The State of the Hong Kong Property Market (6)

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ORIGINAL POST

POSTED BY Ed (3 yrs ago)
In the interest of faster page loads, let's start 6.0 on this topic....


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)

http://hongkong.asiaxpat.com/forums/hong-kong-property/threads/142973/the-state-of-the-hong-kong-property-market-%283%29/


Part 4 (21,000+ views)

http://hongkong.asiaxpat.com/forums/hong-kong-property/threads/145331/the-state-of-the-hong-kong-property-market-%284%29/#bottom


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?



COMMENTS

OffThePeak (3 yrs ago)
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)
1

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
2

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
3

OffThePeak (3 yrs ago)
"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
4

Ernie20 (3 yrs ago)
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.


5

OffThePeak (3 yrs ago)
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
6

elsdon (3 yrs ago)
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!
7

punter (3 yrs ago)
Incredible market! I hope the volume goes higher.
8

Ed (3 yrs ago)
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
9

Loyd Grossman is Miss Venezuela (3 yrs ago)
Good to see Ed swimming in his usual sea of wrongness.
10

Ernie20 (3 yrs ago)
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.


11

Ed (3 yrs ago)
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."


12

punter (3 yrs ago)
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.
13

Ernie20 (3 yrs ago)
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?
14

OffThePeak (3 yrs ago)
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
15

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
16

OffThePeak (3 yrs ago)
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.


17

Ed (3 yrs ago)
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
18

Ed (3 yrs ago)
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.
19

liebster (3 yrs ago)
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.
20

fieter (3 yrs ago)
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.
21

Ed (3 yrs ago)
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...
22

ltse (3 yrs ago)
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.
23

Ed (3 yrs ago)
Bottom fishing... provided the fish aren't call killed off by the volcano.
24

Ed (3 yrs ago)
Is the game up for property tycoons?


http://www.marketwatch.com/story/is-the-game-up-for-property-tycoons-2012-07-22
25

Ed (3 yrs ago)
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?


26

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
27

Ed (3 yrs ago)
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...
28

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
29

Ed (3 yrs ago)
Lloyd - if (when) Italy goes down... there will be utter chaos. Banks are all interconnected with the global financial system... none will be immune...


30

punter (3 yrs ago)
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.
31

Ed (3 yrs ago)
“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

32

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
33

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
34

liebster (3 yrs ago)
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.
35

Ed (3 yrs ago)
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.
36

Ed (3 yrs ago)
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#!
37

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
38

Loyd Grossman is Miss Venezuela (3 yrs ago)
Liebster. Speculators are neutral. End users, long-term property investors and developers all have vested interests in property. Who would you rather buy from?
39

Ed (3 yrs ago)
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...
40

liebster (3 yrs ago)
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.
41

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
42

Loyd Grossman is Miss Venezuela (3 yrs ago)
Jim Fit. Shenzhen is not that expensive and there is no rule of law.
43

Loyd Grossman is Miss Venezuela (3 yrs ago)
I mean not that cheap.
44

Ed (3 yrs ago)
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...
45

Loyd Grossman is Miss Venezuela (3 yrs ago)
Ed. See my previous post. It will just stay as it is.
46

Ed (3 yrs ago)
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
47

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
48

Ed (3 yrs ago)
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

49

mash108 (3 yrs ago)
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)


50

Ed (3 yrs ago)
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/
51

Loyd Grossman is Miss Venezuela (3 yrs ago)
Ed/Jim Fit. So why isn't the HK property market budging?
52

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
53

Loyd Grossman is Miss Venezuela (3 yrs ago)
Could be Jim Fit but I wouldn't bet on it.
54

punter (3 yrs ago)
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).
55

Ed (3 yrs ago)
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...


56

elsdon (3 yrs ago)
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

57

Loyd Grossman is Miss Venezuela (3 yrs ago)
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?
58

elsdon (3 yrs ago)
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..
59

Ed (3 yrs ago)
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?

