal-endgame
Posted by Loyd Grossman is Miss Venezuela (310 days ago)
One again, Ed mixes up Hong Kong with Dongguan. Hong Kong doesn't really export much. It's just an entrepot. The housing market here was weak when the Pearl River delta was exporting like crazy a few years ago. The market here is directly linked to how much money HK people have. A lot of people here are not living from pay cheque to pay cheque and they have been saving for over a decade. And over the past 10 years, a lot of wealth has been created in China (over 8% growth each years). A significant amount of this has been invested in HK. So what if things slow down a bit? It doesn't necessarily mean a collapse.
Posted by hareme (310 days ago)
'The Gross Domestic Product (GDP) in Hong Kong expanded 0.40 percent in the first quarter of 2012 over the previous quarter. Historically, from 1990 until 2012, Hong Kong GDP Growth Rate averaged 0.9900 Percent reaching an all time high of 6.3000 Percent in September of 2003 and a record low of -3.5000 Percent in March of 2009. The Gross Domestic Product (GDP) growth rate provides an aggregated measure of changes in value of the goods and services produced by an economy. Hong Kong along with Singapore, South Korea and Taiwan is one of the Four Asian Tigers. Hong Kong has a free market economy highly dependent on international trade and finance, which has left it heavily exposed to the global economic slowdown that began in 2008. The total value of goods and services trade, including the sizable share of re-exports, is equivalent to more than 400% of GDP.
Sorry Lloyd, Hong Kong doesn't export much??? Some of the journalists are a little myopic when it comes to the Hong Kong market. Is it in their interests to be bullish when the HSI is heavily weighted towards property developers.
If the market is not concerned, why isn't the HSI going up like the Centadata index?
Posted by Ed (310 days ago)
Lloyd... busted again making unsubstantiated comments... tip for you... try google to find info to support a comment before making it?
What you also have to consider is where much of those 'rich HK people' generate their wealth... of course they are the factory owners in south china - the real money in HK is in trading - not in banking or law or other professions....
When the exports stop flowing to the US and the EU the hammer will fall on them.
More on the dire situation in the US:
"Retail sales in June fell 0.5 percent, following decreases in both May and April as well. This is the first time since 2008 that retails sales have declined 3-months in a row, and historically, this has never occurred without the economy either in or about to be in a recession."
http://www.zerohedge.com/news/guest-post-consumers-flash-warning-signal
So we have half the EU in recession - the remainder of the EU with PMIs of below 50 indicating they are already in or will soon join the rest of the continent in recession...
And it looks like the US is or will soon be in recession...
HK's biggest export markets in recession - how can that be good for the HK property and stock market?
Posted by Ed (310 days ago)
Skimming the comments on the Zero Hedge article about the US above... I couldn't agree more:
"this may be first time in world history that all polls, most fundamentals, debt to gdp, euro crisis, idiotic PE, unemployment, housing, shadow fakery, etc. all are beyond negative yet the markets are propped up more than double their value. this is NOT a mere bubble. this is centrally planned post-ponzi nightmare."
Print Ben print. Keep those rates at 0.
Hong Kong loves you for helping HK property achieve the highest prices in history (with a little stimulus help from China of course)
Posted by Loyd Grossman is Miss Venezuela (310 days ago)
Unsubstantiated? What do you mean? Ed. Ask yourself this simple question. If the US economy had grown by 8% each year, over 5 years, would the NY housing market have found a new level?
Posted by Loyd Grossman is Miss Venezuela (310 days ago)
Hareme. I don't know why the HSI isn't going up but it's certainly not collapsing. However, I am buying what I can. Maybe it is being shorted. Maybe the big investors have bought US treasuries.
Posted by Ed (310 days ago)
Lloyd... you stated that exports don't matter to HK. Hareme has demonstrated that you are wrong. HK is heavily depended on exports.
If you are going to claim that HK is not dependent on exports then you have to substantiate that...
Otherwise you lose further credibility.
Posted by Loyd Grossman is Miss Venezuela (310 days ago)
If HK is heavily dependent on exports (even though it manufactures next to nothing) and exports have fallen dramatically, why is HK doing so well? What is there to substantiate? When are you going answer my simple question? If the US economy grew by 8% year-or-year over a 5-year period, would the NY property market rise and find a new level of support?
