The State of the Hong Kong Property Market (6)

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Part 1 (98,000+ Views)

http://hongkong.asiaxpat.com/forums/hong-kong-property/threads/114674/the-state-of-the-hong-kong-property-market/


Part 2 (61,000+ Views)

http://hongkong.asiaxpat.com/forums/hong-kong-property/threads/133889/the-state-of-the-hong-kong-property-market-%282%29/


Part 3 (36,000+ views)

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Part 4 (21,000+ views)

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Part 5 (12,500+ views)

http://hongkong.asiaxpat.com/forums/hong-kong-property/threads/146934/the-state-of-the-hong-kong-property-market-%285%29/





We left off with this chart that demonstrates that the factors that have the biggest influence on declining Hong Kong property prices are external or macro...


Namely...


1. The Asian Financial Crisis

2. The Global Financial Crisis starting in 08


http://static.alsosprachanalyst.com/2011/01/Hong-Kong-Real-Estate-History-in-a-chart1.png



So rather than focusing on local policy (which is generally insignificant as demonstrated by the chart) when determining market risks, should we not be more concerned with macro issues such as collapsing export markets, global recession, interest rates (as determined by the US Fed due to the dollar peg), the cessation of stimulus and Quantitative Easing and insolvent countries and financial institutions?

I don't know what others are seeing, but the HK property market seems to have "GONE BID"* in the last few days


Apparently, the report that those living in certain estates will not have to pay the Land Premium has pushed up prices for those estates. That gives people more "buying power", and they are out bidding on secondhand properties all over Hong Kong.


That is what I am hearing anyway. Comments please?


("gone bid" : many bids, few offers)

I have had three phone calls from agents this week. I have had no calls since around May. However, I can't see volume picking up unless we are talking about low-mid New Territories' estate property. Sellers need the buyer to pay at least 50% over valuation in order to trade up because the special stamp duty has cut liquidity and you need a much larger deposit in percentage terms over 10m. This is why people are being squeezed out of what was the 2m-4m range mass market. The government now finds itself in the situation where it has to house the lower middle class because of government policy. For middle class salary earners who own property, it makes more sense to hold and pay off than trade up. You only trade up when the mortgage is paid off and you get a good price.

Wow. We are now on our sixth page. We could turn this post into a novel. A tragi-comedy perhaps? The only problem is there isn't really any sexual content.

"heavy breathing"?

Is that what you call the article in today's Property section of The Standard ?


BOOM TIMES ARE BACK


The depressed property market has seen a lift recently, with transactions of both primary and secondary homes rebounding, as Chief Executive Leung Chun-ying vowed not to make housing prices slump.

. . .

Last week was also the busiest since early May, according to the agency. "[These busy days] reminded me of the transaction boom in February," said an agent at Park Island in Ma Wan.


The agent said he had to pick potential buyers to view one home for sale last weekend, because there were too many people eager to buy.



http://www.thestandard.com.hk/news_detail.asp?we_cat=16&art_id=124483&sid=37072333&con_type=3&d_str=20120719&fc=7

Interesting article OTP, thanks. A little out of touch as I'm on a sunkissed asian island for a couple of weeks.


Seems like people are starting to get over the worry of CY which has been haunting the market for 2 or 3 months. Just 22.5 % expect property prices to come down. Meanwhile I see bank valuations have risen again in the past few days. What should one ask in relation to a bank valuation or does that vary greatly on the particular property? Could be on the next leg up in the coming months.

yeah.

The fact that HK Developer share prices showed relative strength in recent weeks suggested that the pessimism here was getting overdone


July and August can be good months in HK

Interesting.. This is shaping up to be more and more of an event in my favour. The larger majority of people seem to have taken a positive outlook on this year, which puts me into the minority! Which.. is a good thing, isn't it?


Just had my agent friend call me, told me that the market had picked up for her again this month.. I think that bodes well for me. Keep buying!

Incredible market! I hope the volume goes higher.

Ray Dalio, most successful hedge fund manager has an excellent article on ZH this morning:


Given the lack of global private sector credit creation, the world's economies remain highly reliant on government support through monetary and fiscal stimulation. Now that the most recent round of global monetary stimulation has ended, world economic growth has slowed and central bankers are in the process of stimulating again. We estimate that in the past few months, global growth has slowed from about 3.3% to 1.9% and that 80% of the world's economies have slowed, including all of the largest.


The breadth of this slowdown creates a dangerous dynamic because, given the inter-connectedness of economies and capital flows, one country's decline tends to reinforce another's, making a self-reinforcing global decline more likely and a reversal more difficult to produce. And at this point, while actions have been taken, none of the world's largest economies are stimulating aggressively via either monetary or fiscal policy, further reducing the odds of a reversal.


More http://www.zerohedge.com/news/ray-dalios-bridgewater-self-re-inforcing-global-decline


Also very good http://prestowitz.foreignpolicy.com/posts/2012/07/19/the_end_of_decoupling

Good to see Ed swimming in his usual sea of wrongness.

Back in Hong Kong, we see that the jobless figures are unchanged and total employment at a record high. If serious numbers start losing their jobs, that would affect prices. No sign yet though.


Even Uncle Four doesn't think prices will fall much. He's facing thinner margins too due to construction costs. I'd seriously be checking out the quality of some of these new developments in case they've economised too much.

Funny thing about hurricanes.... the sky can be clear and sunny... in the days just prior to the maelstrom...


Keeping in mind that Hong Kong is a trade-based economy.... (no that it matters what an economy is based on if this continues...)


"We estimate that in the past few months, global growth has slowed from about 3.3% to 1.9% and that 80% of the world's economies have slowed, including all of the largest."

There's no question there's demand for housing. As for pent up demand, how do you measure that?


I think that in Hong Kong there's not too many who hold buying plans because of impending disaster or slowdown. I would guess that most HK people buy when they have the opportunity to do so. If this argument is true, the reason for slow sales (low volumes) is that not many can afford to buy. This is different from the argument that people are waiting for prices to come down; I'm arguing that many who wants to buy just can't afford to buy what they want.

Centa City Index down today, two weeks in a row at the beginning of July. Is this the CY effect and will it wear off quickly?

Yeah, what I am seeing and reading now shows:

Demand is back, and people are buying again


Barring the unexpected, I think you will soon see those Indices higher


Hong Kong is a wondrous machine for building wealth (thanks to low taxes), and so buyer capital is building and building. So I would agree that there is plenty of untapped and available cash that could go into property

Jim Fit. The problem is there isn't really a market like there used to be - so there is no market price. We also have inflation creeping up. People who put down these huge deposits and who have survived the numerous crises we have gone through over the past years are hardly likely to panic sell.

Fit, your:

"Why would anybody -especially savvy "investors" like Honkies- want to buy at the top of a market, or a market that is at an historical high ?"


Any market that has broken out of a historical trading range invites people to "buy at the top". The ultimate Top can only be recognised in hindsight.


This market is behaving like one where people are reluctant to buy, but it is rising anyway. One reason is that there is plenty of pent-up demand. Many people have cash deposits and want to buy, but are waiting for a pullback.


Buyers feel like they are "entitled" to a discount to sellers asking prices, and they are often making offers at 3-5% below Sellers Asking prices. They expect seller to take them and then act surprised when the seller do not. If the psychology shifts, and the buyers start paying the ask price, the market will jump.


One strong possibility is that the market will suddenly jump to the Ask side, and then those who want to buy, will panic-buy in a spike upwards, as those who have wanted to buy jump in for fear that it will runaway.


The small number of new properties being completed or launched in the next few months is another bullish factor.

Well... maybe not everyone....



“We have reached a profound point in economic history where the truth is unpalatable to the political class — and that truth is that the scale and magnitude of the problem is larger than their ability to respond — and it terrifies them.”


Hendry believes that financial markets are single-digit years away from a crash that will present investors with opportunities of a lifetime. “Bad things are going to happen and I still think the closest analogy is the 1930s.”


http://www.cnbc.com/id/41621340

On the contrary... it makes for a far worse week if you never believe anything bad can happen - that this time is different - that money printing = a sound economic system.. and then you find out that was all wrong...


Kinda like when your entire pension savings get wiped out when the market crashes like it did after Lehman... or like when a property you just bought at the height of the market in 1997 drops 70% almost overnight.

the pent up demand argument has always stuck me as silly. There is as much pent up demand for buyers as there is pent up supply for sellers, so how is this informative at all? Honestly, pent up demand is just some vague, unmeasured catch phrase that agents use to put a positive spin on bad news, and justify why the future looks better. In this case, to address the dearth of transactions.

Liebster - I think its called pent up demand because the average hongkonger love property more than their own children ( thats left to the Phillipinos ). Everyone in HKG want to own 10 flats. But you're right. Its vague and not quantifiable. Maybe they all want to own 20 flats each.... And rent them out to each other. Before you say that sort of math makes no sense keep in mind that the Muslims belief theres 70 virgins for every man in heaven - god only knows where they all come from. And Bernanke thought the the US property market was healthy in 2006.

I'm looking out into the horizon and not seeing any smoking volcanoes here in Indonesia...



But I am seeing a lot of smoke floating across to Asia from collapsing economies and banks in Europe... record high interest rates on too big to bail countries... that's one nasty volcano getting ready to blow it's top...


Then when I look the other way I see billowing smoke headed this way from America where growth is dropping dangerously close to stall speed... job situation is worsening... where there is smoke there is volcano


There's a smell of sulfur drifting in from China with it's 65 million empty apartments and declining exports...


Then there's the smoldering two decade long volcano in Japan that is sending up a mixture of radiation laden ash from time to time...

Ed, what is your intention with all these doomsday scenario?? I think deflation will happen, but that is an awesome opportunity to go short on stocks make $$$ on the way down and make $$$ on the way back up when they do QE, personally I can't way until the next credit bubble implodes, sure property can come down, but if your cashed up, this will be the time to pick up stocks for pennies o the dollar, and if 2008 is any guide, more money still will go into bonds so you can go short on bonds, money won't stay there forever, or simply go long the VIX index, volatility is a sure thing.

Bottom fishing... provided the fish aren't call killed off by the volcano.

Is the game up for property tycoons?


http://www.marketwatch.com/story/is-the-game-up-for-property-tycoons-2012-07-22

Italy Stocks Dive 5%...


Spanish and Italian bonds yields are out of control...


Greek leaders says his country is in a 'Great Depression'


Who's turn is it to print?

It's question of either a) printing or b) defaulting. That's it really, nothing more to be said. This has been obvious for over a year. Don't think many people here will be selling flats cheap just because of Spain or Shanghai for that matter. It will just be a case of battening down the hatches. Anyway, 2008 was much worse.

2008 was just the warmup for what's brewing...


Italy has over 2 trillion in debt... when they default that will make Lehman Brothers look like a corner store going out of business...

Ed. Why will Italy defaulting make Lehman look like a corner shop? Who owns Italian bonds? I don't think HSBC owns that much. I don't own any. It's just Italian banks and bond funds.

Lloyd - if (when) Italy goes down... there will be utter chaos. Banks are all interconnected with the global financial system... none will be immune...

This is the nature of public forums like this. There is no accountability for calling things wrong or right, for that matter.


If you're wrong, just put a smiley afterwards and you're vindicated.

“The battle for Spain is already lost. The battle for Italy has begun.”


Remember the trillions that the Fed lent to the ECB who lent it to the banks to buy Spanish and Italian debt?


Didn't work out so well... the banks are hopelessly insolvent:



"The surge in Spain’s short-term yields adds another twist to the banking crisis, a cost that now falls on the state. Spanish banks borrowed €315bn from the ECB under the long-term refinancing operation (LTRO) and “parked” a large chunk in Spanish two-year to five-year sovereign bonds until they need the money to cover their own debt rollovers.


While this so-called “carry trade” helped to stabilise the Spanish bond market for a few months during an exodus by foreign investors, it has now backfired badly. The two-year bond has shed 9pc in face value since the second LTRO in February, leaving the banks heavily under water. “This has turned into an unmitigated disaster."


Another superb article by Pritchard http://www.telegraph.co.uk/finance/financialcrisis/9422001/Eurozone-danger-mounts-as-Spain-spins-out-of-control.html

Jimfit. Well put in a bid of 50pc below the asking price then and see how far you get. You may be lucky. Ed with Spanish 10yr bonds at 7.5pc, the market has already priced in a Spanish default.

Jim Fit. There is no HK market price. That disappeared with the Special Stamp Duty. This is why no one can afford to buy. The only people you can buy from are a) developers b) an enduser or c) a long-term investor - who are usually well off. In most cases, the end user will only sell for a very good price as he he needs to be sure he can get back in. The long-term guy may sell but chances are he can weather the storm as most weak ones have been shaken out. The best deals, therefore, may be from the developer. For those investors with mortgages, there is also a positive carry and no where to park the proceeds of a sale. This is why turnover is down and why this macro stuff is more or less irrelevant. Prices can only come down when the SSD is abolished.

loyd, the SSD won't be abolished until prices come down. its very purpose is to paralyze the market. If SSD is abolished, speculators will return and it will have opposite effect.


Prices can come down in several ways, first if buyers win the battle of wills and sellers blink first.


or


public outcry results in a large upsurge of private and semi public supply, thereby providing more affordable flats. This will force sellers hand.


or


large uptick in rates will force prices down.


Im not sure buyers have the option to blink first, because they simply cannot afford to do so even if they wanted to (affordability index at 50). It is also unlikely the stalemate will continue long term until income disparity and inflation boost affordability until transaction volumes return, as there is no historical precedent whatsoever in Hong Kong for such a scenario. It is very regularly cyclical with peaks and valleys.

Lloyd - higher bond yields may be priced in but default isn't...



And the EU tumbles deeper into it's inescapable hell as the entire region slides into recession:


Euro Zone Downturn Continues in July as Outlook Darkens


The euro zone's private sector shrank for a sixth month in July as manufacturing output nosedived, adding to the likelihood that the bloc will slump back into recession, business surveys showed on Tuesday. http://www.cnbc.com/id/48297111



What one needs to keep in mind here... is that the EU has stimulated, bailed, QE'ed, and thrown the kitchen sink trying to get its economy growing sustainably again....


And those efforts have failed - and now what they have are massive debts - massive unemployment - and shrinking economies...


And worst of all... they are out of ammo... they have nothing left to escape this recession which is already turning into a Depression in some member states...


This is Hong Kong's biggest trading partner.

More on Europe's death spiral - Germany is in being sucked into the vortex now:


The downturn is being led by an increasingly severe slump in manufacturing, where output is falling at a quarterly rate of around 1%.


Germany is now contracting at the steepest rate for three years, while the rate of decline in the periphery is also among the highest seen since mid-2009. The only sign of improvement was limited to the French services sector, which is likely to be due to domestic business settling down again after the general elections and could therefore prove temporary.


Companies across the region are cutting staff numbers at the fastest rate for two-and-a-half years as the outlook darkens. Service providers are now the gloomiest since March 2009, while manufacturers are slashing their inventories of raw materials in the expectation of ongoing weak sales in coming months.


http://www.telegraph.co.uk/finance/debt-crisis-live/9422024/Debt-crisis-live.html


Let's see what Nigel Farage has to say about the EU: http://www.youtube.com/watch?v=qJx_Lrwop1Y&feature=player_embedded#!

Ed. If 7.5pc yield on 10yr Spanish bonds is unsustainable, then the market must know Spain will default. Therefore everyone in US treasuries as no one really knows who holds what. Spanish, Italian defaults now more orless priced. This is either the difficult birth if a more responsible peripheral eurozone or the death of German fiscal responsibility. I think the best outcome for all is default.

Liebster. Speculators are neutral. End users, long-term property investors and developers all have vested interests in property. Who would you rather buy from?

I believe the markets are pricing in more can-kicking ... they expect some entity to loan more hundreds of billions to Spain to bail it and its banks out...


If the market were pricing in an imminent default I suspect global stock markets would collapse... because if Spain 100% defaults that will almost certainly mean banking calamity because it would collapse most EU banks (as they hold the debt)...


Now Italy is the big dawg in all of this... not only do they owe 2 trillion Euros.... but this is where the CDOs come into play... how many institutions are holding these as insurance against an Italian (or Spanish) default? Nobody knows for sure because they are unregulated... but without a doubt they will amplify the 2 trillion if there is a default....


There is a reason for the saying that 'Italy and Spain are too big to bail'



As for the global growth (or lack thereof) picture... I see Apple has had a big miss... and Coke and McDonalds are now hurting... the world is sinking into recession... in spite of trillions of dollars of stimulus...

Liebster. Speculators are neutral. End users, long-term property investors and developers all have vested interests in property. Who would you rather buy from?


answer:


whoever gives me the best price.

That's probably a speculator with stock that needs shifting. Developers also need to shift stock but they are pretty cash rich snd can hold for much longer.

Jim Fit. Shenzhen is not that expensive and there is no rule of law.

I mean not that cheap.

http://www.marketwatch.com/story/euro-crisis-brings-world-to-brink-of-depression-2012-07-24


Wonder what happens to the HK property market if (when?) this plays out...

Ed. See my previous post. It will just stay as it is.

Have we Poisoned the Global Economy with our 'Cure'?

http://www.marketwatch.com/story/global-economys-cure-is-worse-than-the-disease-2012-07-25

Ed. I've explained why in the above post. Also add in the huge deposits. Endusers do not mark to market. It's silly to think that they do.

But Lloyd... the whole world is going into recession... what will happen to those rich Hong Kong traders when they have nobody to sell their stuff to? How do they pay their mortgages when the banker tenants leave?


