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Thursday, 10/23/2014

The State of the Hong Kong Property Market (5)

POSTED BY Ed (2 yrs ago)

Let's start a new thread on this as the other is loading slowly due to length...

Part 1 (98,000+ Views)

Part 2 (61,000+ Views)

Part 3 (36,000+ views)

Part 4 (21,000+ views)

#1 POSTED BY Ed (2 yrs 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

#2 POSTED BY Loyd Grossman is Miss Venezuela (2 yrs 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.

#3 POSTED BY Ed (2 yrs ago)

China's Stimulus Leading to Stock Market and Property Bubbles - 'Hard Landing is Guaranteed'

#4 POSTED BY Loyd Grossman is Miss Venezuela (2 yrs 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.

#5 POSTED BY Ed (2 yrs ago)

Germany Lends at 0%, Should You Be Worried?

As the issue is expected to be fully subscribed... some are clearly extremely worried...

#6 POSTED BY punter (2 yrs ago)

There are no panicked sellers yet. I'm looking for one too.

So, will property prices never come down?

#7 POSTED BY OffThePeak (2 yrs ago)

"Germany Lends at 0%"

Here's why:

Bank runs are pushing Euro deposits into the German banking system

#8 POSTED BY OffThePeak (2 yrs ago)

When rates rise, sellers will panic.

Why panic now, when flats are so easy to rent, at levels that cover mortgages

#9 POSTED BY Ed (2 yrs 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.


#10 POSTED BY Ed (2 yrs ago)

OTP ... is it my imagination or did the lines for Italy and Spain take an even sharper downwards turn compared to what you posted the other day?


#11 POSTED BY OffThePeak (2 yrs 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

#12 POSTED BY Ed (2 yrs ago)

Here's a short, but comprehensive summary of what those considering investing in property or any other asset might want to consider: http://www.zerohedge.com/news/growing-tensions-spreading-global-downturn-and-dead-end-greek-resolution

#13 POSTED BY OffThePeak (2 yrs 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.

#14 POSTED BY Ed (2 yrs 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....

#15 POSTED BY Ed (2 yrs 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...

#16 POSTED BY Ed (2 yrs 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

#17 POSTED BY Loyd Grossman is Miss Venezuela (2 yrs 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.

#18 POSTED BY Ernie20 (2 yrs 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.

#19 POSTED BY elsdon (2 yrs 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.

#20 POSTED BY Underdawg (2 yrs 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.

#21 POSTED BY punter (2 yrs 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.

#22 POSTED BY Ed (2 yrs 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?

#23 POSTED BY ltse (2 yrs ago)

Its not all bad news, I am listing some NYSE and AMEX ETF codes here with links for those wishing to profit from the Eurozone crisis and the ongoing credit/banking crisis.
Notably SKF (shorting the banking sector) and EUO (designed to track 2X inversely to the eurodollar) are good long term holds particularly if your an "end of the world" guy.

Having said that, it seems the saying "sell in may and go away" is more applicable this year than ever. The McClellan Oscillator is an indicator that measures momentum
and compares the overbought and oversold conditions of the market across a broad range of stocks, whenever the McClellan dips below -300 this usually indicates an extreme oversold reading (and vice versa), on Friday the McClellan hit a minus 419 extreme reading, it appears the market could be due for a short term rebound from here, so time your entry point carefully.

Direxion Daily Gold Miners 3X Shares (NYSE: DUST)

GDX - Gold Miners ETF

SKF -Ultrashort Financials

ProShares UltraShort Europe -EUO

ProShares UltraShort FTSE China 25 - FXP

Active Bear ETF - HDGE




#24 POSTED BY fieter (2 yrs 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!!!!!

#25 POSTED BY Loyd Grossman is Miss Venezuela (2 yrs ago)

Ed. Scroll back through the previous thread. It should be there. Others also provided data.

#26 POSTED BY Ed (2 yrs 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...

#27 POSTED BY punter (2 yrs 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.

#28 POSTED BY ltse (2 yrs 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.