Posted by Loyd Grossman is Miss Venezuela (310 days ago)
Of course, this downfall in trade has affected shipping stocks which are down by 70%. But this hasn't hit most people in HK. Anyway, i'm a buyer of shipping stocks. May have to wait a few years.
Posted by Ed (310 days ago)
Alas... in keeping with my theory that 'bad news = good news'... and that 'extremely bad news = extremely good news'....
As the EU sinks into recession with the US following (open just about any business site right now and they are all calling for gloom ahead) - you'd think the stock and property markets would fall ...
But nope.
Asia Erases Losses on Hopes for More Stimulus http://www.cnbc.com/id/48202916
Asia high on easing hopes http://www.marketwatch.com/story/japan-stocks-slip-as-market-reacts-to-yen-gains-2012-07-16
Absolutely amazing!
And for his next circus act Ben the clown will ------ Print Trillions More!!! 3 cheers for Ben.
Posted by Jim Fit (310 days ago)
Every property market collapse is marked by 2 unmistakable characteristics:
1. It is preceded by a property price boom.
2. It never announces its arrival in advance. It just happens from one moment to the next and hits you like a tonne of bricks.
Posted by Loyd Grossman is Miss Venezuela (310 days ago)
Jim Fit. We haven't had a property price boom. We have had a return to where prices were 15 years ago - only this time the increase wasn't fuelled by debt but hard cash. Ed. When are you going to answer my simple question about NY instead of posting these mind-numbing links?
Posted by Ernie20 (310 days ago)
Seems like there was plenty of activity in the local property market this weekend. 500sf flats in my development have crested the $4m mark, gone forever are the dark days of spring 2009 and $2.1m.According to the Standard, July will see increased activity.
It must be soul destroying sitting on the sidlines. Remember, you have no choice about mortgages. Pay your own or pay someone else's.Praying for a collapse that will see prices halved or more, it's a bit like praying to win the mark 6, it could happen but it's not that likely,good luck.
Posted by Ed (310 days ago)
We have exceeded the price from 1997 but double digits... keeping in mind the price in 1997 was the most insane property bubble in the history of HK... so any price coming even close to that never mind surpassing it... surely must be considered abnormally high?
Further... luxury property prices have almost doubled in less than 3 years... that smells like a bubble... particularly when one asks the question:
Why did prices go up?
Was it because the HK and global economy have been robust?
Or
Was it because Central Banks have been printing trillions of dollars and flinging it into the global economy at zero interest in a desperate attempt to restart the global economy?
And if you pick door number two - do you think this can continue much longer given that sovereign debts are out of control making it increasingly difficult to prime the pump...
And every economist and pundit from here to timbuktu is screaming 'job growth is dying... GDP growth is dying... recession is looming across the planet'....
Lloyd - are you buying HK property currently? Would you recommend someone buy?
Posted by Ed (310 days ago)
Ernie - time to recount my story of the lawyer....
He bought a 10M property planning to flip in 97... he got caught when market sentiment quickly turned... the property went down by over half....
He wasn't too pleased about making payments on a 7M dollar mortgage on a property worth 3M....
So the rent/mortgage thing can bite you either way.
Posted by Ed (310 days ago)
Right... HK people buy because they are 'rich' even though 'they don't export anything'...
Remind me of your simple question....
And while you are at it - do you recommend people buy a property now?
Posted by Ed (310 days ago)
Fascinating discussion here - QE forever it would seem... because the consequences of stopping are enormous: http://www.cnbc.com/id/48193471
Posted by Jim Fit (310 days ago)
Heard an interesting story from a Canadian-chinese acquaintance: he is liquidating all his HK properties and 'taking a rest' in Vancouver for a while. "Just a hunch", he said.
Posted by Loyd Grossman is Miss Venezuela (310 days ago)
Ed. LOL. What do the residents of Monaco export? Are they rich? My simple question was "if the US economy had grown 8% a year, for a 5-year period, would NY house prices have increased and would the larger size of the economy provide support for the NY property market?" If I were buying a property for my own use, I could afford it and I felt secure then I would buy. Would I buy for investment? That depends. If I could afford a good quality flat in a good area, then yes I would. However, in 2004, I was buying in the New Territories because it was cheap. I wouldn't do that now.
Posted by Loyd Grossman is Miss Venezuela (310 days ago)
Jim Fit. Did he give you any idea about what his hunch was, or was it just some kind of voodoo hunch? I have some concerns about the political situation here to tell the truth. Things getting out of hand.