UK Plunges Even Deeper into Recession as GDP Comes in well under Forecasts (and they are still printing like mad...)


http://www.marketwatch.com/story/uk-gdp-drops-07-in-second-quarter-below-views-2012-07-25

I track valuations, but I definitely do not list my property for sale just to test market value. As Lloyd has mentioned, if you were to sell a unit, most of us at this stage should be in the money/ make a profit. However, if you ever get back into the market your new unit will be subject to SSD. This significantly reduces liquidity. Sellers in the market basically prices in liquidity risk when putting up units for sale. I do not believe there is only 1 way up for the market. But with low unemployment, interest rates going to continute to be low (one of the few profitable areas for banks simple savings & loans, esp considering people are putting down a high deposit %).


I think atm the strongest negative catalyst is land supply & potential govt. measures taken to restrain prices. (as in more important than all this negative macro news out there...i'm not suggesting that HK is decoupled from the rest of the world, but our property sector is very different than almost every other country)

Red Alert - Red Alert.... Ben ... please print more trillions to prop up the phony global economy...



"The Richmond Fed's twin indices of manufacturing and services – a very good indicator at the onset of the Great Recession – collapsed this month.


They are now falling at a steeper pace than in early 2008. Current activity in manufacturing fell 16 points from -1 to -17. That is a major shock."


http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100019130/the-collapse-in-us-manufacturing-and-services-shows-that-things-could-be-about-to-get-a-lot-worse/

Ed/Jim Fit. So why isn't the HK property market budging?

All these posts Ed, and you haven't really looked at how the HK property market works or taken much account of conditions here or the fact that we had a decade long recession when China, the US and Europe were doing fine. This is fundamental stuff.

Could be Jim Fit but I wouldn't bet on it.

So whom among the bulls in this thread bought a flat in the past 3 months?


Buying now at historically high prices is a gamble, especially if it's for investment purposes (not for self use). I would think that even the most bullish on HK property is not going to touch any right now (again, that comment is for property not for personal use).

Lloyd - I have looked very closely at how the HK property market works... particularly what causes it to collapse on a regular basis ...


Local factors and policies have virtually ZERO influence...


We only need to pull up our trusty diagram again... the two biggest recent collapses caused by Macro Economic Factors... namely:


- Asian Financial Crisis

- Global Financial Crisis


The only reason HK property has nearly doubled in the past two years is because of stimulus, bailouts and money printing... without that property prices would have continued to crash...


If you disagree then note the green arrow 'Quantitative Easing' when you check this out:


http://static.alsosprachanalyst.com/2011/01/Hong-Kong-Real-Estate-History-in-a-chart1.png



When the money printing stops... watch what happens...

hold up here.


Weren't you guys all over Ed's a** for his use of recession?


Loyd,


You've mentioned this 'Hong Kong Decade Long Recession' where apparently all the poor people conservatively amassed wealth and are so financially sound today that they cannot be shook.


http://www.indexmundi.com/g/g.aspx?c=hk&v=66


That's a chart of HK real GDP adjusted for inflation over the past 10 years. Which part of that looks like a recession?


For the lazy: (in percentages)

1999 1.8

2000 10

2001 0

2002 -3

2003 3.3

2004 7.9

2005 7.3

2006 6.8

2007 6.4

2008 2.4

2009 -2.8

2010 6.8

I think HK's GDP numbers are linked to trade going through the port of Hong Kong which is essentially Chinese trade booked as HK trade. Like I said, China was growing and doing very well over that period. Can't be sure as I'm not an economist. But don't you remember the years of deflation?

I don't know, I've only been here since 2008 and there has been nothing but good times since I got here with a brief 8 month blip during Lehmans..

Oldman...


The market crashed 70% in 1998...


Keep in mind 1998 was a regional crisis... what we are in now is a massive global crisis... that is worsening...



Lloyd... how do you think most people make their riches in Hong Kong? Yup - trade.


How many thousands of factories in Guandong are owned by HK residents?


If our global markets continue to recede... how is it possible to avoid a recession in Hong Kong?

While I agree... you can wait forever for a crash however:


1. Hong Kong property prices are significantly above their all-time highs and the most expensive in the world - so how much higher can it go?


2. The global economy has been powered by Central Banks printing trillions since Lehman - how much longer can that continue?


3. All major economies are slowing dramatically or are in recession - as a trading centre how long before this hammers the Hong Kong economy?


Not exactly bullish signals...

Ed. Please. HK property is slightly more expensive - and cheaper in real terms - than it was 15 years ago. After years of deflation and balance sheet stregnthening it has just returned to were it was but on a much more secure basis. Have you forgotten the deflation Ed?

However the property bubble in 1997 was so enormous... dwarfing anything we've ever seen in HK... that any price in real terms that even comes close to that is surely alarming...


If HK people are so industrious... why did property crash 70% in 1998?



I believe it is speculators who ultimately determine if the HK market crashes... I think that most end users would not sell into a collapsing market unless they absolutely had to (e.g. lost their job - had huge losses in business such as if their factories received much lower order volumes from the US and EU) - at the end of the day they need somewhere to live... (although some might sell if they thought the market was about to crash - then buy back in)


Speculators by their nature are generally leveraged... they use bank loans to juggle properties (i.e. they don't pay them off) and rely on tenants rent to make the mortgage payments...


If they see one of their assets dropping in value whether it be a stock or property - if they assume the drop will continue usually they will sell and cut their losses...


When there is a major market calamity (e.g. Asian Financial Crisis)... the go screaming for the door because nobody wants to hold an underwater property....


Also if you have a portfolio of properties and the rents drop so that you can't cover the mortgage payments then you are forced to sell to avoid bankruptcy.


So where does the money go?


Assuming they have not lost money then I would suggest that it will go into a bank account... then they live to fight another day and pick up assets at deflated prices.

One important factor here is that generalizations are dangerous...


I know of plenty of people who are sitting on cash waiting to dive in... a few of them had the foresight to dive in right after Lehman... one of them purchased two properties... then sold them about 6 months ago... near the market top of course...


He is waiting - as are I am sure many more - for the next shoe to drop....

"sold them about 6 months ago... near the market top of course"


The market top is now, or still ahead, Ed.

Hey Walkup, I believe that property prices are going down. I don't know when. I also know I could be wrong. But I'm sitting on some savings and waiting to buy when prices are to my liking. If prices don't come down, I'm ok with what I have now and okay with my money not earning a lot in the bank.

OTP - of course nobody has a crystal ball... he made well over 50% on both properties...


I wonder who else has done as well in that period...

Ed,

Most anyone who bought in early 2009, and sold near current prices would have made 50% or more - That was the market move, I believe

Ed/ JimFit


Have you ever considered shorting developers shares as a way to bet the market would fall. Or alternatively put options on the index itself. Of course there are other variables that would impact each individual company's performance. Just curious if the approach you're suggesting is wait and hope? And if you were to wait and hope....at what level would the general index have to approximately drop to, for you to be comfortable with getting back in?


(And fyi, yes I do realise profits...when I figure that I have no reason to believe that my unit will do *relatively* well anymore to neighbouring units)

Mash... although I dabble I generally do not play the stock market... I prefer to invest in businesses / assets that I can control... so shorting developers hasn't cross my mind...


Two other reasons - I suspect many developers are engaging in 'influencing the market' so difficult to get on an even playing field when evaluating them... and because of Central Bank intervention (stimulus) it would be a dangerous game shorting anything... (I see Kyle Bass... a very astute manager has been burned badly shorting Japan....)


As for when would I step in... I'd start looking around at residential and office space if there was a drop approaching 50%... the thing is... I don't see any urgency in making a quick decision if the market tumbles... when the market crashed in 1998 it took years for it to pick back up...


That said in 2008 when it headed downwards it turned on a dime as soon as the Central Banks turned on the printing press - I don't see that happening again... I think this time around when things go sideways we won't see an attempt to prop up asset prices - we will see rapid deflation and debt destruction... (which of course presents massive risks as well... i.e. total collapse of the global economy...)


I also look at the Great Depression numbers in the US... it took 25 years for prices to reach their pre- Depression highs...


I might be wrong but somehow when the dust settles, I suspect things will come down significantly (i.e when Central Banks are unable to kick the can any longer - but who knows when that will happen) and we'll sit there for quite a while...


Then again I might be wrong... but that's ok... I am quite happy sitting at my office overlooking the jungle and river here up in the wilds of Ubud...

So Ed. The wrongness continues.

Actually the rightness continues Lloyd... Bali property up 3x since 08... gold up nearly double since 07...

But Ed. You don't own your property in bali. Someone else does.

The cash would land in my HSBC account if I chose to take the offers... so I am not so fussed about the ownership issue.


Keeping in mind that nobody owns property in HK either... it's a long term lease (like Bali)... the ultimate owner is the Communist Party up there in Beijing...

Just to clarify as I am not familiar with the Bali market....why is Bali up 3x since 08 not a bubble? I would guess most locals in Bali would have trouble affording such prices......I would also guess much of the buying in Bali is foreigners buying holiday homes or buy to lets....i.e. would be one of the first to go when the world collapses, tourist numbers drop and financing needs to be paid off with redundant assets (as opposed to personal homes or appartments in city centres)....but happy to be proven wrong

There is a subtle difference Ed. We don't own it in our own names whereas you don't own it in someone else's name. Also, HK's legal system has a better track record than Indonesia's but you never know what the future holds.

However only someone who has not done their homework buys property in Bali without using a credible western solicitor who puts in place various loan agreements and other assurances 'unrelated' to the property itself that make it very difficult to end up out of pocket...



On the macro picture... I see that Mario Drag Queen is following The Bernank's lead in threatening to juice the economy by printing... isn't it interesting how a simple utterance can move markets?


All they have to say is 'we might print money'... and we are off to the races...


Maybe this can go on forever?

HKLEV - as I've indicated previously Bali I believe Bali is in a MEGA bubble... and I believe it is driven by the trillions of dollars of credit that have been unleashed by Central Banks around the world...


There is no comparable chart for Bali but it followed a similar course as HK - QE after Lehman lit the rocket fuse http://static.alsosprachanalyst.com/2011/01/Hong-Kong-Real-Estate-History-in-a-chart1.png


Although I think Bali property is likely to crash... I am not selling as I live on the property much of the year.

Yes, Ed. Why not sell and rent? LOL.

I sold of all and am renting as of same time last year.. We'll see if I made the right call or not.


Ed should sell and rent and put his money where his mouth is. :P


That being said, I don't think Ed ever said that anyone should SELL right now.. I think he is just saying that nobody should BUY right now.. those are two very different ideas.

I have never suggested anyone sell and rent (although that's not a bad idea if you think the market is going to crash...) I have not said nobody should not buy now.


I have said it might not be a bad time to buy - because cash might turn to toilet paper if we see hyperinflation... better to own something in that case...


I have posted comments and articles that indicate there are huge risks involved with buying now - and that I believe the market is over-priced...



Why do I not sell and rent? Various reasons...


- because it is very, very difficult to find land in Bali overlooking three rivers, massive untouched jungle, sandwiched by two temples ensuring nobody will ever build ... in a location that is not in the middle of absolute nowhere...


- because I have rented in Bali and I am not keen to live in a 'resort' style concrete bunker waiting for prices to drop - then waiting to build another house


- because I have put 4 yrs into building structures out of bamboo and colonial era teak and iron wood pulled off of old houses and bridges in Kalimantan... and there is limited supply of that sort of wood...


- because I don't care if the price goes up or down - I am not here to make money - I am here to breathe clean air, grow organic food, and relax....

Centadata edging back up

Up strongly I would say Loyd, the CY effect is wearing off. Strap yourself in and wave good bye to Ed's believers on the quayside. No macro effect here, only local. HK property has been on the up for nearly a decade, some sectors were unaffected by Lehman's and others recovered in months.


I'm over in the Philippines, which I believe is the next boom town in asia. Gets better everytime I'm here. I'm visiting a couple of beaches I own (or do I?). To me though, it's speculation money, if the whole lot goes, i walk away form the table down. You have to ask yourself, can I take a 100% loss on this. Yes I can.Never believe anyone until the cash clears in your account. No way would I put all my marbles in this game. Anyway,back to my nice HK property next week, a richer man!

Here you go: http://hongkong.asiaxpat.com/forums/hong-kong-property/threads/147703/alternative-asian-property-markets/

I looked at Phuket some years ago and have mild regrets for not buying.


Mario's forceful statement on supporting the Euro was interesting - it doesn't do anything for the underlying problem facing the Eurozone (governments spending too much money) but it does suggest that we will see more printing and more bank bailouts - meaning a greater tilt towards inflation.

"Mario's forceful statement on supporting the Euro was interesting - it doesn't do anything for the underlying problem facing the Eurozone..."


Yep.

And the European continue to flood into HK, where they perceive there to be better opportunities. And these "new" people need to live somewhere. They even prefer Mid-levels and Sheung-wan to more reasonably price parts of HK, giving a some new time to the boom in Lloyd's favorite neighborhoods. (hey, LGMV, when are you going to open that Venezuelan restaurant in ML?)

Mario's statement is pretty much empty... there is not enough money to bailout Spain.... Germany refuses to monetize state debts... and every time the ECB makes cash available to Spain it simply increases Spain's existing debt load (these bail outs are not forgiveness - they are loans)...


Spanish bail-out 'impossible’, experts warn

A full-blown sovereign bail-out of Spain would be economically and politically impossible and cost up to €650bn (£510bn), an in-depth study has warned.


http://www.telegraph.co.uk/finance/financialcrisis/9434497/Spanish-bail-out-impossible-experts-warn.html


and then there is.... italy.

Ed. It looks like the Germans are going to monetise. That's why the market is up.

I believe the Germans will eventually agree to allow the ECB to print... but only when the EU situation becomes so desperate that it is on the verge of collapse... then they will print to attempt to kick the can once more - and not long after that happens hyperinflation will occur...


Money printing is not a solution to insolvency.


I see that the Fed is now buying up an astounding 61% of all US debt - because there are no takers... that is horrifying.


Now as I was saying... bad news is good news because it means more printing:



HONG KONG (MarketWatch) — Asian investors would be advised to strap in for the usual roller-coaster ride, as more signs emerge that the Federal Reserve is preparing for another round of stimulus.


Quantitative easing (QE) in the U.S. has typically been a recipe for higher prices in Asia, and a signal for investors to seek refuge in hard commodities or currencies. For Hong Kong, with its pegged exchange rate, the result is invariably an inflationary and asset-price surge — particularly unwelcome when property prices are at all time highs.


http://www.marketwatch.com/story/asia-readies-for-qe3-roller-coaster-2012-07-29


Keep blowing the HK property bubble Ben!

Ed. Do you actually know what a bubble is? How can you have a bubble when people are putting down deposits of 30-60% and you can get a mortgage unless you meet other stringent requirements on loans, a 200bp interest rise is factored in etc. It's just expensive property - and not really that expensive when look at prices in NY and London. We have a tax rate of 16% here you know.

What was the down payment on a property in 1997 Lloyd?

In 1997 also 30% but you could get a loan from bank A and use it as a deposit for a property and get a mortgage with bank B. The banks didn't talk to each other and as long as you could show some income on your statement for three months that was okay. The banks had no idea how much debt you had. Now they even know if you apply for loan and don't take it up. They also know your credit card bulls. basically everything. Now if any of these debt payments plus your mortgage plus a 200bp rise in rates push the amount over 50% of your monthly income, you cannot get a mortgage.

The one thing the HK property isn't in is a bubble, it's the exact oppositie of a bubble.

A/c to a seemingly honest agent here in ap lei chau/South Whore, the flats have gone up about one million since January (for 700+ and up sq ft). Insane really but there it is.... hard to see any signs of a bubble or impending crash around here.


Now I dont know if anyone is actually buying these run-down flats for that much loot, but .....

And stir in the long years of saving and balance sheet repair since 1997 and you have something prteey rock solid.

Can you provide something that backs this statement up - along with some evidence that this rule has changed; "In 1997 also 30% but you could get a loan from bank A and use it as a deposit for a property and get a mortgage with bank B."


Also how prevalent was this - if it was indeed permitted...


Sorry for asking but you have a long track record of posting 'facts' that have been demonstrated to have no basis in reality.

Ed - you may find the linked research paper enlightening:


http://www.hkma.gov.hk/media/eng/publication-and-research/research/working-papers/HKMAWP11_01_full.pdf

ED. What examples do you have of me posting incorrect facts Ed?

@ Ed - if hyperinflation is expected, then surely property is as good a place as any to ride out the storm? (And geared property better still.) Other ideas?


I agree with Loyd that there is no "bubble" - all the usual characteristics of a bubble are absent from the HK market. Expensive does not mean that there is a bubble. A simple Google search for "economic bubble" will confirm this.


We've been over the gearing issue many times and it's pretty clear that there is realatively limited gearing in the HK market - meaning that any downward presssure on prices is much less likely to come from people selling up becuase they cannot service their mortgages. Increased supply or waning demand are far more likely to possibly drive prices down.


On the differences between lending practices in 1997 and now, I can't comment on Loyd's point but I do recall from my own discussions with investors and speculators at the time (I wasn't in the HK market then), that it was commonly necessary to lie to the banks to get mortgage financing for anything other than an owner occupied home - the banks being reluctant to lend on investment properties - and it was common for investment properties to be left empty pending flipping. I have no idea how widespread these points were but they were certainly much talked about among the people I was speaking with. Today, banks have no problem lending on investment properties and flipping has pretty much been killed by the SSD.