#29 POSTED BY Loyd Grossman is Miss Venezuela (2 yrs ago)

Scroll back. It's there. At the most a couple of weeks ago.

#30 POSTED BY Underdawg (2 yrs 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.

#31 POSTED BY Ed (2 yrs 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'

#32 POSTED BY Ed (2 yrs 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

#33 POSTED BY Ed (2 yrs ago)

'You can't defy gravity forever' - Is China already in Recession (short video) http://www.youtube.com/watch?feature=player_embedded&v=tv39fen7Dek

#34 POSTED BY Underdawg (2 yrs 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.

#35 POSTED BY hkxxxpat (2 yrs 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.

#36 POSTED BY Ed (2 yrs 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.

#37 POSTED BY Loyd Grossman is Miss Venezuela (2 yrs 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.

#38 POSTED BY Loyd Grossman is Miss Venezuela (2 yrs ago)

And for you Ed, here's the link.


Sixty percent sounds about right considering people's propensity of people to save (just look at the Cross Harbour Tunnel queues to save 20 bucks or so) and the long-establsied families here.

#39 POSTED BY Ed (2 yrs 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.

#40 POSTED BY punter (2 yrs ago)

In the past link, the 60% is the percentage of self-occupied homes. Not "ALL" homes in Hong Kong.

#41 POSTED BY Ed (2 yrs ago)

Punter... if we had a prize for post of the day... you'd get it for the above... well spotted

#42 POSTED BY Ed (2 yrs 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...

#43 POSTED BY elsdon (2 yrs ago)

Just on the 60% of mortgages paid thing.. I posted in the last thread, reposting for reference..


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.

#44 POSTED BY Loyd Grossman is Miss Venezuela (2 yrs ago)

elsdon. But investors with weak holding power will have been shaken out by now. Also, what about public housing?

#45 POSTED BY Ed (2 yrs 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... )

#46 POSTED BY elsdon (2 yrs 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.

#47 POSTED BY Underdawg (2 yrs 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.

#48 POSTED BY traineeinvestor (2 yrs ago)


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?

#49 POSTED BY Ed (2 yrs 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.

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.

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!

#50 POSTED BY Loyd Grossman is Miss Venezuela (2 yrs 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.

#51 POSTED BY elsdon (2 yrs ago)


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?

#52 POSTED BY elsdon (2 yrs ago)


DISCLAIMER: I know nothing of London real estate, or geography.. But just a quick 30s on google:


Over 100 pages properties in 'Central London' ranging from apartments, flats, houses etc. All under 550k GBP which is roughly 6-7M?

#53 POSTED BY Loyd Grossman is Miss Venezuela (2 yrs 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.

#54 POSTED BY Ed (2 yrs 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

#55 POSTED BY Ed (2 yrs ago)

Hong Kong/China's Biggest Export Market Contracts Sharply

#56 POSTED BY Ed (2 yrs 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.


And yet another market that won't be buying as much Made in China/HK

#57 POSTED BY traineeinvestor (2 yrs 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.

#58 POSTED BY Underdawg (2 yrs ago)

Tick tock tick tock, it's about time Ed creates a new thread called "The State of the Macroeconomy".

#59 POSTED BY OffThePeak (2 yrs ago)

"New thread called 'The State of the Macroeconomy' "

Sounds like a Plan.

#60 POSTED BY Ed (2 yrs 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...

#61 POSTED BY OffThePeak (2 yrs ago)

Those "backwards" numbers are really useful, Ed.
If you know how to read charts

#62 POSTED BY hareme (2 yrs 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.

#63 POSTED BY Loyd Grossman is Miss Venezuela (2 yrs 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.

#64 POSTED BY Ed (2 yrs 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…..


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…

#65 POSTED BY Ernie20 (2 yrs 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.

#66 POSTED BY elsdon (2 yrs 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??

#67 POSTED BY traineeinvestor (2 yrs 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.

#68 POSTED BY Loyd Grossman is Miss Venezuela (2 yrs 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.

#69 POSTED BY Ed (2 yrs 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...