Posted by Ed (310 days ago)
If NY grew 8% a year ... property would not go up almost double in 3 years... unless it were in a massive bubble....
And as an aside HK is not Monaco... I am not aware of any ultra rich people moving to the HK riviera (aka the cesspool harbour and smogfest) to avoid taxes....
You suggest HK has gone up so much because people are rich...
I suggest that as just about every business site I am on today is stating... the market has gone up because of stimulus - nothing but stimulus...
Home Page Reuters: Asian shares rise as investors hope for further stimulus
Home Page Market Watch: Asia high on easing hopes
Home Page Bloomberg: Asian Stocks Advance as Stimulus Hopes Temper GDP Concern
Removing the stimulus... will be like a pin pricking a bubble.
Posted by Ed (310 days ago)
Lloyd - perhaps Jim Fit's mate's hunch was a result of reading this?
http://www.zerohedge.com/news/80-worlds-industrial-activity-now-contracting
However Central Banks are also reading stuff like that... and they own mega printing presses...
And in our world of 100% centrally planned economies... if Ben and the boys want something to go up - or down - or they want to fix and interest rate - or allow a banker who commits a criminal act go free - they have the POWER to make it happen.
Posted by Loyd Grossman is Miss Venezuela (310 days ago)
Ed. I'm not talking about NY's econony growing 8% a year. I'm talking about the USA's economy growing 8% a year. So I repeat my question. "If the US economy had grown 8% a year, for a 5-year period (not 3 as you mentioned), would NY house prices have increased and would the larger size of the economy provide support for the NY property market?" Also, imagine NY was the only place that functioned properly and you could criticise the government, travel freely etc. Also, try to imagine that NY was the only place that spoke English. Please attempt to answer this question.
Posted by ltse (310 days ago)
Update from Charles Nenner:
http://www.financialsense.com/financial-sense-newshour/big-picture/2012/07/14/01/r-puplava-c-nenner-r-bernard/beware-if-you-own-bond-funds
-"risk of deflation ahead"
-"Exited S&P at 1400, if it closes near 1400, sell to exit"
- Commodities bull cycles over, but short term bullish on soft commodities such as
corn, wheat and sugar"
- "Still targeting DOW 5000, major war 2012-2013, and dollar crisis by 2014"
http://www.youtube.com/watch?v=G1ykiUWXGRw
I also found this interview with Jim Chanos to be insightful. One major risk to HK property is really the Chinese real estate bubble sponsored by a centrally planned government. In a free market, when exports is greater than imports, the currency appreciates and the people thru their consumption/spending and investment dictates where the money goes, this is called organic growth.
In a centrally planned economy, governments spend what they need to reach GDP targets building empty malls, bridges and real estate, which is why you have high end real estate unoccupied whilst the people on the next street are living in ghettos. This is what happens when a nations savings is squander on unproductive investments as real estate.
Posted by Ed (310 days ago)
Lloyd... if the US economy grew 8% a year property prices in New York would not double in less than 3 yrs as has happened in Hong Kong without being a bubble. Perhaps they might go up 8% per year ... but never 30 something per cent - as has happened in HK...
Back to what is driving the stock and property markets of the world - everyone is waiting with baited breath for the Grand Economic Puppet Master to direct the Centrally Planned Ponze...
The latest headlines:
Shares, euro edge higher on Fed stimulus talk
European Shares Inch Higher, Eye Bernanke
It's kinda like having a BBQ cookout... and to get the fire roaring you dump a bunch of plastic bags in a pit... light em up... then fling buckets of gasoline on them.... you sure get yourself a real good fire... but whatever you roast on it will kill ya...
Posted by Loyd Grossman is Miss Venezuela (310 days ago)
Ed. Sometimes in times of stress, shares go down 50% or more - and then recover when the situation returns to normal. This happened with the HK property market. It went down 60% and ten years later it had recovered. Essentially what you are saying is the property market has recovered, it must be a bubble. Saying this after 10 years of saving and debt reduction, strict lending controls and credit checks by banks is nonsense.
Posted by Ed (310 days ago)
Another great headline: Bourses bent on Bernanke http://www.marketwatch.com/
Bernanke the Almighty... Bernanke the Magnificent... watch as the Dear Leader Ben says 'print' and the global markets respond with a mighty roar...
Adam Smith must be rolling in his grave watching this utter lunacy play out...