@ oldmanlowski - absolutely right - many of the "affordability" comparisons are rendered misleading (at best) and rubbish (at worst) because they do not take into account differences like the ones you mention - lower taxes, transport costs etc make a big difference to affordability.

"In fact, I read that at least 50% of HK residents pay ZERO income tax."


Just to tag onto that statistic so it has context, are we talking workforce or citizens period because I would imagine that 30-40% of HK residents are children??

Lloyd - you stated that the majority of residential properties in Hong Kong were owned outright. That was demonstrated wrong by another member.


You stated that you do not lose money if you own a property and the market value for it has gone down. That is incorrect - as any accountant will tell you - assets are marked to market - not to what was paid for them.



Can you post the specifics from that document that back up your assertion that the market bubble in 97 was created by people taking multiple mortgages from multiple banks.



As for a bubble, I believe the bubble has not been caused by easy credit / little or no money down (as it was in the US) rather by artificially low interest rates as a result of the Fed's massive debt monetization...


The HK dollar peg to the US dollar is forcing HK to follow US cheap money policy which is inflating the hell out of the economy... look at other Asian economies - interest rates are far higher...


These low interest rates in HK are like throwing gasoline in a fire.


Let's revisit our chart which demonstrates that QE in 2009 marked the beginning of the property price surge: http://static.alsosprachanalyst.com/2011/01/Hong-Kong-Real-Estate-History-in-a-chart1.png



Hyperinflation: property is certainly better than cash, stocks or bonds in this scenario.... but the only proven hedge against hyperinflation is, from what I have researched, gold...


Real Estate: 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.


http://www.usagold.com/germannightmare.html

Ed. Show me where I was wrong. I think the majority of end user properties are. You have a tendency to play the man when you lose the argument. As for posting some document to prove whst was well known before 1997 is ludicrous, this is chat room not dome scientific paper. I lived in HK and I saw people doing it. Why do you think the government clamped down on it? For fun? Again, why do I have to accept that it us money printing that has saved HK property instead of hard-earned cash. Is it to obscure the argument and slant it in your favour?

'Let's revisit our chart - QE in 2009 marks the beginning of the property surge: http://static.alsosprachanalyst.com/2011/01/Hong-Kong-Real-Estate-History-in-a-chart1.png' - Ed


Hong Kong property prices have been rising steadily since 2003, save for Lehmans. The apparent surge was a quick recovery after a confidence blow due to Lehman's.


I grant you QE has had some effect since 2009, but it is difficult to atribute the entire price rise since that point wholly to QE.

Lloyd - your memory is going... this would be the third time that we post the data that shows the majority of residential properties in HK are mortgaged... I can't be bothered to hunt for that info but I believe about 70% of properties are mortgaged...



QE: if Central Banks don't launch QE in 09 property keeps going down... if they don't continue with QE now property will go down (and stock markets will implode)... there are no fundamentals any longer - everything hinges on money printing.


All you have to do is look at the endless headlines 'Markets Jump on Expectations of QE'


This is a joke - markets have detached from fundamentals - the only that that moves them now is the threat of money printing by Mario and Ben.


Doesn't mean money can't be made but as a friend of mine who trades on his own account said to me recently 'everything I learned in business school is currently useless'


Here's an excellent article explaining how QE /Stimulus has driven markets in Asia... http://prestowitz.foreignpolicy.com/posts/2012/07/19/the_end_of_decoupling



If not QE then what exactly is driving the markets? Growth around the world is abysmal... the EU is on the verge of collapse ... unemployment in many major economies is at record levels...


The entire global economy is addicted to printed money - take it away and I am certain you will see the mother or all crashes.


Now what relevance does that have to HK property?


Some are saying prepare for more asset inflation as more money is about to be pumped into the economy... bullish for HK property no?


But how about if so much money gets pumped in we end up with hyperinflation... in that event better to have property than cash, stocks or bonds....


Or maybe we end up with deflation when money printing has no effect... then cash would be king as you could scoop up property for a song as people did after the 98 crash...

Ed. You've been completely wrong on HK property now for years. Why do you post this stuff? This isn't even a money printing thread. You're spamming your own website. It's crazy.

This outstanding article just came in on a newsletter I subscribe to...


Excerpt:


At the end of the line, every possible person is sucked into belief current conditions can go on forever. We saw that in the 2000 dot-com bubble, the housing bubble, the commercial real estate bubble that followed the housing bubble, and we see it now in the "Fed is omnipotent belief bubble".


The only reason we have escaped recession so far is the amazing effort central bankers and global governments have put forth to avoid what needs to be done. Congratulations to those who recognized this condition in advance.


However, no credit can be given to those with the misguided belief such policies and efforts will last perpetually. The end of the line always comes.


Read more at http://globaleconomicanalysis.blogspot.com/2012/07/case-for-us-recession-and-global.html#cEFhVIjJSYxXjQCw.99



Hmmm... is he trying to say that the money printing will not longer work at some point?

Ed. Why can't you understand that HK is a rich town? Not many places in the world have money but HK is one of them. This has nothing to do with central bank money printing and everything to do with saving and hard work. When the money printing trickles through, this market will probably go even higher. Also, I backed up my 60% end-user claim with a piece from the SCMP - again conveniently ignored.

Another very good article:



In the face of this enthusiasm, one almost wonders why nations across the world and throughout recorded history have ever had to deal with economic recessions or fluctuations in the financial markets.


The current, widely-embraced message is that there is no such thing as an economic problem, and no such thing as risk. Bernanke, Draghi and other central bankers have finally figured it out, and now, as a result, economic recessions and market downturns never have to happen again.


They just won’t allow it, printing more money will solve everything, and that’s all that any of us need to understand. And if it doesn’t solve everything, they can just keep doing more until it works, because there is no consequence to doing so, and all historical evidence to the contrary can finally, thankfully, be ignored.


How could anyone ever have believed, at any point in history, that economics was any more complicated than that?


More http://www.hussmanfunds.com/wmc/wmc120730.htm

Quantitative easing (QE) in the U.S. has typically been a recipe for higher prices in Asia, and a signal for investors to seek refuge in hard commodities or currencies. For Hong Kong, with its pegged exchange rate, the result is invariably an inflationary and asset-price surge — particularly unwelcome when property prices are at all time highs.


For Hong Kong, the typical result of quantitative easing in the U.S. is higher asset prices and other inflation, thanks to its currency peg. This is particularly unwelcome at this juncture, with many business and individuals already bemoaning high prices as the economy slows.


http://www.marketwatch.com/story/asia-readies-for-qe3-roller-coaster-2012-07-29

The first round of quantitative easing by the US Federal Reserve in 2008 sent Hong Kong property prices through the roof. With roughly US$2 trillion (HK$15.6 trillion) purchase of treasuries and mortgage debt, it resulted in massive capital inflows into the SAR to the tune of HK$600 billion by December 2009, according to the Hong Kong Trade Development Council.


http://www.thestandard.com.hk/news_detail.asp?we_cat=16&art_id=104796&sid=30254783&con_type=3&d_str=20101111&fc=7


More QE is on the way... so HK prices set to spike?

Ed,

With all respect, just printing new articles on QE just makes you sound like a broken record. We all understand that QE will likely raise prices in HK.


In HK, the level of leverage is low. Downpayments are at 50% for expensive properties. Many people are cash rich... unlike in US and UK (where I am from).


Prices will not plummet (in HK) unless HK people feel imminent inability to pay their mortgages:

1) If they lose their jobs. Unemployment may worsen, but not suddenly, in my view.

2) If interest rates increase dramatically. I can't see this happening in the next year or two given the slow growth of US and Europe.

3) A bubble has formed... I recall the bubble of 1997 when many friends I knew held multiple properties, were severely over-leveraged, were thinking of quitting their jobs for the sake of investing in more properties, etc. I don't feel there is that same sense of "can't lose" hysteria in this cycle.


It really is that simple. There is CURRENTLY no driving force (as listed above) on HK property owners to sell off property in a panic situation.


I am not saying the situation is healthy or ideal, but I don't feel we are at a tipping point, yet.


Obviously, if you keep harping on about QE and a property crash for years and years, you'll be right eventually. But you should present a more rounded argument which also includes investor psyche and some elementary behavioural finance too.

A comment was posted that claimed QE has no impact on HK property (it would seem that not everyone understands that QE impacts HK markets)


I posted a number of articles that demonstrate that this is not true.



This thread is about investing in HK property... things such as QE, recessions in our export markets, hyperinflation, deflation, collapse of the EU currency union directly impact the HK property market...


Therefore I am posting articles that discuss all of the above...


I have no idea when the tipping point on any of this will be reached (but I do think when it is - it will be bad)...


In the meantime I am posting articles that support both a continued run up in the market - and a possible implosion.


I am the messenger... please hold your fire...

I post articles on the same topics again and again because Lloyd (and others) continues to drown out proper discussion with his comments that nothing is relevant to the HK property market other than 'Hong Kong people are rich' ... that the EU collapsing or going into recession wouldn't matter... the slowing growth in the US doesn't matter...


We may as well just let the forum theme be 'HK property always goes up - never goes down - because people are rich' and leave it at that.


These issues do matter and I think it is useful to keep an eye on these macro events - all of which are not static... they are evolving daily and I am posting updates... you can ignore them, take issue with them or agree with them... but you cannot ask that they not be posted...


And as for the other bears... the moment anyone posts anything that might indicate negativity for HK property prices a tirade of insults flows. How many times have I had to remove a number of bears from this board for insulting others...


This is a discussion of what influences HK property - not a cheer leading forum.


If I or anyone else wants to post the latest from the EU debacle, falling growth in China, or anything else that impacts the HK market then they are free to do so - without being insulted.


If the debate is 'don't post this stuff - we don't like it' then that is of course no debate.


I post comments backed up by data - much more than I can say for many others... if there is to be debate then I invite anyone to rebut the stuff I am posting...


To date I have seen virtually nothing other than calls for censorship on comments /articles that make the bulls cringe...

Actually, I am not posting the same stuff over and over... I am posting updates on fluid economic events... e.g. the Spanish situation... it is worsening - I am posting info on that quite regularly...


Which of my arguments is weak?


- that QE does not drive HK property prices?

- that the global economy is not 100% addicted to money printing?

- that if the property market falls the value of your property falls even if you don't sell it?

- that QE could continue to drive HK property prices higher?

- that recessions in HK's biggest export markets are a huge risk for our economy and could drag down our property market?

- that China has 65 million empty apartments which suggests a very dangerous situation?

- that the HK dollar peg to the USD is resulting in artificially low interest rates in HK which is throwing gasoline on the inflation fire?

- that Tom Holland in his article stating crashing overseas economies was good for the HK property market was utter nonsense?


Please feel free to point out any weakness with any comment and I'll try my best to support it - as I have done time and time again...


And I might add...


I have no idea when and where all this ends - or how to deal with this insane situation ... but I do know based on history... money printing (and we are printing on an unprecedented scale)...


Has ended badly....

If Hong Kong people live in Hong Kong, and many of them are rich with little debt, what happens to the HK property market? How can this be drowning out 'proper discussion'?

Hi Ed


I actually do read what you write and I actually enjoy the discussions on this forum.


Which of my arguments is weak?

- that QE does not drive HK property prices?

I actually agree that QE is one of the factors driving prices up. However, I also place it in the context of low leverage for property in HK, which provides a stronger foundation against panic selling. It also means that for the next few years, interest rates will remain low, which further alleviates pressure for people to panic sell. So we do have a perverse situation which few people have seen in their lifetimes. Perversity does not mean imminent disaster however.


- that the global economy is not 100% addicted to money printing?

I don't think you should over generalize. Many HK people I know are not reliant on cheap money for flat purchases. The middle class friends each have only one (or two properties) and are not aggressively hoarding a portfolio. In the UK, my friends could get 110% mortgages and hardly had enough money to make the down payment.


- that if the property market falls the value of your property falls even if you don't sell it?

During Lehman, the headline low prices were not representative of the general market. For a true property market fall, you need high volume AND high drops to show that this reflects the market in general. In fact, I have not followed property recently as I find the yields too low. However, it is clear to me that prices in middle class areas like Tai Koo are very firm and asking prices have actually gone up recently. Based on your argument of mark-to-market, we would actually be doing better now!


- that QE could continue to drive HK property prices higher?

This is likely... I agree this will happen.


- that recessions in HK's biggest export markets are a huge risk for our economy and could drag down our property market?

I also agree, but there needs to be a cycle of recession --> foreign businesses leaving HK --> mass unemployment --> failure to pay mortgage financing, etc. for there to be a massive property plunge. As always, timing is everything. I don;t think that we are at that stage of the cycle yet.


- that China has 65 million empty apartments which suggests a very dangerous situation?

Please don't treat China as one entity. There are massive differences between regions in China. Different local government policies and definitely different growth dynamics at play, etc. In Western China, e.g. Chongqing, there is a massive demand for urban housing, estimated at 500K to 1M migrants into the urban area per year. Just because some town near Mongolia is a ghost town does not represent China as a whole. Similarly, talking about Northern England and London as if they are the same English area is flawed.


Where are most professionals heading nowadays? To China and Asia. I have many friends who are moving to HK/China because their companies feel that growth in UK, Europe, Ireland is non existent and are aggressively setting up branches here.


Of my friends, who stretch from lower to higher middle class, not one is overstretching themselves. For the poorer friends, they are resigned to renting; the middle class ones own their flats outright or substantially; the upper class ones have properties already, ALOT of cash ready and have ceased to buy at these high levels. So it seems that the whole situation is in a stalemate with no pressure on sellers to bale out.


And that's what you need for the market to crap out. Forced selling at high volumes through fear or inability to pay...

For Lloyd

It's commonly accepted that the QE does have a meaningful effect on allowing cheap financing to trickle through to home buyers, so it is likely that QE is having a stimulating effect on HK prices (and all asset prices, globally)


However, I just feel that you and Ed are taking far too extreme sides of the same argument.


Even if QE is pushing prices up in HK it's likely that HK people/investors do have far stronger balance sheets than Ed is recognizing. As such, HK-ers are less reliant on QE for MAINTAINING their home ownership.

Global Economy Addicted to QE:


Let's say the Central Banks that have been printing (US, UK, Japan) came out with a joint statement today that they are stopping all QE effective immediately... and that they instead will allow the free market to work instead of trying to prop things up with printed cash....


What do you think would happen?

Whatever that means...


Let's resubmit this:




Global Economy Addicted to QE:


Let's say the Central Banks that have been printing (US, UK, Japan) came out with a joint statement today that they are stopping all QE effective immediately... and that they instead will allow the free market to work instead of trying to prop things up with printed cash....


What do you think would happen?

Ed - I for one appreciate the links you post.


I might be a little bit more optimistic than some - I expect low interest rates to remain with us for some time, take a degree of comfort from the low gearing in the HK property market and do not accept that HK is in a bubble - but it is still expensive and the potential for external events and/or CYL and the bumbling overpaid and underworked civil servants to make a mess of things is very real. Not knowing whether the bear market case or the inflation case will prevail, I remain happy to sit on my lightly geared portfolio and watch the rents come in and the mortgages slowly amortise but still have no intention of buying more.


As to the question of what would happen if the central banks of the world stop the printing presses? Absent a return to politically unacceptable levels of inflation, I think it will be a very long wait before we see something like that happen.


On gold - over most long term periods, gold may have more less maintained its real value but in many countries, equities, real estate, long bonds and some collectables have done better - the issue of course is that there has been considerable variation between the returns in different countries and even within time periods for some countries. The positive thing about gold is that it is not dependant on the fortunes of any specific country. The negatives, include lack of cash flow, risk of loss through theft, accident or government appropriation. I'm not really a fan and would not want more than a small percentage of my assets in gold.

I have read this thread over my morning coffee for along time. Until now I have never posted because I don't know enough about Hk property to do so. Still don't. I post now because because frankly Ed you are ruining my morning coffee break. I believe linking to article from someone who agrees with you is NOT backing up your argument with data. It is merely linking to an article from some who agrees with you. At this point I must say I haven't clicked on any of your links for a long time so you may no longer be doing this, in which case I apologise. Never the less it's tiring scrolling through them. So, I wonder if you could go over and ask the people in marriage and relationships how they think the collapse of the euro will affect their marriages, what with a lot spouses working in finance all that stress will be bound to impact marriages, and don't forget to remind the people in parenting that they should quit having kids because we may be heading to a Mad Max world. Not forgetting the domestic help who might want to head back to the Philippines before they lose their jobs during the Mad Max age they may or may not befall HK. PLEASE let me get back to reading the constructive banter and enjoying my morning coffee. I am a mother of 4 I need a good start to the day.

If you haven't clicked the links then how do you know what content the links contain?


Here's an example of a link I like to refer to - it is not an opinion - it is a statement of fact - it is hard data... http://static.alsosprachanalyst.com/2011/01/Hong-Kong-Real-Estate-History-in-a-chart1.png


I have also posted links to other hard data including recession figures out of Europe (after the bulls rejected that there is a recession there) - unemployment numbers - debt numbers.


You may want to read those links before passing judgment on my contributions - I post comments related to links generally after I have already read them and thought they might be useful to others - the data is what influences my comments... not the other way around.


This is a discussion of investing in HK property - I believe these topics/links are quite relevant.


If you think they are also relevant to relationships in HK feel free to take that discussion to the marriage forum ... it's not something that I have thought about...




TI - thanks for reading my links :) I hope that they are useful...


