Occupy Hong Kong / On Cooling Measures

(This is from the Main Property Thread):


Agents and Media are still trying to talk prices lower.



Example: SCMP title:

"Due for a fall? HK's Property boom may have finally runs its course."



The actual article is partly correct:

"Economic uncertainties in the financial markets, rising mortgage rates and government measures to cool the HK property market are reflected in a drop-off in property sales. Weekly home sales dropped to a six year low..."



The way I see it is:

+ The "cool measures" (ie a confiscatory 15% tax in the first 18 months) have slowed sales to a crawl, but



+ The drop in sales prices is ALMOST ENTIRELY due to the increase in bank spreads- ie the premium that banks charge over their Hibor-related funding costs. This has gone up from 70 bp over Hibor to perhaps 200 bp over Hibor.



THE QUESTION that semsible observers of HK's property market should be asking is this:

How long can banks keep pushing up, and sustaining their High Mortgage spreads?



Normally, a drop in demand forces a company to CUT prices. But in HK's topsy-turvy world, a banking oligopoly has been able to RAISE prices at a time whne demand for mortgages has fallen (thanks to cooling measures.)


Perhaps BANK SPREADS should be the subject of public protests, not high property prices!



Those high spreads have meant that Property sellers have been hit by lower prices, but the Buyers of Property have seen little or none of the benefit of lower price.



OCCUPY HONG KONG is carrying the wrong signs.


They should say:

"BENEFITS TO BUYERS, not to greedy banks and overfed governments"



Let's see some "cooling measures" that help buyers not fatcats!

whoops.

"the premium that banks charge over their Hibor-related funding costs. This has gone up from 70 bp over Hibor to perhaps 200 bp over Hibor."


I might have under-estimated the rise in Bank spreads.


An article in today's SCMP says:

"A 225 basis points (2.25 per cent) rise in mortgage rates in the last eight months is a sign that credit is tightening." - Money section, pg 5.


Okay - an nearly all of this is a JUMP IN BANK SPREADS.


Run the numbers (as I have) and see what impact a 225 bp rise in mortgage rates has on monthly payments- they jump by more than 5% - and you will find that is jump can explain VIRTUALLY ALL of the 3-5% drop in property prices (per the Centaline index.)


BANK GREED is pushing down prices. So banks are getting the benefit of the drop, not property buyers. Let's call a spade a spade, and fatcat bankers the name that they deserve too.

http://www.kerryprops.com/kpl/en/