Posted by Loyd Grossman is Miss Venezuela (310 days ago)
Ed. Not everything you read on business websites is true. If the people who write this stuff are so prescient, how come they are still working? And please stop talking about Bernanke. He is the product of a democratic system. More voters care about jobs than the value of the currency. Nobody voted for Adam Smith.
Posted by Loyd Grossman is Miss Venezuela (310 days ago)
Look Ed. You don't even live in HK. You live in Bali where, for some reason that escapes me, you have bought a house which still legally belongs to someone else. You have even spent money landscaping someone else's house.
Posted by Ed (310 days ago)
Heh heh... my contract is for 120 years.... HK is what, 99?
Thus you have renovated a property that actually belongs to a dictatorship... in a country that has a recent history of numerous, violent revolutions... and now that the Brits are gone there's nobody standing between you - and the dictators...
I'll stick with the air that is not laden with cancerous toxins... and the wide open space - thanks :)
Let's not shoot the messenger now Lloyd (or the messengers messenger - me)... the media are only reporting the data... and the data is horrendous...
Speaking of dictatorships... (or more precisely oligarchies) Bernanke is not elected. He is chosen by the Fed governors - who just so happen to be comprised of the heads of the big banks.... who are also not elected.... Bernanke is nothing more than a puppet who does the bidding of his masters...
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs." - Thomas Jefferson
More on that: http://www.prisonplanet.com/articles/december2004/241204centralbanking.htm
Posted by Ed (310 days ago)
Lloyd - seeing as you are very confident in the market and rejecting all the pessimism out there...
Do you care to go on record as putting out a Buy recommendation for HK property?
Posted by Ed (310 days ago)
Just watching that Chanos video re: China - the China part starts about 7 minutes in... http://www.youtube.com/watch?v=G1ykiUWXGRw
Anyone know how to invest in Chanos' fund which is shorting China big time... that is a devastating picture of the PRC economy...
Posted by Jim Fit (310 days ago)
a hunch
a sense of unease
a feeling of concern
palpable tension..........................................................sleepless nights..........
BLIND PANIC !!!!!
The paradox between booms and busts is that it takes a decade or more to build the boom but -due to its nature- the bust takes place at a dizzying speed.
Because the investor (apparently we are not allowed to us the word 'speculator' anymore) decides to have the idea to sell his assets -in order to protect his paper profits- at just the same moment that all the other "investors" are hit between the eyes by the same idea. (the idea being: "let's sell now and take our profit before everyone else does too !")
Posted by Ernie20 (309 days ago)
Another day passes and Ed's armageddon has not manifested- again. Meanwhile you could be moving into your own flat, at historically very low interest rates and begin paying it off.
On the the other hand you could wait until you can pick up Central and TST properties for one of Ed's gold coins as will surely happen. Go to the bank and show them his links. Tell them they are wrong.Demand that sellers lower their prices because you think no one in Western countries will ever buy anything from China again.
For your own use, a good buy in the second hand market has to be a good idea. Even if there is a temporary drop. Investment property is a different ball game.
Posted by Ed (309 days ago)
The thing is Ernie... I am not saying buy or don't buy... I am simply pointing out the risks in the market... so as to help keep people informed...
Interesting to see your Buy recommendation on the market....
Btw - gold is still up more than HK property if you had the foresight to realize the mortgage collapse was coming and bought at well under 1000... and how unfortunate if someone were playing the stock market instead of gold in the last 10 yrs... http://www.blanchardonline.com/images/gold_vs_stock_chart_2011.gif
I see that Lloyd, who says there are no risks in the market - that it always goes up - is avoiding the question.
Lloyd - what's your stance - hold - buy - sell?
Meanwhile the Centrally Planned Economy has the latest dictate from the puppet master The Bernank (actually he is simply a front man for the monetary dictators who are really controlling things)...
And Ben says : LET THERE BE MONEY!
http://www.reuters.com/article/2012/07/17/us-markets-global-idUSBRE86F00620120717
http://www.bloomberg.com/news/2012-07-17/u-s-stocks-erase-losses-as-bernanke-says-fed-is-prepared-to-act.html
Yes... Ben once again can see that the US economy is unable to recover and that it will crash into recession if he fails to turn on the printing press.... so once again Ben is reaching for the trillion key.... and preparing to print ... and we're Lov'in It!