I agree that printing is absolutely not going to stop now (because....) ... but the point I have been making is that the global economy is addicted to money printing ... and there is some disagreement...



So let's put it out there again...


What happens if Ben gets in front of the camera at 830pm tonight (before the US markets open) and says 'The money printing is over'

If Ben came out and said that.....we might just find one of Pinocchio's long distant descendants.


Obviously, if the central banks said that today, I wouldn't believe them.


If, in some strange parallel universe, they said it and did stop creating new money....interest rates would rise, inflation would drop (most likely we would have deflation), banks would collapse, economies would contract and lots of other bad things would happen. Makes inflation and more QE sound positively benign doesn't it?


Needless to say, I am not holding my breath.

I agree completely and would add... stock markets around the world would implode... as would property markets and most other asset classes...


The thing is... I don't see how we can possibly end this addiction to QE... yet it obviously cannot go on forever....


BTW - the Fed is now monetizing a whopping 61% of US debt... oi... http://www.moneynews.com/Headline/fed-debt-Treasury/2012/03/28/id/434106

The best ending I can think of is for the real value of the government debts to be eroded through inflation over a long period of time. Of course that does not solve the fundamental problem of unsustainable spending and only really works for countries which can print money and it's only one possible end game....there are other potential outcomes but none of them are pretty.

I think that would be possible if there were some growth... but unfortunately it seems no matter what they try to do to jump start things... the green shoots die... and the govt debt problems are actually worsening as tax revenues fall and expenses mount...


A HK Headline: Hong Kong Builders Unload Properties to Raise Cash for Land Rush


Hong Kong’s new chief executive, Leung Chun-ying, pledged to put more land on the market in a bid to rein in home prices that jumped more than 80 percent since the start of 2009 and are now the world’s highest. The city’s developers, already among the world’s most cash-rich, are offloading assets that have risen in value to prepare for the land rush.


http://www.businessweek.com/news/2012-07-30/hong-kong-builders-unload-properties-to-raise-cash-for-land-rush

Shocking collapse in Korean exports... China's PMI down again for the 9th straight month...


Not to worry... China Rides to the Rescue with Massive New Stimulus

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9442497/China-prepares-vast-stimulus-as-slump-threatens-Asia.html




The euro zone may be forced to make a difficult choice soon

http://www.marketwatch.com/story/darkening-skies-over-europe-2012-08-01

Ed. Yep so bad that mainland shipping and construction shares were sharply up on the day.

"A HK Headline: Hong Kong Builders Unload Properties to Raise Cash for Land Rush"


If they are all cashed-up, then prices may not drop much.


As I have said many times:

Hong Kong is a machine for generating wealth, and there is not much to spend it on here, other than property. That's the main reason prices keep rising.


Sure, if they generate enough land supply, then the wealth here gets spread over a larger number of flats. But if it gets generated as fast as new land supply is offered, then prices may not drop much.

Lloyd... your theory about rich HK people is quickly losing steam... the 'rich' are unloading luxury cars at fire-sale prices... and still few takers... http://www.ritholtz.com/blog/2012/08/deals-from-hong-kongs-ferrari-and-lambo-fire-sale/

Cars are an unnecessary luxury in Hong Kong.

Who needs them?

OTP, you're definitely not the target market for these cars. The rich get them to show off, apparently. (Just like taking 2nd and 3rd wives for some).

I agree with OffThePeak - private cars are completely unnecessary in Hong Kong.


Of course, if you really want to show off your wealth in this city - buy a lawnmower

Ed. You're clutching at straws again.

Just spoke to someone who postponed buying 2 years ago as she expected prices to drop. Now down 800,000 on rent and prices have either stayed as they are or risen. Great advice Ed. That's about 20pc of the value if a decent small flat.

So as China's PMI sinks towards an indication of economic contraction (barely above 50 PMI)... they are it would seem unleashing more stimulus to pump up GDP...


Let's ask the question - why does PRC continue to engage in more stimulus?


The obvious answer: because PRC (HK) is an export driven economy but of course China's by far two biggest export markets are crumbling - the EU and US.


So PRC stimulates hoping those markets allow China to grow without artificial measures - because as we all know... stimulus cannot go on forever...



The EU is mostly in recession... with the growth trend projected to worsen... so forget about the EU buying more PRC goods...


What about the US? Maybe they will pick up the slack?


Or maybe not - this is grim reading: http://www.zerohedge.com/news/guest-post-when-quantitative-easing-finally-fails

@ Ed - I would expect the main goal of the ruling cadres in Beijing is to avoid civil unrest - hence the balancing act between managing inflation (even at the expense of business investment) and simulating (or should that be stimulating) the economy/job creation

I agree... but my concern is... how much longer can China continue like this?


To make up for the collapse of exports their fixed capital investment is at unheard of levels http://blog.moneymanagedproperly.com/?p=812 - how many more empty cities can you build?



Lloyd - perhaps you can explain why so many of the rich Hong Kong people are selling their Ferraris and Lamborghini's? I thought their balance sheets were fortresses... surely they should be able to cover the monthly payments?


Could it be that the rich people who can afford such vehicles own factories in China... and they have seen a collapse in orders from the EU - their biggest market - and the US - their second biggest market?


And they are slashing costs because profits are collapsing?


And if they are unloading their toys... might they not unload some properties from their portfolios as well?


As many know from 1998... the fast track to bankruptcy is to be holding multiple mortgages during a recession...


The rich people are no doubt aware that the finance industry is laying off ... so perhaps they will want to 'get ahead of the curve' and dump before they are left with a slew of empty apartments... or apartments that are renting for far less than the cost of the mortgage...


We shall see if the luxury auto issue is a canary in the coal mine.

Ed. I don't know anything about the second hand Ferrari market. It's not an oft-used indicator for the mainstream HK property market. Maybe they are trading up to a new model. Who knows?

what in the.


What part of 2009 are you talking about? Anyone who was serious and wanting to buy in 2009 probably did, there was no talk of a down turn, we just got through Lehmans and it was at a pretty decent low..


Anyway.. Just some quick analysis on your friend Loyd, taking her monthly rent at ~33k HKD per month.. her affordability index could get her ~9.4M home with a 2.8M down payment and a 33k monthly mortgage.. a 10% drop in housing prices would easily cover her 2 years of rent.. Nevermind factoring in any returns she could have gotten over the 2 years on her 2.8M principal.. (3-4% could have had her living 2 years for free!) EDIT: Forgot to add in the interest on her mortgage for 2 years.. that's another what, 140k HKD or so (20 years@2%)?


As you are well aware, this is Hong Kong -- -10% is nothing. This is the most volatile market in the world.

If the timeframe is 2008-2012, those who waited to buy after an expected big drop certainly called it wrong. It could have gone the other way too, right? For who has the crystal ball to accurately call the market? Those who are gloating for calling it right (till now), is doing so as if the game is over. But it's not, is it?


Those who are renting, have lost the equity gain and paper gain they may have had if they bought. Homeowners who are waiting to buy a 2nd (or 3rd, etc) property have built a bigger cash hoard. Expats like me didn't know about the property "game" of HK before coming over. So there's not much loss really if most didn't join the game. I mean, most expats are earning and saving from their paychecks, not from property plays. This is my personal approach. It's very conservative, I know. But it makes/helps me sleep well at night.

@ Ed - I don't read much into the very poor report on the decline in the sales of used luxury vehicles for a number of reasons:

1. used cars almost always sell at a big discount to the new price - a point not made in the report

2. the number of used sales would be expected to rise for no better reason than that the number of new luxury car sales in the preceeding X years had also gone up - more new cars = more used cars being sold a few years later

3. most genuinely rich people prefer to buy their luxury cars new (except collectables) meaning that the used market is pitched to a slightly different segment of the market - I'd want to see some meaningful figures for new luxury sales before drawing any conclusions

4. Vins is a used car dealership - a quote from there about trading up is of limited relevance (at best) to the new car market

5. the examples given represent a sample size so small as to be not meaningful and, journalists being journalists, were almost certainly selected as being the most sensational discounts they coould find


All in all, it was a very sloppy and sensalionalist piece of rubbish journalism that provides only one piece of useful information - that waiting lists still exist but are getting shorter. Even then, they fail to quantify the size of the decline which begs the question as to whether the decline is meaningful

Where will the 15 Trillion USD Come From?

http://www.ftense.com/2012/08/the-15-trillion-adjustable-rate-loan.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+ftense%2FsymR+%28The+Future+Tense%29

I don't recall advising this person... if I were advising I would have suggested buying gold when it was 900...

I agree with Ed....The dumping of luxury vehicles is definetely the start of something even bigger down the road. The only valuable assets for HKer's are vehicles and property (and what ever they have in their stock/bond portfolios). This looks similiar to 97'.....History has a funny way of repeating itself.

Ed. You don't recall advising? Well of course you didn't gave an individual recommendation to anyone. However, you have been harping on about a bubble in the HK property for about four years. As for the gold recommendation, she would still have lost out unless she had a margin account which is highly speculative. HK retail sales up sharply YOY according to today's figures. Hutchison also put in a strong performance. I think it was a 13% increase in underlying profit - so world trade doesn't appear to be collapsing. Headline profit was down sharply but that was because it hadn't sold any assets.

Hi all. I've been reading these threads since the beginning, I am actually surprised that we do not have any real conclusion to the situation since 2008. I own a business in HK and we deal a lot with PRC factories and shippers and we export around the world. If I could sum up the past 3 years from my own experience, I would say it is all very weird, it is like being in a dream and not being able to run properly, it all just seems so fake to me.


I ask my business owner friends and they like me are just surviving. The shippers I deal with are in really bad positions, they always make unscheduled visits to us to see if we have any orders for them. My suppliers in PRC told me they rest of this year looks bleak. By now all of the orders for the rest of the year should have been placed ages ago.


I have to say I understand what Ed is saying and it makes perfect sense to me, the similarities with 97 are so there. The big but though is of course the unprecedented government actions to keep the sinking ships afloat. But I'll have to give it to Loyd that the flat owners have stood firm so far, how long they can hold their nerve is another question once the money injections stop and we return to a more real situation.

Lloyd, the sharp increases in assets whether stocks, property and in your above example, corporate profits (Hutch profits up 13% and retails sales up YoY) typical tend to happen before major corrections. I don't believe I have ever witnessed when assets were falling gradually over time, THEN a crash happening. Its usually the other way around. I clearly recall 6 months prior the 97' crash, HSBC reached a record high of 212 and the Entertainment Building (across from M&S) reached record level in May 1997 (in terms of rental p.sf).....I clearly recall all the analysts and market proffessionals betting on the next leg up. I believe Peter Churchhouse )formerly from Morgan Stanley) taking about HSI hitting 30,000 before 1999. Nothing could go wrong in this environment, albeit the entire financial industry was aware of the speculative practices in the property market (no money down, people buying 3 - 4 properties, etc, etc). However, they simply brushed it off.


I guess we all know what happened a couple months later. Anyway, the point is that Crashes/corrections happen is cycles we are experiencing now. High asset prices, robust retail sales and what makes it somewhat predictable now (than 97') is that it is happening in the backdrop of the Euro-crisis and large deficits/debts in the US. Not that Ed is making any predictions of an eminent crash but if you read bertween the lines, he is basically saying the downside is much greater than the upside. So any betting man would probably bet with those odds/even.


As each day that goes buy (higher sales, Centaline records, etc, etc) the probabilities get high and higher of a crash happening. I guess the same analogy would be earthquakes. Violent earthquakes (the ones that hit the headlines) tend to happen when the planet experiences prolonged quite periods in the crust. As energy stores up an up, the probabilities increase with each passing (quiet) day that the next earthquake is just around the corner. The same can be said for crashes.

No Xerxes. Nothing like 1997. No comparison whatsoever in fact a mirror image with regard to property. The money in HK property is solid. There isn't much debt and people want to live in HK. Also no one was talking about a bubble in 1997 whereas everyone is talking about one now even though gearing is ultra low. Owners are not selling and leaving so, if they sell, they need a premium to be sure they can trade up. There may be sellers and buyers but the bid-offer spread us too wide and bank valuations are too low because of the special stamp duty and the HKMA market calming measures.

This is more like a short squeeze than a bubble. The government recognises this which is why it is increasing supply. But it can't build in places where people want to live because there is no space and demand keeps rising.

Also property doesn't trade like it used to do prior to the SSD.

Lloyd - it's a bubble... but I have on many occasions commented that since there is the chance of hyperinflation it might be better to own hard assets including property vs stocks, bonds or cash

Xerxes... amusingly I am almost certain that I recall reading after the fact that Churchill was unloading his own property portfolio of a few residential flats... at the time he was calling the market higher in 97...

Speaking of hyperinflation... is the EU preparing to attempt to monetize the debt of Spain? And then of course Italy?


Because if not, then where are they getting the trillions required to bail them out? (no debt forgiveness... just additional loans)


http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100019312/draghi-delivers/


http://www.telegraph.co.uk/finance/comment/damianreece/9447711/Draghi-allows-time-for-eurozone-politics-to-prepare-for-Spanish-bail-out.html


Why not? The UK, US and Japanese Central Banks are buying most of the debts of their countries - because nobody else is willing to take that risk.


Remember Voodoo Economics... cut taxes, increase spending, fill the hole with borrowed money and call that prosperity?


Now we have a system whereby governments have less tax revenue because there are no jobs, so deficits increase and because nobody will lend them money because they are basically insolvent, Central Banks step in and provide trillions of printed money.


Shall we coin a moniker for this new system?


I'm thinking Armageddon Economics.

If the definition of insanity is doing the same thing over and over again and expecting a different result, then the terms Insanity Economics fits perfectly - when in history has continued unsustainable spending combined with continued debasement of the currency by creating new money ever ended in anything other than considerable economic pain?

I've actually a different word for doing the same thing over and over again and expecting a different result - STUPIDITY. Or, more kindly, DESPERATION.


If only one could time this one could purchase a property on the Peak and watch as the mortgage is vaporized by hyperinflation...

Think Manhattan Rents Are High? Try Hong Kong


http://blogs.wsj.com/developments/2012/08/02/think-manhattan-rents-are-high-try-hong-kong/

Mainstream HK property not that expensive given that modt people don't pay tax and those that do pay no more than 16pc. Most of the complaining here, I believe, has more to do with missing the boat. Take a look at prices in central Amsterdam. Not an ideal proxy for mainstream HK but it has an efficient transport system and is a small town in a country which is more business oriented than its neighbours. Tax, though, is much higher. You can get a bigger place but you don't get much change from 5m HK dollars for something decent in the centre of town - and you can't rent it out because it's almist impossiblt to evict anyone

Amsterdam prices on http://www.funda.nl

Speaking of Fancy Cars and the collapsing market for them... and my theory that this could be because 'rich' Hong Kong factory owners and traders aren't feeling as rich these days... because factory orders are plummeting due to lack of demand in the EU and USA...


Migrants Exit Guangdong as China Powerhouse Turns Growth Laggard

http://www.bloomberg.com/news/2012-08-02/migrants-exit-guangdong-as-china-powerhouse-turns-growth-laggard.html

Googles - I am very familiar with the economics of the Great Depression. There are plenty of decent books on the subject. J K Galbraith's The Great Crash is one of the most readable, although others have more detail.


Was there a point to your post?

Another outstanding book on the Great Depression: http://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/159420182X


There are many parallels with the current situation in terms of the pressures on governments and Central Bankers - in particular with respect to the reparation debts that Germany was unable to pay - and nobody was willing to forgive - that ultimately lead to WW2.

Googles - I understand that very well but have no idea why you think that I don't. Nothing I have posted either here or on my blog would suggest otherwise.

Googles - many people in 97 were screaming housing prices were at absurd levels... but usually they are drowned out by the MSM who try to stoke the fire with 'this time is different' articles... SCMP is one of the worst culprits - but then they are owned by a property developer...


Many were also calling for a crash prior to the collapse in 07... and not only were they ignored.... they were laughed at... these are CLASSIC!


http://www.youtube.com/watch?v=_HFNJw7xGSA

http://www.youtube.com/watch?v=LfascZSTU4o

Googles - one of the reasons HK land prices are so high is that the gov't generates a large chunk of its revenue from land sales...


If they wanted to reduce the cost of housing rather than build flats all they would have to so is release more land... high supply = lower prices....


If they were to do that then be prepared for higher income taxes and/or VAT... to make up the loss revs...

This came from a Dow Jones news item I saw this morning:


"[Dow Jones] JPMorgan forecasts annual home buying demand of 31,000 units in Hong Kong in 2012-13, 30% higher than 2009-11 average, and 42,000 per annum in 2014-16, based on government's population projection released on July 30. "However, such demand is not going to be matched by the land supply, which keeps falling behind government's budget. Insufficient supply of residential property will give strong support to housing prices."


It makes a change from the usual doom and gloom. Regardless of whether (i) you believe the forecasts (the government is well known for getting it wrong when it wants higher projections to support its pet projects) and (ii) whether local considerations like supply and demand will overcome global macro factors, it does suggest that HK's developers may do well.

While I agree that HK does not have a fully "free market" for housing, neither does any other country that I can think of - zoning, subsidies, taxes, land supply, regulations on financing, regulations on foreign ownership, interest rate settings and other factors all distort the market that would exist without those factors. HK's land supply policies do affect prices - but so do lots of actions by governments everywhere.


Come to think of it, I'm struggling to think of any market that is totally free?