60

Ed (3 yrs ago)
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...
61

Loyd Grossman is Miss Venezuela (3 yrs ago)
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?
62

Ed (3 yrs ago)
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.

63

Ed (3 yrs ago)
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....


64

OffThePeak (3 yrs ago)
"sold them about 6 months ago... near the market top of course"


The market top is now, or still ahead, Ed.
65

punter (3 yrs ago)
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.
66

Ed (3 yrs ago)
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...
67

OffThePeak (3 yrs ago)
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
68

mash108 (3 yrs ago)
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)



69

Ed (3 yrs ago)
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...
70

Loyd Grossman is Miss Venezuela (3 yrs ago)
So Ed. The wrongness continues.
71

Ed (3 yrs ago)
Actually the rightness continues Lloyd... Bali property up 3x since 08... gold up nearly double since 07...
72

Loyd Grossman is Miss Venezuela (3 yrs ago)
But Ed. You don't own your property in bali. Someone else does.
73

Ed (3 yrs ago)
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...
74

HKLEV (3 yrs ago)
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
75

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
76

Ed (3 yrs ago)
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?
77

Ed (3 yrs ago)
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.
78

Loyd Grossman is Miss Venezuela (3 yrs ago)
Yes, Ed. Why not sell and rent? LOL.
79

elsdon (3 yrs ago)
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.
80

Ed (3 yrs ago)
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....
81

Loyd Grossman is Miss Venezuela (3 yrs ago)
Centadata edging back up
82

Ernie20 (3 yrs ago)
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!
83

Ed (3 yrs ago)
Here you go: http://hongkong.asiaxpat.com/forums/hong-kong-property/threads/147703/alternative-asian-property-markets/
84

traineeinvestor (3 yrs ago)
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.
85

OffThePeak (3 yrs ago)
"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?)
86

Ed (3 yrs ago)
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.
87

Loyd Grossman is Miss Venezuela (3 yrs ago)
Ed. It looks like the Germans are going to monetise. That's why the market is up.
88

Ed (3 yrs ago)
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!
89

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
90

Ed (3 yrs ago)
What was the down payment on a property in 1997 Lloyd?
91

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
92

Loyd Grossman is Miss Venezuela (3 yrs ago)
The one thing the HK property isn't in is a bubble, it's the exact oppositie of a bubble.
93

notaeuropean (3 yrs ago)
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 .....
94

Loyd Grossman is Miss Venezuela (3 yrs ago)
And stir in the long years of saving and balance sheet repair since 1997 and you have something prteey rock solid.
95

Ed (3 yrs ago)
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.


96

tinkering (3 yrs ago)
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
97

Loyd Grossman is Miss Venezuela (3 yrs ago)
ED. What examples do you have of me posting incorrect facts Ed?
98

traineeinvestor (3 yrs ago)
@ 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.
99

elsdon (3 yrs ago)
"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??
100

Ed (3 yrs ago)
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
101

Loyd Grossman is Miss Venezuela (3 yrs ago)
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?
102

Ernie20 (3 yrs ago)
'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.

103

Ed (3 yrs ago)
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...
104

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
105

Ed (3 yrs ago)
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?

106

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
107

Ed (3 yrs ago)
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
108

Ed (3 yrs ago)
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
109

Ed (3 yrs ago)
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?
110

xpatwilier (3 yrs ago)
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.
111

Ed (3 yrs ago)
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...
112

Ed (3 yrs ago)
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...
113

Ed (3 yrs ago)
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....