In honour of The Bernank let us watch a video about The Quantitative Easing ... a bit of a refresher course on the merits of Printing The Money
http://www.youtube.com/watch?v=PTUY16CkS-k
Posted by Loyd Grossman is Miss Venezuela (309 days ago)
Ed. I don't recall saying there are no risks in the market. I have noticed that when you lose an argument, you do tend to put words into other people's mouths. Anyway my stance - which I have mentioned ad finitum in previous posts is as follows: If you are renting, I would say buy as long as you can afford it and feel secure enough in your job and intend to stay in HK longer than 2 years. It's better than renting which is an immediate 100% up-front loss. For investment, I would say buy good property in Mid-levels, or average and good property in North Point, Tin Hau and Tai Hang areas where you still might get a bit of rise from redevelopment and gentifrication. I think Sai Ying Pun looks good but prices already way up. I wouldn't touch New Territories with the exception, perhaps, of YOHO Town in Yuen Long. It straddles the transport system and has good facilities so will maintain its value. Also convenient for Shenzhen. I also recommend take a lot at residential areas close to Sasa shops.
Posted by Ed (309 days ago)
Lloyd - you have on numerous occasions claimed that the macro economy has no influence on the HK property market... and every time a risk issue is raised you dismiss it as having no influence on the HK property market...
Whether it is the EU or US in recession... sovereigns defaulting... falling exports.... you dismiss them as non-issues re: HK property
If you believe there are risks then please lay them out ...
Because what I gather from reading your comments, HK property always goes up because HK people are rich...
Unfortunately that has not been the case:
http://media.economist.com/sites/default/files/imagecache/290-width/images/print-edition/20120428_FNC097.png
Posted by punter (309 days ago)
Buy if you (1) have the money, (2) have a stable job, (3) are capable to handle possible rate increases, (4) are capable to handle price downturn (where you will be paying mortgage to a property more expensive than selling price). There's no question that current prices are high.
I have a problem with anybody saying that there's no chance prices can come down significantly. Yes, there is a possibility that prices are going to move sideways but in the current world conditions, it's foolhardy not to take them into consideration.
I also have a problem with those saying that HK is not going to be affected by world events. It's just foolish. It may be correct today, but it can change in time.
Posted by Loyd Grossman is Miss Venezuela (309 days ago)
Ed. There's risk everywhere in life. For example, I have said I'm worried about the political situation. What I am not worried about is the EU or a fall in Chinese exports seriously affecting the HK property market. The fundamentals here are simply too strong. Obviously, if the world-wide economy were better, then property markets here would probably rise quicker - but not necessarily.
Posted by Loyd Grossman is Miss Venezuela (309 days ago)
Ed. Property does trend up over time with inflation and city's grow and gentrify. Why you can't understand this escapes me. Fulham, Notting Hill and Islington in London used to be a working class districts and now they are upmarket. Since the 1950s, Britain's exports have collapsed but that hasn't stopped London from booming. Why? Maybe because it's the only place where there is work. Similarly, in the 1970s, Jardine House used to be the tallest building in HK. Now we have IFC and ICC. Just over 5 years ago, people used to laugh at mainlanders for the way they dressed. Now you have to listen to see what language they are speaking. In a few years time, if you want to go to Shanghai by bullet train, you'll be able to. If you own HK property, the trend is in your favour. I'm not betting against HK/China.
Posted by Ed (309 days ago)
Most assets increase with inflation ... tell me something I didn't know...
Posted by Ed (309 days ago)
So you don't think that if the US and the EU, China-HK's biggest trading partners go into recession ... that HK will not follow - with property prices turning down?
Can you explain how HK and China avoid recession if those entities enter a deep and prolonged recession.
Or do you think the HK will have a recession but that property prices would not fall?
What about if the EU breaks up? That will mean large countries will default - as will many large banking institutions.
No impact on HK property? If so please explain how HK remains robust in those scenarios (scenarios that are quite likely so not to be dismissed)
Posted by Ed (309 days ago)
"Obviously, if the world-wide economy were better, then property markets here would probably rise quicker - but not necessarily"
So basically you are saying that property markets never fall... it's only a question of how fast they rise...
There are many millions of people in the United States who believed that until 2007...