Centadata up 1.5pc on the week. Looks like reality is sinking in and people realising they're not going to get a 20pc discount on a secondary market flat. So much for property analysts at CLSA and Deutsche and incisive HK reporting from Bloomberg etc out of Boise, Idaho. There will be a lot of squealing now from those who want to buy and, thanks to HK government market calming measures, the HK government will now be firced to house mire people. You can't buck the market.

Interestingly, the most bullish commenters in this thread haven't bought any property lately.

Punter. I don't buy property like it's a weekly shop unfortunately. Have already bought. Would buy again in a good area if I had enough but I don't.

So up another 1.5%, Interesting to see how we end the year considering more and more so-called experts predict QE3 coming just before the next U.S election.

Loyd, that's my point. You don't have enough because prices are so high. Many others would like to buy their first property but can't because they don't have enough.

Walkup, just imagine you don't have a purchased flat while having half a million dollars in the bank and can't afford a three bedroom flat for your family.


Those of us who were fortunate enough to buy when prices were "LOW' don't have the same angst.


Forget about those who mistimed the market, just think about the many who want to buy but cantjut because prices have risen to unreachable highs for them.

Punter. I have enough but I would have to sell what I owe already. I'm not capable of buying flat after flat after flat. You're missing the point.

"incisive HK reporting from Bloomberg etc out of Boise, Idaho"


The WSJ is not much better.

Their reporters, who once lived in "downmarket" Bedford Stuyveston (which was a slum back when I lived in in NYC, move to HK and complain about how rents in Midlevels are higher than Bed-Stuy. How "incisive" is that?


http://hongkong.asiaxpat.com/forums/hong-kong-property/threads/147775/think-manhattan-rents-are-high?-try-hong-kong/

"Just spoke to someone who postponed buying 2 years ago as she expected prices to drop. Now down 800,000 on rent and prices have either stayed as they are or risen."


That's a hefty rent: 33,000 per month over 24 months. But many pay that or more.


The point is well-made, it is expensive in HK to "wait out" a property bust. At a 3% yield, her rent would have represented a HK$13 million flat, and so after mgmt fees, and considering the yield she can make, she might need to see prices fall by 1-2% per annum to breakeven with an owner occupier.


That's not happening. Prices have gone on rising instead. So she has lost out on the (probable) price gain as well as the 1-2% net cost of renting vs owning.


This sort of calculation is what keeps many in the game. Indeed, we nearly sold one year ago, and it was a calculation like that which kept us owning, and "wedded" to an asking price above what anyone has been willing to pay so far. (We got one offer within 2% of our Asking level, and I offered to "split the difference", but the buyer would not budge. So we did not sell.)

"Nobody buys/sells Inner London property thinking about Government housing policies"


Nobody who buys inner London property now is "thinking" at all. They must have switched their brain off.


Prices seem to be set to enter the realm of "crash cruise speed" (look it up.)

@ OffThePeak - agree. If I sell my home not only do I need a large fall in he market before buying again, but I run the risk of having to pay a lot more or even being shut out of the market should it continue rising. It is much more sensible to hold on to the home for the very long term. The thinking behind investment properties is different (of course).


Incidentially, there was an article in the FT over the weekend that the increased mansion tax had actually reduced government revenue becuase it had driven a lot of buyers out of the market and killed transaction volumes in that segement - as had been widely predicted at the time the tax was proposed.

Loyd, that's a problem with you. You may think that everybody in HK is like you.


Btw, it was announced that a few HOS flats will be available for sale in 2016 and a huge amount of land may be used to build public housing. That's good for those who would like to get a reasonably sized place for their family. In the news last night, there was one man in Sham Shui Po blaming the government he can't get into public housing (been waiting for a slot for four years). Maybe in 6-10 years more public housing units will be built and released.

Punter. Why should I think everyone in HK is like me? Just answering your posts. HOS is okay if you don't mind living in Tsuen Wan or other parts of NT. I don't think it will have much effect on the market. And 2016 is a long way off.

2016 is long way off, agreed. Hopefully it affects sentiment, and sentiment will affect prices.


I'm happy with what I have, my point is for other HK people to have the same opportunity to own their own reasonably priced and good sized apartments.


If the government can "bail out" Lehman investors, or make and support policies that support property owners (by working towards a steady market), it too can make and support policies to cater for the poorer ones. Good for social harmony. LCY's government may be moving towards that direction.

"there was one man in Sham Shui Po blaming the government he can't get into public housing (been waiting for a slot for four years)."


He is upset because he is being denied a handout, that the HK govt can only afford to dole out if they ration it.


In effect, he is playing the lottery, spending his time waiting, and complaining that he has not yet had a winning ticket.

@ OffThePeak - agree - entitlement at its worst and exactly the sort of nonsensensical whining that our politicans pander to. It's really nothing short of naked greed to demand something from other people that you have not earned.


A small correction - it is not a handout from the government - it is a handout from the taxpayers.

If the US, Spain, Greece, EU, can dole out for banks, why not do it for ordinary people? If there were no bailouts, where could prices be today?


One point of view may be, that angry man has been busting his tail off working (low wage) but can't afford to buy a private flat. Yes, the government can be an "equalizer" for those who try (not lazy) but just can't make it.

@ punter - it's not the government who's giving the handout. It's the taxpayers. Whatever the government gives to anyone it is taking from someone else. Why should you and I have to pay for someone else to buy a flat?


As to bank bailouts - that was certainly handled badly by many governments. We need functioning banks and we need the confidence that banks will not defualt on (at least) their deposit taking and money clearing obligations otherwise the economy will collapse and we will all be worse off - a lot worse. Keeping the banking system functional is in everyone's interest (unlike wealth transfers from one group of individuals to another in the form of handouts). There is plenty of history of the impact of widespread bank failure - the 1930s and several episodes in the US before the Fed was created in 1913 and other places.


Where the bank bailouts were handled wrong (IMHO) is that shareholders' equity (and in some cases senior debt) should have been wiped out in the process (while other creditors were protected). If that had been done consistently then banks would have been forced to act much more prudently and the bankers themselves incetivised to act accordingly.


Incidentially, I can't recall any instance of a bank in HK being bailed out by the HK taxpayers?

In whatever way you look at it (where the money comes from), it's the governments and their leaders who make the policies.


Here in Hong Kong, the money is our tax money (only a small portion) plus the gargantuan amounts the government gets from real estate and other business transactions. But we (the people) can't do anything by ourselves.


Here in HK, there's no bailout, just the massive buying of private stocks using our money :). Most are happy about it because it turned out well, but it could have gone the other way, no? When do you think the government can windup it's holdings? But we digress...

"We need functioning banks and we need the confidence that banks will not defualt on (at least) their deposit taking and money clearing obligations."


Okay. I mostly agree with that.


But there was no need to "save" the speculative and predatory activities of the banks (maybe half their earnings, and a big source of losses), and there was certainly no need to save the jobs of top bankers, and no justification whatsoever for the huge bonuses that were paid after 2008.


I would recover the bailout money through a "windfall tax" on big bonuses within the industries that got the bonuses. If the greedy guys want to leave banking for hedge funds, they I certainly would have allowed that.


By why should deposit-taking subsidise speculative activities?


Let's get Nasser Taleb's approval on any future taxation on banker bonuses

Exactly!


"Where the bank bailouts were handled wrong (IMHO) is that shareholders' equity (and in some cases senior debt) should have been wiped out in the process (while other creditors were protected). If that had been done consistently then banks would have been forced to act much more prudently and the bankers themselves incetivised to act accordingly."



OTP: re: the person who held on purchasing two years ago... before you can make a determination on the wisdom of her move you'd need to know what she did with the cash she was holding for the deposit...


Perhaps she invested in something that worked out better for her...


Now if she put the money in the bank while allowing inflation to rip through it... bad move...

Ed. Except she has still paid 20% of a the value in a small flat in the meantime and runs the risk of proeprty prices rising or losing all of her investment somewhere else. If you want to buy a flat, have the money for a deposit and feel relatively secured, it has to be a better option to buy nine times out of ten. Guessing the market is a fool's game.

"Perhaps she invested in something that worked out better for her... "


And perhaps she did worse. There's no way to know, except by speaking to her.


One thing we know is, it hasn't been easy to make money since 2010 or so, thanks to "financial repression" - In other words, ultra-low rates have increased asset prices, and so almost all financial and non-financial assets are priced at "artificially high" levels.


So you can buy:

+ Overpriced property

+ Overpriced stocks

+ Expensive gold


The advantage of sticking with property is you get an "untaxed yield" by being able to live in your property. So many prefer that choice.

@OffThePeak


I'll meet you part way - what banks do with their money is between them and their shareholders - right up to the point where they ask for or need a taxpayer bailout. At that point the shareholders (and sometimes the subordinated or junior debt) gets wiped out. Given that most banks pay most of their bonuses in deferred or (less commonly) phnatom stock (often with three year vesting periods) this will effectively wipe out bonuses for prior years. I know several people who worked for Bear Sterns and Lehman who lost small fortunes in accumlated stock bonuses over the years. That left them in a position where they had paid tax on the bonuses but the market had effectively taken the bonuses away from them. It's not rational to tax them again through clawback or supertaxes - we should have one tax system for all and that tax system should not impose what would amount to a tax which is both a double taxation and a retroactive taxation. Even if you did, it wouldn't work - all that would happen is that the salary component of bankers income would go up and the bonus component would go down. It wouldn't achieve anything.


Separately, in terms of getting the money back, let's not forget that the US govt/taxpayer has actually made a profit on its TARP bailout money.


Banks need to be better regulated - but that is not achived by adopting the mindless and destructive approach of the US regulators (Dodd Frank etc). Look at HK - zero bank faiures during the 1997-2003 period inspite of what happened to housing and the economy in general. Why? A simple rule preventing excessive lending against real estate (sensible minimum deposit requirements) had a lot to do with it. Adopting a simple means (and there are several) to limit gearing in the financial sector and its clients will go along way to creating a more stable and sutainable banking system - there is no need to clutter up the financial world with pointless rules and penalties.


@ Ed - agree - you need to consider what she either did invest in or could have invested in instead of a HK residential property.

Ed. Except she has still paid 20% of a the value in a small flat in the meantime and runs the risk of proeprty prices rising or losing all of her investment somewhere else. If you want to buy a flat, have the money for a deposit and feel relatively secured, it has to be a better option to buy nine times out of ten. Guessing the market is a fool's game.

Even with the benefit of hindsight, I don't think the buy v rent and/or buy now v buy later decisions are that cut and dried - they involve a lot of uncertainties and, for many people, emotional issues (some people just worry more than others).


As examples - if you buy you face the risks of rising interest rates and loss of income to service the mortgage. No matter what the numbers tell you, the consequences if things go against you can be severe - a firts time buyer could have most of their net worth tied up in the deposit. It is understandable that people would be cautious. At the end of the day, buying a property (even for own use) is the equivalent of putting all of your money into a single leveraged investment.


In some respects, this is a good thing - if any investment was a "sure thing" then something is surely not right. There should be risks associated with home ownership. No risks = no rewards = why bother.

Lloyd - isn't every investment to a certain degree guessing? If your friend had bought Citibank after Lehman when it went to 20 cents... and guessed that it would be bailed out... your friend might have been able to retire on that guess.

Following this thread has been quite instructive. Many followers must feel the same. I feel like this thread has ran it's course for me.

Hi everybody,


I sold my property a little over a year ago, made a big chunk of cash, and then started renting.


As so many at the time, I was expecting the market to correct so decided to play the waiting game...


So far the waiting game hasn't paid off and after a small dip in prices, they have started rising again.


In short: I'm back to where I was a year ago.... and a little over year worth of rent lighter. Honestly, I have no regrets, as I rented cheap and consider it an insurance expense for averting risk.


Having said that, I don't want to be renting forever, so time to reevaluate the situation. I've listed some of my observations below. Please feel free to comment.


The good:


- The HK property market seems pretty strong at the moment. Resilient against the troubles in the US and Europe and with a very healthy mortgage market (40%-50% mortgages seem to be the norm). Definitely no sign of a credit bubble here.

- More and more people seem convinced that all the money printing going on in US and Euro is actually helping to inflate property prices in HK (safe haven for wealth?), so with a very high likelihood of more money printing in US and Euro in the coming few years, and low interest environment, things seem to look very good for HK property (?).

- CY Leung seems to be doing everything he can to avoid any kind of correction in the property market. He'll likely keep the current mortgae requirements in place, add a bit of HOS to the mix, but I suspect he'll leave it at that.

- The supply of new housing seems to be very tight, so demand is likely to continue to outpace supply.


The Bad:


- I do quite a bit of business with mainland companies, and please believe me when I say that they are hurting. Their share prices have been eroded in the past year and their sales pipeline is looking meager. The kind of deals and discounts we're able to get from them is AMAZING... all pointing to the fact that these Chinese companies are pretty desperate for business at the moment. Of course, these very same companies and their government maintain their almost psychotic story of strong growth and crazy profit forecasts, but reality is that many of them are losing money.

- Before,during and even after CNY this year, I could barely walk through Canton rd. in TST. It was so over crowded with mainland shoppers that I avoided going there like the plague. I've been there several times in the past few months, and things almost seem quiet. Sure, there's still shoppers, but I can now comfortably walk, sales people are willing to help non-mainland shoppers again and I can easily get a taxi.

- All eyes are focused on the Euro crisis now, but things in the US are far from solved. The Euro governments are printing, lying and deceiving like crazy to try and prevent a breakup. In the US the same is going on to boost voter confidence for the presidential elections. I still believe that China *heavily* depends in exports to these economies for its own survival. I for one don't subscribe to the idea that China's internal demand is in a position to counter a severe drop in exports.


The Ugly:


- While many believe that HK people have confidence in the property market and are starting to buy again, I have come to know them in a slightly different way. HK people are not as stone cold as their counter parts on the mainland think they are. HK people in the property market like to play the game of chicken. When the first person blinks (buyer/seller), the rest quickly follows. The problem is that there haven't been any major blinking events to drive the market sharply either way. This explains the still historically low transaction volumes (they have gone up recently, but are historically still very low) and relatively stable prices (between 12 months ago and today, prices I have been tracking have remaining more or less the same, but currently in a continuing upward trend).

- So to me, the big question is, what could potentially be a major blinking event? I see two:

- Upward: The US and Euro continue their path into a depression, but China's internal demand (by some miracle) is able to support the economy and related GDP growth. Honestly, I see this as unlikely.

- Downward: As the US and Euro continue their path into a depression, China experiences a shock as internal demand is not strong enough to support the economy. When this happens (if it hasn't started already), at some point, mainland Chinese people need to repatriate their money in order to keep their business going / pay off their dept. I read somewhere that there are approximately 245K empty apartments in HK (mostly owned by Mainland people). If these were to suddenly come onto the market, you have the perfect blinking event: massive supply of apartments suddenly comes onto the market. Very likely at or below market prices. I fear that this could trigger a massive sell-off, taking the market down a good 30+ %.


So gentlemen, please load your guns and start shooting. Am I missing some critical angles or facts? Is my downward blinking event very unlikely to happen, or am I stating the obvious?


Just to make the story complete, I have enough cash to make a 40-50% down payment (depending on the price of course) and a stable job. Will buy if it makes sense, but don't want to buy at the top of the market.

I don't get why everyone is fixated on centa data index at this point. woopee a 1.5% change on 1/3 normal volume. The salient figure people should be looking at is transaction volume. 5,700 transactions in july...still wait and see mentality. Prices are meaningless until we see this number rise to 10k again.

Hi yellowtip,


I'm in almost the exact same position as you stated, and gone through a similar thought process. The added factor that I have placed significant importance on is the USD->HKD peg and the corresponding interest/mortgage rate. I don't think the HKD will stay pegged to the USD forever, and I think it could go/get repegged/adjusted/whatever you want to call it.. in the short term.


If that's the case, the HKD interest rates will go up again which will have a direct impact on the mortgage rates.


I don't know how tight people in HK are stretched in terms of their mortgage payments, but I'm fairly certain it's a norm here to drop ~40-50% of your salary into your rent/mortgage.. Imagine that mortgage rates jump a few basis points.. imagine they go to the historical average of like P=8%.. and real interest ends up hitting the 4-5% mark..


The majority of homeowners in HK aren't cash rich tycoon ballers like what Loyd thinks, he's the every man, the average joe. They'll get pressured by any interest/mortgage rate increase and be forced to sell, downsize or cut down on spending which impacts the rest of the HK economy.


liebster,


I think keyword: *if* we hit 10k transactions again.

(I was tempted to start a new thread about this - since YellowTip has raised an interesting Question)


LATER, I DID START A THREAD ON DOWNSIZING:

http://hongkong.asiaxpat.com/forums/hong-kong-property/threads/147832/downsizers-out-but-still-in/


== == ==


He posted the same question elsewhere, and here was the answer he received from XxXxxx:


Have you thought of downsizing?

That is, buying something, but maybe smaller and cheaper than you had before.


This way, if the market drops, you will have something to gain.


But if it keeps rising, you will not find youself left behind.


Cyclically, I think the market could have another 2-3 years, and maybe more.

And we haven't yet seen the "crazy blow-up phase" which normally marks a long cycle high.

That's why I suggest still owning something.


On the other hand, it is hard to see how HK will escape getting some sort of downturn,

if China and the global economy turn sour in 2013-14.


Where to buy, if you downsize, is a whole different discussion, and that is one I am

pondering myself right now.