114

Loyd Grossman is Miss Venezuela (3 yrs ago)
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'?
115

xpatwilier (3 yrs ago)
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...
116

xpatwilier (3 yrs ago)
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.
117

Ed (3 yrs ago)
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?
118

Ed (3 yrs ago)
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?
119

traineeinvestor (3 yrs ago)
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.
120

mayo (3 yrs ago)
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.
121

Ed (3 yrs ago)
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'
122

traineeinvestor (3 yrs ago)
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.
123

Ed (3 yrs ago)
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
124

traineeinvestor (3 yrs ago)
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.
125

Ed (3 yrs ago)
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
126

Ed (3 yrs ago)
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
127

Loyd Grossman is Miss Venezuela (3 yrs ago)
Ed. Yep so bad that mainland shipping and construction shares were sharply up on the day.
128

OffThePeak (3 yrs ago)
"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.
129

Ed (3 yrs ago)
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/
130

OffThePeak (3 yrs ago)
Cars are an unnecessary luxury in Hong Kong.

Who needs them?
131

punter (3 yrs ago)
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).
132

traineeinvestor (3 yrs ago)
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
133

Loyd Grossman is Miss Venezuela (3 yrs ago)
Ed. You're clutching at straws again.
134

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
135

Ed (3 yrs ago)
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
136

traineeinvestor (3 yrs ago)
@ 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


137

Ed (3 yrs ago)
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.






138

Loyd Grossman is Miss Venezuela (3 yrs ago)
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?
139

elsdon (3 yrs ago)
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.
140

punter (3 yrs ago)
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.
141

traineeinvestor (3 yrs ago)
@ 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
142

Ed (3 yrs ago)
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
143

Ed (3 yrs ago)
I don't recall advising this person... if I were advising I would have suggested buying gold when it was 900...
144

Xerxes (3 yrs ago)
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.
145

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
146

talllatte (3 yrs ago)
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.


147

Xerxes (3 yrs ago)
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.
148

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
149

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
150

Loyd Grossman is Miss Venezuela (3 yrs ago)
Also property doesn't trade like it used to do prior to the SSD.
151

Ed (3 yrs ago)
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
152

Ed (3 yrs ago)
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...
153

Ed (3 yrs ago)
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.
154

traineeinvestor (3 yrs ago)
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?
155

Ed (3 yrs ago)
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...
156

Ed (3 yrs ago)
Think Manhattan Rents Are High? Try Hong Kong


http://blogs.wsj.com/developments/2012/08/02/think-manhattan-rents-are-high-try-hong-kong/
157

Loyd Grossman is Miss Venezuela (3 yrs ago)
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
158

Loyd Grossman is Miss Venezuela (3 yrs ago)
Amsterdam prices on http://www.funda.nl
159

Ed (3 yrs ago)
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
160

traineeinvestor (3 yrs ago)
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?
161

Ed (3 yrs ago)
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.


162

traineeinvestor (3 yrs ago)
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.
163

Ed (3 yrs ago)
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
164

Ed (3 yrs ago)
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...


165

traineeinvestor (3 yrs ago)
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.
166

traineeinvestor (3 yrs ago)
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?
167

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
168

punter (3 yrs ago)
Interestingly, the most bullish commenters in this thread haven't bought any property lately.
169

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
170

christian_moore (3 yrs ago)
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.


171

punter (3 yrs ago)
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.
172

punter (3 yrs ago)
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.
173

Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
174

OffThePeak (3 yrs ago)
"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/
175

OffThePeak (3 yrs ago)
"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.)
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OffThePeak (3 yrs ago)
"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.)
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traineeinvestor (3 yrs ago)
@ 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.
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punter (3 yrs ago)
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.
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Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
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punter (3 yrs ago)
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.
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OffThePeak (3 yrs ago)
"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.
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traineeinvestor (3 yrs ago)
@ 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.
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punter (3 yrs ago)
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.
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traineeinvestor (3 yrs ago)
@ 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?
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punter (3 yrs ago)
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...
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OffThePeak (3 yrs ago)
"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
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Ed (3 yrs ago)
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...


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Loyd Grossman is Miss Venezuela (3 yrs ago)
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.
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OffThePeak (3 yrs ago)
"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.


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