Posted by ltse (309 days ago)
"I want to short USTs"
I take UST to be United States Treasury? you can go long on TBT (2 x greaing) and TMV (3 x gearing), more details on these links below:
http://etfdb.com/issuer/proshares/
http://www.proshares.com/funds/
On a separate note, Richard Duncan outlines excatly the same case for deflation:
"When we broke the link between money and gold, this removed all constraints on credit creation. This explosion of credit created the world we live in, but it now seems that credit cannot expand any further because the private sector is incapable of repaying the debt it has already, and if credit begins to contract, there’s a very real danger that we will collapse into a new Great Depression"
http://www.cnbc.com/id/48193471
Posted by Loyd Grossman is Miss Venezuela (309 days ago)
Ed. We've had our big recession. It was a decade-long. Where have you been? All the people who couldn't hold on have already been shaken out so HK will just tread water in a worst case scenario. I think if Spain or Italy default, it will hit Spanish or Italian banks. This EU crisis is not that new so why hasn't HK property fallen already if I'm supposedly talking such rubbish?
Posted by Ed (309 days ago)
I saw that interview... I think we should ignore it though... it won't happen .... because Bernank is in charge and Bernank will fix things because he has a PHD
Bernank's Greatest Hits http://www.youtube.com/watch?v=9QpD64GUoXw
Posted by Loyd Grossman is Miss Venezuela (309 days ago)
Ed said: Most assets increase with inflation ... tell me something I didn't know... Well from your screeds, it would appear you didn't know. Housing trends up over time (with the exception of HK according to Ed). How much did your dad pay for his house?
Posted by Ed (309 days ago)
Back around in a circle we go....
Of course over time a house will almost certainly go up in value... as will most assets... so do we just buy anything anytime because we know in the long run the value will appreciate?
I don't think so - well I would hope not....
Particularly when you are making the biggest investment of your life....
Because this is what can happen http://media.economist.com/sites/default/files/imagecache/290-width/images/print-edition/20120428_FNC097.png
So what if it eventually regains the loss... their is massive opportunity cost involved in the lost decade. Anyone who bought in 98 made what will probably be the most disastrous investment of their life...
Now if you don't believe that a recession in the EU and US... or an outright implosion of the EU and the resulting crash of the global banking system - and economy - will have any impact whatsoever on the HK property market... then all I can say is... remember what was happening after Lehman....
Go back and read the comments on the original version of this thread - there was panic in the air... there are comments from members indicating estate agent shop fronts with 'prices slashed' signs littered across their windows....
Nothing has been fixed since then... banks are still huge casinos... if anything the situation is far worse... because entire countries are perched on the precipice of insolvency... there isn't enough money anywhere to bail out Spain and Italy WHEN they hit the wall... and both are in brutal recessions and worsening by the day....
Probably risks people should be aware of... even though you dismiss them
Posted by Ed (309 days ago)
Pretty interesting chart for the history of HK property ...
Note that there are many external events that have impacted HK... the biggest one was of course the Asian Financial Crisis... which was a completely macro event... which eventually washed like a tsunami over the HK property market and economy....
If you look at one of the other biggest plunges in the HK market it happened just post - Lehman... and as I have commented previously... Bernanke bailed the world - and the HK market out... see the Green note Quantitative Easing 1...
So once again - it's the macro events that have had the biggest impact on the HK property market...
I would suggest that the EU and US risks are by far the biggest concerns for the Hong Kong property market...
http://static.alsosprachanalyst.com/2011/01/Hong-Kong-Real-Estate-History-in-a-chart1.png
Posted by Loyd Grossman is Miss Venezuela (309 days ago)
All HK property charts are irrelavent since the special stamp duty was introduced. It's like trying to compare apples with pears. As usual Ed. You forget that not buying is just as, if not more, dangerous than buying when the market appears high. You automatically lose your rent and then if the market goes against you, you are automatically forced down market or out of it all together. The simple rule with property is to buy if you have a large deposit and feel relatively secure. Trying to guess the market is a fool's game.
Posted by Loyd Grossman is Miss Venezuela (309 days ago)
Meanwhile, the HK property market goes from strength to strength on pent-up demand (probably caused by too many people listening to the HK Govt/Ed).
Posted by Loyd Grossman is Miss Venezuela (309 days ago)
Don't what you are talking about Ed. The last crash in the HK property market was in 1997. You have been completely wrong since 2008 inspite of posting screeds of garbage.
Posted by Loyd Grossman is Miss Venezuela (309 days ago)
Any graph before the SSD is now redundant. The SSD was a game changer. No speculators now, just end users or very wealthy people.