Elsdon,


The HKD-USD Peg is a very interesting one. I fear however that for the same reasons you state it will negatively impact the property market, it will very likely not happen in the short term. Personally I see this happening perhaps in 10 years time with some kind of migration mechanism. The only reason I can see why this would happen earlier is if the US would go into a total meltdown, resulting in a massive depreciation of the USD. The US would rather start a big war before it would let that happen ;)


I totally agree with you that most property owners in HK are not billionaire investors. It's the average working Joe that needs two salaries and alot of hard work to make the mortage payments. The same average Joe is borrowing heavilly these days from friends / family / loan sharks to make the 30%-40% deposit. Still I don't see a serious rise in interest rates appearing any time soon. This current low interest rates should continue for the next couple of years at least.


What I feel people like Ed often underestimate in HK is the psychology of the masses. While most people in Hk are living in their home, they are also speculators at the same time (the SSD does NOT change this dynamic). When there's a buzz that people are buying again (as is the case today), everybody feels that itch of being left behind and starts to look for buying opportunities (yes... I too feel a slight itch). For the same token, when there's a downward blink event... people often fall over each other to sell their properties in a hurry. Not because the fundamentals have suddenly changed, but because everybody around them seems to be selling. All this behaviour is always heavilly fueled by property agents looking to earn a quick sales comission.


I always find it interesting when people say that in 2008, while prices went down, people simply weren't selling. Well... the middleclass building I was living in at the time, there was plenty of panic selling going on. I also heard that Kowloon station had a major sell-off at the time.


To me, it's that high potential for downward blink events...and low potential for upward blink events that makes me extremely hesitant to pull the trigger on a new apartment pucrchase...


OTP,


The downsizing suggestion is definitely something I am considering. I did it already for my rental this past year (am living in a tiny 675ft apartment), and will indeed consider it as an intermediate purchase.

I think my position is being overstated by others. I never said all HK homeowners are tycoons. However, a lot of westerners underestimate purchasing power in HK. There is a huge culture of saving here and in China.

I have been looking around in the 3-4Mio range on the island side recently and the problem appears to be that rents have spiked in some areas, making owners hardly willing to sell. I would guess this rental jump is due to companies cutting housing allowances and more young people from Europe trying their luck in Asia and needing cheap housing....


On the luxury car sales side raised before.... part of this could well be seasonal, I have many friends returning to Europe or being moved elsewhere and they have to leave during the school holidays so they all sold sell their cars a couple of months ago....

YT,

The size might suit you, but maybe not the location.


Nevertheless, I will suggest you look at Harbour Place in Hung Hom. You can pick up a 770 sf flat there at under HKD 8,000 psf.


The big feature is the SHKP clubhouse. Transport connections will improve in the future.


(This is one of the options that we have considered.)

Walkup, I meant the former. What I experienced is that when appartments were listed for sale or rent the rents they are offered make that a more attractive proposal than selling at their initial price, for the reason you rightly mention. My only point is that demand for rental appears to be pushing up asking prices, at least in that segment.

yellowtip,


I'm not entirely sure CYL minds negatively impacting the property market. The issue that the majority of HK people have right now is that their money is eroding in value because as Loyd mentioned, the Chinese culture is one of supreme savings. Well, nowadays their savings are getting 0% interest in the banks, and most won't invest in equities or other asset classes as they aren't familiar with them and don't want to take on the inherent risk.


If CYL is really going to do what the people want, negatively impacting the property market has a few positive outcomes:


a) it's about spin, we can call it negative impact but what it can easily be spun as 'cooling measures', or 'creating a more affordable hong kong' or whatever.. and

b) savings accounts get interest again. <<- HK people would love that.


OffThePeak,


how do you like Hung Hom the area though? I wouldn't mind taking a look out there.. I've been to the Whampoa area before but not really outside of that.

Such low transactions, Centadata going up.


If I was a developer good way to manipulate the index I think.


A handful of transactions to another company just to keep confidence in the market before we start announcing profits for the year. After all, p.s.f has a significant effect on the property inventory of these developers.

Hung Hom will be much more convenient when the new Shatin-to-Central Line (actually Shatin-to-Admiralty) is completed. It will then be a major hub as the West Rail already ends there and you are already on the East Rail line. The only problem is that the school district isn't that good and there is a funeral home there. If I had tons of cash, I would be looking round there for some bargains.

Elson,


I think CYL is in an extremely difficult position.


I don't think he's 'in bed with the developers as Donald was. So for sure he won't help boost the property market.


On the other hand, he also doesn't want to follow in the footsteps of Tung Chee Hwa, who is largely blamed for crashing the market in 1997/1998 by introducing the HOS.


As I see him manouvering now... I expect his moves to be very light, to show the public that he IS taking action (unlike his predecessor), but the downward impact on the market will be pushed forward for many years to come.


They're now talking about 800 HOS flats coming available in 2016. That timeframe and volume is in no way going to affect the market, nor will it solve the housing affordability problem for the average Joe. It does send out messages to keep his image up....or so he thinks.


What I don't understand is (and please enlighten me if I'm missing something) that they don't solve the affordability issue with a selective loosening of the mortage rules:

- Loosen it only for HK Residents on their first home.


My thinking is as follows:

- Right now, it's largely the middle class who's suffering. It's those people that need to buy in the 6.7M - 10M range. Below that price point their downpayment is still easy as they can get a 85% mortage. Once they cross the 6.7M mark, they suddenly jump to 40% (hope I got these numbers right). That's a HUGE jump which effectively prices them out of the market.

- By loosening it only for HK residents, and only for their first property, my guess is that you limit a flood of tranactions that would suddenly create a bubble (I could be wrong).


For CYL, it could boost his image without the need to correct the market, keeping both the home owners and wannabe buyers happy... and let's not forget the banks, developers and property agents.

yellowtip,


I met CYL recently actually, at one of my friend's weddings and managed to speak to him briefly. He definitely isn't the developer's puppet like Donald.. He's the opposite.. They don't like him.


I think he's got a spine. I don't think he wants to crash the market, but I think he understands that he needs to somehow normalize the property market in Hong Kong. It's too volatile and too hard to know what's real or fake.


I don't know if I would classify 6.7M-10M as middle class.. You're missing a huge part of the population in the 3M-6M range.. Being on the cusp of 6.7M-10M is getting into the upper class imho.

"CYL is in an extremely difficult position"

========


The main option available to him is to:


Build like crazy in new areas, where land is available. This releases flats for those who will be happy to buy a cheaper flat, and accept a longer commute.


He can leave the established areas mostly alone, since there is not much room to build there anyway.


Another obvious "fix" is to convert more industrial space to residential use. This is happening already, but could be speeded up.


(I will cc this to the CYL thread also, in case you want to respond there)

@ yellowtip


I suspect you are right - our new CE will try to strike a balance between the demands of those who want cheaper housing and not allowing the market to crash like it did in 1997-2003 (or anywhere near that level). Around the actual measures will be a lot of noise about the measures he/his administration are taking that probably wont mean much.


Lossening the gearing limits for either first time buyers only or owner occupiers generally (trading up is also a big issue for many people who have families) is one of the more obvious measures that he could introduce. If I though that such a measure was very likely, I would consider buying a 700-1000' flat in expectation of increased demand pushing up prices.


A restriction on foreign ownership won't mean anything unless it applies to PRC nationals (which may or may not be politically acceptable) and even if it does get through, I would be surprised if it had any noticable impact on prices at the sub-HKD10m level.

CYL and his team, could (realistically) impose a ban on non-residents (including PRC people) buying flats priced below $5 Million, $10 Million, or some such figure.


Many countries have restrictions like that

Most of the HK politicians own property, some super expensive, some expensive. There is a personal conflict of interest to normalize the prices or reduce the prices.. I have no hopes that CYL will do anything that will help correct the prices.. I was one of those who believed that CYL will usher in a change and had similar views to what "elsdon" had.. but that's changed very quickly.. I haven't met him, or know him, and not a HK citizen..so I might be completely wrong.. but just the trust in the political system is dwindling very quickly just reading into all the big wigs and their property scams..


Given it is the main revenue for government to support all the high govt. pay, low tax structure, I have to conclude as Superman Li says HK government will not sell the land cheaply..


HK prices hence will be left to severe demand shocks.. which again has to be a global recession (including Chinese/Hong Kongese).. which makes life far more worse for everyone along with property prices..

TI,

Your:

"I know several people who worked for Bear Sterns and Lehman who lost small fortunes in accumlated stock bonuses over the years. That left them in a position where they had paid tax on the bonuses but the market had effectively taken the bonuses away from them."


Better THEM, than us/taxpayers!

Actually, I would only apply the supertax to cash bonuses, and bonuses paid out within 1-2 years. Beyond that I would think a more normal tax would apply, or I would tax the bonus when realised as cash - in fact, that's a better way in any case.

@ OffThePeak - I'll certainly agree that it's better them than us, but that is true of all taxes. The best ones are those that are paid by other people.


Regardless of our views on the merits of bankers' bonus payments, I remain of the view that it is not reasonable to tax someone more than once or to income from particular jobs at special penalty rates (leaving aside the ease of avoiding such taxes). Most banking industry bonuses vest over three years and unvested portions can be lost in various circumstances. Taxes are typically paid in the year the bonus vests which is probably right - taxing prevesting is effectively taxing people on money they may never earn and taxing on realisation gives people more scope to defer income until they are in lower tax brackets.


The inequitable tax treatment (IMHO) is the way in which some bouns payments or profit shares are either treated as capital gains (and get taxed at a lower rate or not taxed at all) or shifted offshore (and outside the tax net). To my mind, this is simply wrong and some countries are/have taken steps to address this issue.


Needless to say, the rules vary from country to country.

TI,

It is more than just getting SOMEONE ELSE to pay the tax, it is applying the tax more fairly. The Banking Industry benefits from special privileges, such as: the ability to take deposits, create loans (and money), and an implicit guarantee for the Too-Big-To-Fail banks. Why should the bailout losses from that industry be recovered from general taxpayers, rather than for the insiders who benefit from those privileges.


Also, the current situation has assymmetry: where banks and bankers make big bonuses in a good year, and shift the loses to the taxpayer in very bad years. This is unfair. As we have discussed before I would make the banker bonuses the "first line of defense" for any losses.


If I could design the banker bonus program, I would pay them out over five years, at 20% per year. And any unpaid bonuses would be subject to a "clawback" provision to cover the losses: First from the individual trader, and then from the bonus pool of the whole institution. (As you said above, I don't think these bonuses should be taxed until paid, and that might require a special law - why not make it.)


BTW, I totally agree with a prior cpmment you made, about how bank regulators did a poor job in the US, versus HK. The lower LTV in HK saved the system from big troubles in 1998-2003. The US could have done far better.


I would like to see the failed regulators "take a hit" on their pensions, for their poor performance. And failing that, I think Mr Greenspan should be put in th stocks somewhere in the Wall Street area, every year on the anniversary of the Lehman's bankruptcy. Anyone who can prove that they had been financially inconvenienced by his many poor decisions shoul be allowed to throw a rotten tomatoe in his direction. (I am only half-kidding.)


Measures like these would provide effective incentives for banks and regulators to improved their future performance.

OffThePeak - apologies, but I have to very strongly disagree with the suggestion that the banking industry "benefits from special privileges" - sure there are some things that banks can do that no one else can do (like take deposits) but that is no different from saying doctors or lawyers benefit from special priviliges and therefore should pay a higher rate of tax than everyone else. We don't want unregulated persons to have the right to take deposits any more than we want unqualified people being able to call themsleves doctor and practice medicine. Both groups pay a very high price for their "special privileges" - banks are required to have huge amounts of capital and pay deposit protection insurance (among other things) and doctors are required to spend many years studying and training before being allowed to run amok with the surgical tools. Similar comparisons can be made for other industries. Historically, special/punituve taxes always have predictable and negative consequences - some recent examples are the mining tax introduced in Australia which has already seen several projects put on hold with consequent loss of job opportunities, France's refining tax (which looks set to result in loss of jobs, increased imports and lower tax revenues for France) and the UK's higher stamp duty on properties valued at more than GBP2 million (recently reported as producing lower revenue because it resulted in fewere transactions). Going back a bit further, the Bush senior's very popular taxes on the rich in the form of special taxes on various luxury items such as boats resulted in a collapse of the local boat building industry with consequent loss of jobs, loss of tax revenue and increased imports. The list is endless.


As far as assymetry is concerned, there is a degree of truth in what you say but (and it is a very big but) the same is true of every industry. Lots of industries and non-banking companies pay big bonuses (not just banks) and there is no clawback there - only waiver in bad years in some cases. In fact, the banking industry is already better in this respect than many others - they already do a three year vest (which means the vesting conditions have to be satisfied for at least two years for them to collect everything) - I'm not aware of any other cases where a vesting schedule for bonuses is used on a widespread basis.


Incidentially, there have been reports which show that the three most overcompensated groups of workers (in the US at least) are (i) government workers (ii) bankers (loosely used to apply to the finance sector generally) and (iii) CEOs. As far as the latter two groups are concerned, it really should be up to shareholders to reign in the excesses. As far as government workers are concerned, something clearly needs to be done - it wouldn't surprise me to learn that the excesses of the civil servants over the years cost us far more than any bank bail out.


In terms of making the banks accountable, we should bear in mind that most of the large failures in the US which resulted in public funds being put on the table did not involve banks - Lehman, Bear Stearns, AIG, LTCM etc - almost none of them were banks. This is unlike the bailouts of the 1980s when banks like Citigroup and Bank of America needed support. So calls to reintroduce selected parts of Glass Stegal are not supported by history. The simple solution to bank regulation is (IMHO):


1. back stop for small and medlium depositors - if a bank goes under they get repaid in full up to whatever level is set (currently too low in my view). This is paid for by a levy on the banks (as at present). The big boys can look after themsleves - and this serves the useful role of keeping the moral hazard on the table


2. adequate collateral for all advances - this would vary depending on the underlying asset (Basel III, HK's FRR etc. The bottom line is that "skin in the game" is important


3. additional haircuts for both secured and unsecured advances to non-banks with more than a certain amount of leverage. Leverage would take into account non-nettable derivative positions - this would make it much harder for situations like Lehman to arise again. If we get the regulations right, it would simply become too expensive to lend to a company that was geared 40:1


4. there would also be protection for customer assets which are or should be in segregated accounts (e.g. securities in a broking account). In theory we have this now but as MF Global showed, there are gaps here


5. governments would have the right to step in and buy assets at agreed values - the reason we need this is to prevent a domino effect whereby forced liquidation of the assets of one institution places pressure on others (as happened in the Great Depression). There would be a similar step in ability for clearing and settlement of obligations


6. oherwise if a bank goes down, the chips fall where they may. Shareholders, tier 2 and subordinated debt holders and employees would take the first (and biggest hits). In effect these are the people who run the banks - if they want to gamble with they capital, let them.

TI:

"I have to very strongly disagree with the suggestion that the banking industry "benefits from special privileges" - sure there are some things that banks can do that no one else can do (like take deposits) but that is no different from saying doctors or lawyers benefit from special priviliges and therefore should pay a higher rate of tax than everyone else."


When Doctors start get bailouts from taxpayers, then I will be in favor of taxpayers recovering them from that profession also. It is basic fairness I am talking about.


(Since Glass-Steegle was removed, I am afraid that I would be in favor of Commercial bankers who get big bonuses from IBank activities, also paying for the sins of IBankers.)


Currently, banks are run for the benefit of the Banksters that work there - Not for their shareholders, and not for their customers. They get away with it, in the US and elsewhere, because they use their excess profits to buyoff politicians.


I am not the only one that has noticed this. Any intelligent person would and should. If you want more arguments in the same direction, I invite you to Google: Nassim Taleb, or Kevin Philips, or dozens of other writers whose works you can find on the internet.


I think you have no idea how angry the average person is with the abuses of the banksters.


We are not at the point of revolution yet, where bankers heads show up on sticks, but if we do not address the abuses, that is the direction that we are headed in. I think the time to reboot the system is now, before matters get worse, and the unfairness becomes clear to everyone.


Someone said: Evil destroys itself by running to a point of excess that becomes unsustainable. I think the basic unfairness of the Banking cabal has gone far enough, and have no desire to see it go further.


I do like most of your suggestions, and would like to see sense like that, rather than the long bills that come out of Congress.

Again, I'll have to diasgree with some of what you are saying - the medical profession get huge handouts from taxpayers in most countries either directly or through subsidies paid to patients and pharmaceutical companies. I haven't looked it up, but I would wager a cold beer or two that the medical profession (broadly defined) gets far more from taxpayers than the banking industry ever did and my a pretty massive margin. The same can be said for education, law, and several other industries. A fair chunk of the taxpayer's money ends up inflating the incomes of people who wrok in those industries above what they would be without the taxpayer support. The difference is that some industries get it continuously (and we don't complain too much) and some banks only get bailed out once in a generation or so.


If a teacher, a lawyer, a doctor, a civil servant or anyone else does a bad job they still get to keep the money they earned from doing that bad job even though they failures may have cost children a decent career, a client their freedom, a patient their life etc. Why should everyone else get a free ride and not the bankers?


As to abuses, it is beyond debate that some bankers have committed acts of folly (rarely criminal) and have effectively been paid for doing so. The same is true of many other people - most of all the regulators and civil servants. If we want to penlise people who mess up, let's be fair and penalise everyone on the same basis.


Banks being run for the benefit of the banksters? This is often depressingly true, but it is not confined to the banking industry. Look at all the overpaid CEOs and the overpaid civil servants. If we are going to get mad at people who should be looking after their stakeholders (and we should) we need to treat everyone in the same way. Selectively bashing some members of society and not others because it is popular or people are angry is a very bad precdent - it's no different from any other tactics used by politicians and hate mongers throughout history to set people against each other to further their own agenda.


Looks like SCB is about to be the latest victim of America's political witch hunting industry. God only knows what the rest of the world puts up with some of the $%*#@ comming out of Washington.


I'm going to sign off on my participation on this issue here - I don't think there's much more to add to what has been said and we seem to have strayed quite some distance from " the state of the Hong Kong property market"


best

traineeinvestor

Just as an aside, seeing as traineeinvestor and OffThePeak were both bankers (past or presently), a key point missing from the argument is the 'human factor'.


I feel that teachers, lawyers or doctors actually benefit society and the general standard of living. Banksters only benefit themselves. I believe they're necessary for our current environment to function, but please point me to an event where banksters have sacrificed ANYTHING for the betterment of mankind?

@ elsdon - I am not a banker. I did spend a year working for a finance company in the 1980s but that's about it.


Banks do benefit society - a sound financial system including access the credit was one of the key factors in lifting Europe out of the Middle Ages and the comparative success of their respective banking industries was highly relevant to the compartive successes or failures (i.e. living standards) of many economies throughout history. Bernstein sets this out very well in "The Birth of Plenty".


In terms of sacrifice, same point. Bankers put their capital (these days the capital of their shareholders) on the line everytime they advance money or settle a transaction. To say that bankers only benefit themselves while other professions benefit society is, with respect, simply not supportable in the slightest.

Perhaps we need to be a little bit more specific, when we talk about banking I don't think anyone means retail banking ie. good ol deposits and withdrawals.. I think we're speaking of the predatory nature of investment banks.


I don't think putting capital on the line is anymore a 'sacrifice' on their behalf than a gamblers money is a 'sacrifice'. You have to boil it down to motives. The bank puts its capital on the line as it stands to make a profit, and more money for itself (and maybe shareholders). A doctor spends his life savings lives or whatever, and while profit stands to be a motivator it is not the sole motivator.

Elsdon,

I do think that bankers do benefit society, but only if they limit their role to providing service to it, rather than acting as predators.


I think Kevin Philips came up with a good measure. He said that when finance represented 15-20% of total profits, it was probably behaving in a healthy way, not over-stretching. In 2006-7, I think that financial co's made 33% of S&P500 profits. And that was indicative of predatory behavior, and financing speculation. Shortly after that, the property market and the stock market collapsed.


Bankers are overpaid, certainly. And so are Doctors and Pharmacists in the US. The American medical system is badly in need of over-haul. So is Defense, and the American living arrangement. These four areas are draining a huge amount of wealth from the US Middle Class. And Americans are brainwashed to keep them ignorant of these rather obvious facts.


This was discussed in two articles from last year:

08/24/2011 - Part 1 : http://www.financialsense.com/contributors/dr-bubb/2011/08/24/america-has-huge-holes-in-its-pockets

08/31/2011 - Part 2 : http://www.financialsense.com/contributors/dr-bubb/2011/08/31/america-has-huge-holes-in-its-pockets-part-2

EXCERPTS:

Holes in American Pockets: The biggest hole - Health care



I believe there are four big holes in the pockets of most Americans. Through these holes wealth is draining away, and that wealth drain is severely hampering the US economy, and preventing it from growing. Some of the holes are contained within the Federal budget, and some are in the personal expenditures of individual Americans. Hundreds of billions, or even trillions, of dollars are being lost each year in wasteful, non-productive expenditures. Fortunately, the drain represented by this malinvestment could be reduced if the nature of the excess spending problem was better understood and intelligently addressed. In fact, it will be nearly impossible to properly manage the US debt problem without simultaneously addressing the chronic wasteful spending which is making Americans poorer each year.

. . .

In a few words: American doctors are paid more, they require more procedures for their patients, and they prescribe more expensive branded drugs. This happens partly because doctors are incentivized by drug companies and equipment manufacturers to behave this way. Generic drug makers spend little time and money promoting their cheaper drugs to physicians. Big pharma is constantly promoting the relative advantages of their branded drugs. Doctors naturally want to minimize possible lawsuits from litigious US patients. And if branded drugs appear to have fewer side effects, and more procedures reduce the risk of a mistaken diagnosis, then many doctors will take the easier path, without thinking a minute about how that increases costs for taxpayers. Congress does nothing to stop this reckless spending, because they too are beneficiaries of pharmaceutical company contributions, and are heavily visited by lobbyists from the drugs and insurance industries. And of course, the lawyers have their lobbyists too. Within Washington, there are 35,000 registered lobbyists, and that number has doubled in the last five years. As Bill Moyers has put it: "Amazingly, in Washington, there are approximately 65 lobbyists for each member of the House."


(Americans are brainwashed to not know and not care about these outrageous matters, so I suppose they deserve to have their wealth drained until they wake up - And that is an important reason I have continued to stay away: I am not a sleepwalker.)

Haha point taken.


I apologize. It was my fault for trying to bring in the human factor. OffThePeak and traineeinvestor were simply arguing the bonus schemes and taxation.


Let's get back on track.


I have noticed over here at Elements/ICC, a significant decrease in little agents standing around.. and by significant, I mean from around 100 of them during the week, to zero.

Agree. Let's get back to property.


It would be a good thing if bankers got bigger housing allowances so they could pay more to rent my properties......

Trend seems to be shifting the other direction.. a good number of senior folks in the investment banking industry in HK are being shipped back to their countries.

"I have noticed over here at Elements/ICC, a significant decrease in little agents standing around.. and by significant, I mean from around 100 of them during the week, to zero."


What does that mean?:

+ Wrong time of week?

+ Nothing to sell?

+ Buyers have lost interest?

+ Agents chased away by Elements management?


Probably the last, I reckon

Unfortunately that is true. Anecdotally at least, the financial sector is contracting at the moment. Given the importance of its role as a financial centre, this is probably not good news for Hong Kong.

I think Hong Kong will see less shrinkage than London and New York.


But HK may regret having not diversified more.


I also think that Housing Allowances in the banking sector will continue to shrink, as banks wake up to the reality that Midlevels is not the only livable part of HK - and the area is over-valued because of the distortions created by Housing Allowances

ASIDE: must be a slow work day, and in the markets. this thread is on fire today.


@OffThePeak,


It means no buyers.


The amount of foot traffic we've been getting here from people looking at flats is has gone from some, to none. It's noticeably roomier now. They're allowed to be here, haha, I don't think Elements cares..


@walkup6,


I think the key difference here is that they're not losing their jobs, they're just losing their assignments/roles. Their options were to either move back, or lose their job entirely.

@ OffThePeak - that sounds right. The finance sector in HK is in much better shape than London or NY at the moment. More diversification would have been good, but with lower cost manufacturing just accross the border and already being a major logistics centre, that really only leaves servcies and the he cost base in HK (rents, wages) is just too high to compete with the likes of India.


I am told that housing allowances are shrinking (and not just for banks), although not all that rapidly. Mostly by offering new hires smaller allowances and/or introducing sunset clauses.

TI

"I am told that housing allowances are shrinking (and not just for banks), although not all that rapidly. Mostly by offering new hires smaller allowances and/or introducing sunset clauses."


I wonder if that means the traditional High-Housing-Allowance areas (like MidLevels) will lose value relative to the areas for HK's professional classes, some of which are in Kowloon.


If so, will "The Dark Side" become "The Brighter Side" (to own property)


/ I know this will wind-up LGMV, so I am chuckling a bit /

Lots of job cuts happening at junior levels as well. Even most of those junior guys (expat) were paid housing allowance .. salary + allowance..and placed in mid-levels/central paying like 25K for 400-500 sq ft.. Could be completely serviced apartments, but some rented as well.. with job cuts, most of them are finding it hard to get another one in the finance industry and are returning.. not sure if it quite sizeable to reduce rents..


one indicator, check the break lease section on asiaxpat.. someone's trying to find a tenant for a 460 sq ft apartment with roof top, for 28K.. good luck with that.. the price is a bit absurd.. probably a housing allowance..

Cathay loses close to a billion in first half, worst results since SARS.. main contributor to loss is the declining cargo revenue..


Is this is the beginning of the cycle for HK/Chinese companies ??


Super Mario has to do a quik-fix Europe soon, but it will not happen as


"Prime Minster Rajoy of Spain is in his native Galicia, German Chancellor Angela Merkel is walking in the Italian Alps, and French President Francois Hollande is staying at an official vacation residence in the South of France." ..source: Bloomberg

So having bashed the rich, the refiners and others Hollande is off to enjoy the perks of the job....all at the expense of the poor old taxpayer. Hippocracy at its finest. I hope he chokes on his frog legs.

"someone's trying to find a tenant for a 460 sq ft apartment with roof top, for 28K.. good luck with that"


HKD 18-20k will get you a nice 650-750sf in the Olympic Station, and a far easier commute to Hong Kong station

...And you will do even better if you find a location that others may regard as "secondary" (which helps to hold the price down), but for you, it is very suitable.


I recommend doing your own research, and finding places you like, where the "revealed wisdom" is that they are "secondary"

=== ===

I am surprised by Walk-up's calculation:

Rent: $28k x12: $336k / 6.7m = 5.01%

Yields are more like 3-3.5% where I live,

and mortgage rates near 2%


5% in a "prime" location ??

Nice article in the SCMP today (Tom Holland) covering the low gearing/high equity and high affordability in the HK housing market. I did have a couple of quibbles:


1. his analysis of leverage is based on new loans - the overall situation has to be much better than that for new loans by reason of a combination of value appreiciation and principal reduction


2. the affordibility numbers relate to affordability of a mortgage once you have one - they don't cover affordibility of the deposit which is the hard part for many.

Where can you find the list of new projects that will go on sale this year?

Maybe on some competitor sites to this one.


To be fair and square, and not fleet-of-foot, I should not provide a link from here

Li & Fung’s Stock Plunges on Operating Profit Drop


Li & Fung Ltd. (494), the world’s largest supplier of clothes and toys to retailers, plunged in Hong Kong trading by the most since listing in 1992 after slowdowns in U.S. and Europe caused a slump in first half operating profit.


http://www.bloomberg.com/news/2012-08-09/li-fung-first-half-profit-jumps-33-on-acquisition.html



And reacting...


China Easing May Now Come in Days, Not Weeks


http://www.cnbc.com/id/48604814

^l o l.

Googles... let me help you...


Li and Fund shares drop because HK's export major markets are in recession or stagnant...


If this trend continues those rich people we have heard about so many times have less money to invest in property - which would obviously impact the price of HK property...


However - as the second article indicates, China will not stand idly by and allow it's economy to follow the EU and US into the toilet... they will pump billions into the economy to build millions of more empty apartments, empty cities and ghost malls...


Of course as an investor all of this is meaningless... if the Centadata Index was up last week it will be up again next week - and next year - no need to look at any other data when you have the ultimate predictor of the market.

http://au.ibtimes.com/articles/372256/20120810/house-prices-hong-kong-cooling.htm#.UCX3MaNhiSM


An informative synopsis

The HK housing market will just slowly trend higher as inflation kicks in and potential buyers realise there isn't going to be a meaningful drop in prices. On buying opportunities will be in the New Territories which will get spammed with new projects a few years down the line.

Trend higher as inflation kicks in? I think inflation has been kicking in for a while now. Somehow I don't think 2013 is going to look pretty, with the election out of the way.

How much more can central banks do but talk the talk?

FWIW, I noticed that the on-line valuations provided by some banks have moved down very very slightly since I last checked BUT the few sales that have gone through in my block are still well above the bank valuations.


@ltse - there is still quite a bit that the central banks can do - bond buying (aka monetary printing) being top of the list. Unfortunately, all that will do is kick the can a bit further down the road and put more pressure on the governments involved to promote inflation as a matter of practice (if not official policy). It does not solve the underlying problem of governments simply spending money unsustainably.

With the Republicans gunning down Obama govt for Deficit, am not sure how much printing will be endorsed by the US.


Europe has a lot of leeway, but the Northern European countries would not allow it. Latest comments from Belgium saying that bond-buying by ECB will not help Spain and Italy is just an example. Finland wants security for bond buying program. Netherlands and Germany wont allow money printing.


the Europeans themselves do not see it as an urgency with most of them taking vacations as a priority. "Prime Minster Rajoy of Spain is in his native Galicia, German Chancellor Angela Merkel is walking in the Italian Alps, and French President Francois Hollande is staying at an official vacation residence in the South of France." ..source: Bloomberg"


Lloyd.. why would inflation go up?? Isnt it coming down successfully? China CPI is now at 1.7%.. this should flow into HK..

"on-line valuations provided by some banks have moved down very very slightly"


They moved up in the last two weeks where I am

Since abandoning Bretton Woods the US and major economies have financed economic growth theough the creation of credit. As consumers are now longer adding to credit the US has stumbled. The only answer has been for governments to pick up the slack and expand credit through the creation of fiat currencies, aka quantative easing, keeping their economies limping along. The only way ahead is more QE - which could be inflationary if too aggressive or, if the Republicans get in and cut taxes and reduce government spending will be deflationary and cause a global depression. Either way it does not look pretty.

"The only way ahead is more QE" ??


Romney selection of Ryan suggests that may "adult answers" can be considered to serious challenge.


Question for you: is QE an "adult answer"? (Genuine question)

Canary in the coal mine?


In-house legal counsel for a large bank said over beers on the weekend "Levels of business are now worse than in 2008. Everyone is scared and dreading getting the tap on the shoulder from the boss..."

GDEP. I think the last inflation number in China will be the lowest for some time - at least that's what some guy said on Bloomberg. However, not sure how much of link there is between mainland and HK prices. I think there is quite a strong correlation at the wet market but beyond that not sure. In the US, we'll either see a) a recovery or b) a downturn with more printing. Both should be HK property market positive.

"Levels of business are now worse than in 2008. Everyone is scared and dreading getting the tap on the shoulder from the boss..."


Okay.

But maybe shrinking the size of the banking sector is not a bad thing (for society as a whole.)


I do think that HK should have diversified more

@OffThePeak - I can't think of any other answer. Bernanke claims to have more bullets he can use - but I'd like to know what they were.

Ultimately QE will lead to disaster but politicians and the Fed would rather die tomorrow than lead the world into global recession today.

Yeah:

Kicking that Old Can down the Road - but it keeps getting heavier.

And the public is starting to care.

In terms of potential "bullets" that may provide a stimulus:


1. more QE (aka money printing) - central banks keep buying government bonds like the US is doing now


2. more liquidity in the interbank system - basically the short term equivalent of bond buying. This does not really do much at the moment


3. regulatory easing - delay or stagger the introduction of Basel III and certain other measures to reduce capital requirements for banks and effectively lower the cost of lending


4. regulatory common sense - kill stupid and pointless pieces of legislation like Dodd Frank and FATCA - this will reduce the risk exposure and cost of doing business for banks and (more importantly) make it easier for banks to do cross border business


5. one time whole or partial relief from double taxation for dividend payments - this would see a lot of cash which is currently locked up in listed companies be released - in many respects this is the easiest free stimulous measure available


6. put limits on the extent to which the banks can use the discount window as a risk free carry trade (borrowing at low rates from central banks and buying higher yield bonds from the same government (but not ban the practice alltogether because of the liquidity issue)


7. adopt measures to make life easier for small businesses (see earlier posts).


Apart from #5 which is win-win (and will actually raise tax revenue in places like the US while also stimulating the economy (!!!)), all of these come at a cost which will be paid in terms of reduced value of paper money in the years ahead.

Topol - 100% agree with you on that... that is why I think the EU will ultimately hose their economy with printing cash... even though they know that will end badly, when they are at the cliff edge and peering into the abyss... they will do anything to delay the leap (and buy some time to say a few more prayers for salvation)...


OTP - at some point the can becomes a barrel perhaps...


- re: banking retrenchments... than in itself is relevant to the HK property market as these people not only don't buy but if they have to leave HK that pressures rents...


But bigger picture the fact that there are no deals coming through is no doubt an indication that the HK / China economies are not growing robustly any longer... perhaps a bit of a 'calm before the storm' happening?

"relevant to the HK property market as these people not only don't buy but if they have to leave HK that pressures rents..."


I think most of them remain renters, paying fat housing allowances in MidLevels.


If they lose their jobs, where will they go? Is there someplace with a more bouyant job market for bankers?


Some will stay and downsize, and that may tend to hit rents more in Midlevels, than in other places where "real people" without housing allowances live.

More quantitative easing (QE) is the Feds last bullet and even that will not halt the global credit contraction. Bernanke is the most reckless Fed chairman since Alan Greenspan, he's already conducted 2 QE programs and with interest rates already at zero, you gotta ask why is credit still contracting?


The answer is there is already too much debt in the system, the existing debt obligations are impossible to payoff. If you take into account the derivatives obligations which is something like 10 time global GDP, when borrowers default, this credit destruction will be of epic proportion.


But going back to QE, as stated, it is simply the Treasury issuing bonds back by nothing to the Fed, the Fed then gives the government digital money, also backed by nothing, and then the government bureaucrats would waste that money on public spending. Now how does that help the economy at all? it will debase the dollar, but the point is the market with its existing debt holders, be it students, consumers, corporations, banks, it doesn't make it any easier for them to service their debt, all it takes is for interest rates to rise, and the game is over.


Again, amazing insights with a new interview with Bob Prechter:


http://www.youtube.com/watch?v=gHAMQ3eGNjA

Thanks for the video link... agree completely with what he is saying... the QE is not working - it will not work... something has got to give



OTP - I would assume they will return their home countries... even if they downsize what do they do about the fact that they don't have a visa to stay in Hong Kong?