Posted by Loyd Grossman is Miss Venezuela (309 days ago)
Ed. Before the special stamp duty, you had speculators who would trade according to world and local events - hence the match in your graph. Now, you there are no speculators - just end-users or investors with deep pockets (weak investors would have been shaken out in 2008) - who sit and wait for years. The only way the HK property market is going to come off is being abolishing the SSD and letting the speculators back in. Speculators are neutral, end-users aren't and the very wealthy have massive staying power.
Posted by Jim Fit (309 days ago)
.....just end users or very wealthy people..... (Floyd Venezuela)
Really. And here I am, every day, reading these threads and "end users or very wealthy people" discussing which development has the most transactions and what development is set to rise etc etc.
So, what are you, Floyd, "end users or a very wealthy person" ?
You cannot possibly be a very wealthy person. Otherwise you wouldn't worry so much about property price movements. Or a crash on the horizon. And you wouldn't feel the need to express -alomost on a daily basis- how bullish you are (like you don't quite believe it yourself).
Posted by Loyd Grossman is Miss Venezuela (309 days ago)
Sorry. Should read 'end users or very wealthy investors'. Was typing on the bus via iPhone. Will amend.
Posted by Loyd Grossman is Miss Venezuela (309 days ago)
Jim Fit. I'm not a very wealthy but definitely not over-extended. I am long-term bullish on HK island property but it is now hard to get in cheap so would only buy if I could put down a huge deposit. I am bullish on shipping shares which are down 70% odd and bearish on US treasuries and bonds in general. What are your views? Can you tell me where you think HK property will be in 6 months time?
Posted by Jim Fit (309 days ago)
Why pin myself down on a arbitrary time frame ? If you have read my posts you know what my opinion is. As I said yesterday: a bust never announces itself, it just happens, out of the blue.
But after it has happened -only a matter of time- and one looks back with the benefit of hindsight, then one usually can identify some pointers: lower than expected land sales, cancelled land sales due to lack of interest, peculiar pricing strategies by developers etc. And then the reaction is: "Ah, yes !" (why didn't I see that coming).
So when ? 1 month, 2 months, 3 months, ........we'll see.
Posted by Ed (309 days ago)
No Lloyd ... the last crash was a few years ago - see that big dip in 08/09... that's the crash that happened after Lehman....
http://static.alsosprachanalyst.com/2011/01/Hong-Kong-Real-Estate-History-in-a-chart1.png
And no... all charts are no graphs before SSD are not redundant... actually I think the word you are searching for is irrelevant....
Hong Kong is a trade-based economy... those rich people you refer to constantly are traders - who own factories in China which supply stuff mostly to EU countries and America ...
Which are both in desperate situations...
So just as when there was a major external jolt to the regional or global economy Hong Kong property has been pounded.
Give it up Lloyd... you are floundering... perhaps you can ask Ben for a bail out?
Posted by Ed (309 days ago)
Let's move off this nonsense ... how is Europe doing? I saw on Bloomberg this afternoon Spanish housing prices declined by over 8% last month relative to the same month last year...
And now this:
Spain Goes From Bad To Worse
Despite the world and their lemur believing that, with a self-referential EUR100 billion bailout (loan) for its banks and a ponzi guarantee scheme for its insolvent regions, all will be well and more debt fixes too much debt, Spanish 10Y yields are back near 7% and spreads over 575bps.
The reason - simple - the backbone of their credit-fueled economic growth has crumbled and is now crumbling faster. As the FT reports today, Spain's housing and banking sectors continue to deteriorate, grim new government data showed Wednesday, providing the latest indication that the country's economy remains caught in a protracted recession.
House prices declined at the fastest pace since the start of the crisis in the second quarter, the public ministry said, and bad loans increased for a 14th month in a row, the Bank of Spain reported.
What is more worrisome is that in spite of a bank rescue plan (that is obviously tyet tto be implemented), bank deposits saw a record decline shrinking 5.75% from a year earlier.
http://www.zerohedge.com/news/spain-goes-bad-worse
And oh my... is this a MASSIVE bank run or what... Spanish deposit holders are pulling out enormous amounts of money - depositing it in German banks - who are then lending it to Spanish banks whose coffers are empty ... and Spanish depositors withdraw it and...
We call this a money-go-round...
It might be amusing if it was a case study in an economics text book - it is not the slightest bit amusing when one understands the suffering and desperation that is gripping the people affected by this... and like a cancer, it is spreading
http://blogs.telegraph.co.uk/finance/jeremywarner/100018786/the-euro-graph-of-doom/
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