I suspect the downturn that is already underway is not going to be short-lived...

Finance sector jobs and expat housing allowances are not what is driving the mass residential HK property market. Please get real. It's the strong balance sheets of locals. Expats make up 2pc of the population and expat packages went out years ago. Property is always a local affair.

@ Loyd - I'll meet you half way on that one - while expats do in fact make up a very small percentage of the total market and play a relatively small part in driving the market (compared to cash rich local and mainland buyers), demand from expats does play a more meaningful role in the rental market in the areas where a lot of people like me like to invest (e.g. Mid-Levels).

"Bernanke is the most reckless Fed chairman since Alan Greenspan"

LOL.

Factually true. He's also the most prudent one since Greenie


"even if they downsize what do they do about the fact that they don't have a visa to stay in Hong Kong? "


Not a problem if you are not working - You can do a visa run every three months

Visa Run... depends which country you came from ... I think US PP holders only get one month...


And from my understanding, immigration gets wise to this game pretty quickly... if they see you continuously coming and going on a tourist visa they will catch on fairly quickly... and you eventually be given one last, very short visa and told that no visa will be issued if you try to re-enter.


I have a Canadian friend who, after his second 3 month tourist visa was taken aside - asked what he was up to - he was given a 2 day visa to allow him to gather his stuff... and sent packing.


In any event, if there are major layoffs in finance (I have also spoken to legal headhunters and they say business is 'grim')... and they don't leave and downsize... that still impacts the luxury rental market...


I recall hearing of expats in finance shifting to low cost locales including Phuket the last time there was a cull... they wanted to remain in the region but not in high cost HK....



Lloyd - expats are not the driver of the sales market... but then again locals make up a huge component of the finance and legal community...


And if they are lose their jobs that will hammer the sales market...


Further... expats do make up a huge component of the luxury rental market... if companies retrench big time... who's going to rent all those mega apartments?


Rents would tumble... and prices would follow.

The US private sector can no longer bear any more debt, however, with total US debt standing at US$15.93t or 103% of GDP, the government is now the main provider of credit as the other main economic drivers

a)domestic personal consumption - is creaking under the weight of existing debt,and

b)business investment - cannot get credit from their bankers and would be reluctant to invest in such an environment.

The total debt of Japan current stands at 230% GDP implying that the US government can issue US$19.26t of debt before reaching Japanese levels. As credit is funding economic growth and that austerity will nudge the US and global economy into a depression the Fed has no choice but to hit the printing presses with QE3 and QE4 and QE5 etc. unfortunately this will add to inflation in commodities, stock markets as credit is funnelled into various corners of the economy. The increasing chinese trade surplus with the US will increase chinese FX reserves which will find it's way into USD assets adding to inflation devaluing the USD - making HK assets more attractive until the inevitable US sovereign crisis unfolds.


Then its gold, guns and baked beans!

Ed,

US = 90 days

(China Daily, August 10, 2012)Rising supply and anticipated interest rates hikes are likely to put downward pressure on housing prices by 2015, according to international property consultant Cushman & Wakefield.


The number of new homes completed in Hong Kong is on an overall upward trend in the next few years, from the estimated 11,890 units in 2012, 14,930 units in 2013 and 12,500 units in 2014, and is likely to peak at around 25,100 units by 2015, said the property advisory.


“Given that interest rates are also expected to hike up from 2014, it will impose pressure on property prices in Hong Kong combined with the substantial increase in home supply at that time,” said Vincent Cheung, national director of Valuation and Advisory Service of Cushman & Wakefield.


“Developers, however, will likely adjust the supply by postponing the launch of new properties accordingly to counter the pressure,” Cheung told at a media briefing on Thursday.


But the near-term home prices in Hong Kong are unlikely to stay in line with the advisory’s previous forecast on the market. In January 2012, Cheung told China Daily in a telephone interview that property prices in Hong Kong had reached a deadlock, and were expected at the most to decline by 15 percent in the mass market this year.


According to the data released by Cushman & Wakefield on Thursday, home prices in Hong Kong gained 6.6 percent in the first half of 2012. Cheung says prices will stay flat for the rest of the year, estimating that they would increase by an overall 6.9 percent in the mass market this year from a year earlier.


Despite home prices remaining firm in the city, transaction volume in the first half has declined over 22 percent over last year due to the market’s lukewarm sentiment. But since the new Chief Executive took office last month, the market turned warm again, with transactions climbing 8 percent in July over the same period in 2011, according to the property advisory.


Rents, however, only expanded 4.0 percent over the first six months, at a slower pace compared with the home prices in Hong Kong.


“It added pressure to rental yields”, Cheung said. “We anticipate the home price growth to moderate in the second half of 2012 while rents achieve sustained growth — which is likely to grow at an overall 5.6 percent for the full year, causing yields to rise by 3 percent,” said Cheung.


In a Knight Frank report released on Thursday, the firm said the residential market sentiment “weakened further over the past month”, as the secondary market remained quiet while primary sales rebounded.


“We expect luxury residential prices to drop by up to 10 percent over the next 12 months, while mass residential prices could drop by up to 15 percent during the same period,” said the report.


Deutsche Bank said in June that property prices in Hong Kong “may fall as much as 20 percent in the next 12 months” as the supporting pillars for the residential market over the past two years are weakening.


(The Standard, August 9, 2012)Shop rents skyrocketed as many international brands squeezed into prime shopping districts such as Central, Causeway Bay and Tsim Sha Tsui. This has triggered a trend for relocation, with top brands starting to move north in search of cheaper rents and closer proximity to well-heeled mainland customers.


For example, Prince Jewellery & Watch Co is paying monthly rent of HK$2.5 million for a few hundred square feet at its Causeway Bay location on Russell Street, according to market sources.


In comparison, its newly leased 6,000-square-foot premises at Landmark North in Sheung Shui will only cost about HK$1 million per month.


So it is small wonder well-known retailers have been branching out to shopping malls in Tai Po, Yuen Long, Tuen Mun and Sheung Shui.


Kitty Yau Yuen-ling, assistant sales director of the Hong Kong commercial department at Centaline Property Agency, said rents in Central have risen to nearly HK$1,000 psf.


"Some shop owners double rents during contract renewal, which scares a lot of tenants," Yau said. "The market situation in the retail sector has worsened this year, and the consumption demand of individual visit scheme tourists is low. More international brands may choose to relocate their stores rather than renewing their contracts at their current locations.''


Swedish apparel chain H&M's flagship store, opened in 2007 on Queen's Road Central, is to be replaced by the Spanish clothing brand Zara.


H&M will close its shop there after the fall next year due to soaring rents. The Wall Street Journal reported that Zara will take over the 30,000-sq-ft space for US$1.4 million (HK$10.92 million) per month - double what H&M now pays.


Meanwhile, various brands have made their way into malls near the border, where facilities such as Tai Po Mega Mall - the area's largest with nearly 600,000 sq ft of retail space - are aggressively changing their tenant mix to attract both local customers and big- spending mainlanders.


French brand agnes b plans to open an agnes b Delices chocolate shop this quarter, followed by a Sport b casualwear outlet at the end of the year.


Bourjois Paris, Crabtree & Evelyn and The Body Shop are among the personal-care product and cosmetic brands in the mall, developed by Sun Hung Kai Properties (0016).


Frequent shopping tours are organized to lure thousands of residents from Shenzhen, Dongguan, and Guangzhou, who are expected to spend HK$4,500 to HK$8,000 per person.


Maureen Fung Sau-yim, Sun Hung Kai Real Estate Agency general manager for leasing, expects pedestrian flow to rise 10 to 15 percent to 77 million at Tai Po Mega Mall, with sales revenue climbing 12 to 15 percent year-on-year to HK$2.6 billion.


"There is great potential for the shopping malls in the New Territories to develop. A larger customer base can be achieved, as the shopping malls improve their tenant mix and increase various tourist-based promotions,'' Fung said.


At Yuen Long Plaza, another SHKP development, 15 new tenants - including jewelers, audio/visual, and personal-care product retailers - have been signed up this year to tap mainland customers. The mall has even partnered with Kowloon Motor Bus to provide free rides between Yuen Long and Shenzhen for shoppers spending HK$400 or more.


Fung expects pedestrian flow at Yuen Long Plaza to reach 47 million for the whole year, up 10 to 15 percent from last year, with sales revenue jumping 12 to 15 percent to HK$700 million.


At Sino Group's Tuen Mun Town Plaza, H&M, Zara and Lancome have recently opened stores, with Rolex, Tudor, NSK, Estee Lauder and Marks & Spencer following suit later this year.


Tuen Mun Town Plaza has always been well-patronized by mainland customers under the individual visit scheme, as the mall is only a 15-minute drive from Shenzhen Bay Port, said Ronnie Chan Yam-ling, general manager of Sino Property Services.


In the second quarter next year, SHKP will open a new shopping mall atop Tuen Mun West Rail station, named V City.


"Various renowned tenants and brands have signed contracts with us, with 80 percent of the brands making their initial presence in Tuen Mun, such as agnes b and Haagen-Dazs,'' said Jimmy Wong Chin-wah, executive director of Sun Hung Kai Real Estate Agency.


Landmark North - another SHKP development - recently saw five international watch brands interested in leasing retail space.


"We want to expand our sales network outside Central, Tsim Sha Tsui and Causeway Bay, to make shopping more convenient for mainland customers, who make up 80 percent of all our customers,'' a Prince spokesman said.


"As a lot of potential customers live in Shenzhen Nanshan district, we will gradually develop our network in the New Territories in the future.''


Shop rents skyrocketed as many international brands squeezed into prime shopping districts such as Central, Causeway Bay and Tsim Sha Tsui. This has triggered a trend for relocation, with top brands starting to move north in search of cheaper rents and closer proximity to well-heeled mainland customers.


For example, Prince Jewellery & Watch Co is paying monthly rent of HK$2.5 million for a few hundred square feet at its Causeway Bay location on Russell Street, according to market sources.


In comparison, its newly leased 6,000-square-foot premises at Landmark North in Sheung Shui will only cost about HK$1 million per month.


So it is small wonder well-known retailers have been branching out to shopping malls in Tai Po, Yuen Long, Tuen Mun and Sheung Shui.


Kitty Yau Yuen-ling, assistant sales director of the Hong Kong commercial department at Centaline Property Agency, said rents in Central have risen to nearly HK$1,000 psf.


"Some shop owners double rents during contract renewal, which scares a lot of tenants," Yau said. "The market situation in the retail sector has worsened this year, and the consumption demand of individual visit scheme tourists is low. More international brands may choose to relocate their stores rather than renewing their contracts at their current locations.''


French brand agnes b plans to open an agnes b Delices chocolate shop this quarter, followed by a Sport b casualwear outlet at the end of the year.


Bourjois Paris, Crabtree & Evelyn and The Body Shop are among the personal-care product and cosmetic brands in the mall, developed by Sun Hung Kai Properties (0016).


Frequent shopping tours are organized to lure thousands of residents from Shenzhen, Dongguan, and Guangzhou, who are expected to spend HK$4,500 to HK$8,000 per person.


Maureen Fung Sau-yim, Sun Hung Kai Real Estate Agency general manager for leasing, expects pedestrian flow to rise 10 to 15 percent to 77 million at Tai Po Mega Mall, with sales revenue climbing 12 to 15 percent year-on-year to HK$2.6 billion.


"There is great potential for the shopping malls in the New Territories to develop. A larger customer base can be achieved, as the shopping malls improve their tenant mix and increase various tourist-based promotions,'' Fung said.


In the second quarter next year, SHKP will open a new shopping mall atop Tuen Mun West Rail station, named V City.


"Various renowned tenants and brands have signed contracts with us, with 80 percent of the brands making their initial presence in Tuen Mun, such as agnes b and Haagen-Dazs,'' said Jimmy Wong Chin-wah, executive director of Sun Hung Kai Real Estate Agency.


Landmark North - another SHKP development - recently saw five international watch brands interested in leasing retail space.


"We want to expand our sales network outside Central, Tsim Sha Tsui and Causeway Bay, to make shopping more convenient for mainland customers, who make up 80 percent of all our customers,'' a Prince spokesman said.


"As a lot of potential customers live in Shenzhen Nanshan district, we will gradually develop our network in the New Territories in the future.''


(China Daily, August 9, 2012) China won’t relax housing curbs until the health of the industry improves, according to Yu Liang, president of China Vanke Co, the biggest developer by market value traded on the nation’s exchanges.


The government controls to cool the property market won’t be relaxed soon, Yu said during a press conference in Hong Kong.


The developer reported on Monday that first-half profit climbed 25 percent as the company cut prices to boost sales amid government controls.


“For the central government to begin relaxing the measures, the industry must first return to a healthy state,” said Yu. “I don’t have a definite answer for when that will happen.”


Separately, Shanghai Securities News reported that an unidentified government ministry official suggested on Wednesday that China will be able to expand property market controls if home prices rebound.


The government may further tighten property lending and increase land supply, speed up a property tax trial, as well as expand home purchase restrictions, the newspaper cited an unidentified official as saying.


(China Daily, August 7, 2012) Residential property prices have climbed up 10.7 percent year-to-date (YTD), with transactions also up on improved investment sentiment. I believe government policy will continue to focus on demand as local end-users are still driving the market.


Looking into the second half of the year, slowing economic growth may bring down office rents and residential prices, yet residential and retail rents are likely to remain buoyant due to the home owners’ reluctance to sell and the global retailers’ expansion in the city.


The government’s efforts to boost home supply over the past couple of years seem to be showing some effect, with overall private housing supply increasing. Housing supply accelerated in the second quarter of this year, bringing the YTD figure to 10,200, almost equivalent to the full year’s number of 10,300 in 2011.


However, the YTD housing completion figure of 2,300 is only about 24 percent of the full-year figure of 9,400 units in 2011, representing only 19 percent of the government’s forecast of 11,890 units for 2012, a sign that the housing completions will be faster in the second half of the year than they were in the first half. As such, private housing supply should remain healthy in the second half.


While the city’s home prices are hitting record highs, the waning domestic economy and uncertainty over the new administration’s policy direction could limit the upside for home prices. In this environment a 5-10 percent correction in home prices would be reasonable. However, a sharp decline in prices is unlikely as current home owners are still on low mortgage rates.


Over in the office market, further downside pressure is expected on grade-A office rents due to rising unemployment that may have a latent impact on GDP growth, possibly resulting in financial sector layoffs in the first half of 2012, as well as the relocation of large-sized multinational companies or professional firms from Central and other core business districts in Hong Kong to areas outside the CBD. These factors are likely to weigh on office demand causing vacancy rates for grade-A offices to rise.


Meanwhile, retail rents are supported by international retailers’ expansion in the city. Despite the moderation in both retail sales and rents due to slower spending by mainland visitors, especially on luxury products, global retailers remain optimistic and show no signs of delaying their expansion plans here. As a result, retail rents are expected to rise 15 percent in 2012 versus the 30 percent increase last year.


(The Standard, August 6, 2012) The government plans to provide more than 60,000 public housing and Home Ownership Scheme flats in the next few years in a bid to maintain a healthy property market, the financial secretary said.


``The flats to be launched are expected to balance demand and supply in the short term,'' John Tsang Chun-wah wrote in his blog yesterday.


He said the government is also looking at turning industrial areas into residential use. A plot in Sha Tsui Road, Tsuen Wan, was recently rezoned for public housing and is expected to provide 860 flats by 2016.


``The demand for industrial buildings is declining as Hong Kong shifts its economic model. Those areas are ideal for residential projects,'' Tsang wrote.


His message echoed that of Chief Executive Leung Chun-ying, who over the weekend reiterated his commitment to resuming the HOS, saying the plan was ``inked in bold characters'' in his election manifesto.


Leung last week said the government is looking for new sites for HOS homes. This came after his promise last month that up to 5,000 white-formers - first- time home purchasers meeting the household income limit of HK$30,000 a month - will be allowed to buy HOS flats without paying a land premium.


That immediately pushed up transaction volume and prices of small- and medium-sized flats.


``New HOS homes will be launched in 2016 or 2017 at the earliest, which can provide 17,000 units in the first three years, or 5,000 units per year, '' Secretary for Transport and Housing Anthony Cheung Bing-leung said on Saturday.


He expects speculation on HOS flats to ease as the new supplies come in.


But Cheung Kong (0001) and Hutchison Whampoa (0013) tycoon Li Ka- shing has voiced reservations about expanding the HOS supply, as real estate is a major contributor to government revenue.


``There is demand for HOS homes from the middle class, but the government will decide whether the [increased supply of] subsidized homes goes against Hong Kong's housing policy,'' Li said on Thursday.


However, Leung defended his HOS policy, saying the sale of these flats is also a source of government revenue.


Meanwhile, Tsang said the territory should make use of sites atop and near MTR stations to build more homes.


``Great synergy will come into effect by combining railways and homes,'' Tsang wrote, noting that several sites in the Tsuen Wan West Station area can provide a total of 6,000 units.


MTR Corp (0066) relaunched the tender for its Tsuen Wan West Bayside residential development last month after suspending it in January when bids missed the reserve price. Rebids are being accepted until Wednesday.


Tsang also said the government is considering a total of 2,500 hectares for residential projects, about 10 percent of of the SAR's already developed land.

A 10 % fall is probably not enough to get me to buy again.


20% may get me out looking for another one.


Incidentially, if lower property prices are caused by more new supply, presumably some of the developers could actually benefit - lower margins being offset by higher volumes?