The State of the Hong Kong Property Market

Posted by uupper 17 yrs ago

no body has a crystal ball, but one needs to be aware that the property market has gone up a lot over the last 6 months, and the external environment is not favorable, given the equity market in HK& overseas, and the possible recession in US. Upside will be limited and risk of downside is much higher...

DaHKGKid 17 yrs ago

Good call MisterD. This is a topic on many peoples mind. Let's continue to look at the state of the US ecomony, the FED is inserting stop gap measures just at the right time so the market wont collapse. Bear Stearns bailout at $10/share but who is next, still not the end of write downs for banks in US. Then what about Commercial Realestate (look at the McDonalds sell off), then car loans then credit cards and unemployment. Then after the HSI dumps further consider history for HK residential markets crashes pegged to the last two in Aug 97-98 61% down HSI, Res prices down 45%, then Mar 00 to Apr 03 down 55%, res prices down 40%. So far we are down 32% from Oct 07 and its only March 08. While markets can do many different things and any time I agree, lets look past the US and go UK that is to follow US with same issues. Let's then look at EURO, then CHINA transition during all of this and global slowdown expected later this year. USD still has still room to go down until it flatens out with global slowdown, prime to fall further, HSI to respond to all of this negatively. My prediction is residential markets will try and hold at current levels with owners and agents proping up the market as long as possible but then the air will be let out of the bubble in HK. All it takes is the first few to jump ship and the rest will follow. Those who own now could loose all the gains (on paper) for the last year, say 10-15% in next 2-3 months (due to overinflated values and owners/agents positions), next 2-3 months another 10-15% moving back over to buyers market and 10% negotiations. This would be bottom in my mind and take us back to say 2006 levels, THEN BUY while rates are still rock bottom a property that you can carry even if rates jump up next 4-5 years by 3-4% on prime and you've just set yourself up for a nice future Asian Growth. This could also spur the potential for RMB peg for HKD on the way to an Asian Dollar as well.

My opinion only!

Lilyisbanned2 17 yrs ago

$30 million+ property (individual house, not apartment) , in great location , with great view,

great fengshui, good numbers (i.e. 3, 8, etc...) would be a treasure in long run..... i personally think that you must be very lucky to get a similar house ,even in bad economy,,,even you have ton of cash...

elysium168 17 yrs ago

Warren Buffett, once said “be fearful when others are greedy, and greedy when others are fearful.”

elysium168 17 yrs ago

although there are both optimistic and pessimistic view of the HK property market, the general consensus is that the fluctuation are only within 10 to 20% max in 2008(unless unexpected crisis like SARS suddenly appears on the horizon).

if you want to cash in now and able to sell your property higher than bank valuation, it could be worth the move. Try to list your property and see the feedback. As I know, there are more sellers now than buyers, and some desperate ones are already off loading property at 5-10% off bank valuation. if you have to sell off at 10% discount, then maybe better to wait after the consolidation while continue to get cash from the rental which you will never get with your cash unless you have clear alternative investment to park your cash.

DaHKGKid 17 yrs ago

Buyers Market seems to be here now. Sellers are looking at offering higher comms to agents and transactions where I am little to nil. This may not be news to some but now much more visible then before. Unemployment rates out of USA and Fed meeting April 30th looking at further cuts to prime will give us some further indications on how the US market will continue to slide. This data is always lagging but again does something to all of us now. Commercial property next USA.

I have a rental until September and gathering cash for purchase based on a 20% re-correction in HK in next 3-4 months then buying in for long haul. Rates should hang low for some time so repayment next 2-3 years min 5 years max should stay within 10-15% of what you would pay today.

bayfield 17 yrs ago

Another straw in the wind?

From The Standard on Monday, April 14, 2008

The property market remained quiet over the weekend as potential buyers took a wait-and-see approach after home values soared during the last six months.

There were around 16 primary transactions of inventory units during the weekend, property agents said. These included five units at Forest Hill in Tsz Wan Shan by SEA Holdings (0251), and three at Nobel Hill in Sheung Shui by Sun Hung Kai Properties (0016).

Market watchers blamed the thin volume on the lack of new major launches since Cheung Kong (Holdings) (0001) unveiled The Capitol in Tseung Kwan O.

MOD 595, an urban redevelopment in Mong Kok by Chinese Estates Holdings (0127), was not opened to the market last week as expected. Property agents said there were about 25 registrations of purchase for the 85-unit single block project so far. It was believed it would likely open for sale once the developers have obtained 40 registrations.

In the secondary market, about 30 units changed hands in the 10 most circulated estates on Saturday and Sunday, versus 36 a week earlier. "Although home sellers became less ambitious in pricing this week, transactions could not return to the level of the week before Lunar New Year," said Centaline's executive director for residential market Louis Chan Wing-kit.

DaHKGKid 17 yrs ago

Lets keep this post on front page as we watch the US UK markets unfold.

Ted the Angry American 17 yrs ago

The luxury market in HK is a whole other animal.

And whoever thinks banks are not laying off staff, break me off a chunk of whatever they're smoking...

evildeeds 17 yrs ago

Have personally been keeping my eye on a particular luxury development over the past few months and have watched the sellers price so high - and not one thing has moved. One seller has already offered me a 10% drop in price and I haven't even bothered negotiating yet. They can be as optimistic as they want in the newspapers, the reality on the ground is different.

I'm biding my time, it's becoming a buyers market again and there will be some serious bargains coming up especially among those who far overstretched themselves trying to get on the bandwagon.

HappyHongKongers 17 yrs ago

A lot of people see property prices going down this year but I haven't been able to understand the reasons behind that - is there more that just "what goes up must come down" logic to this prediction?

I see negative real interest rates (mortgage rates as low as 2% now), appreciating foreign currencies (or falling USD), disposable income vs mortgage repayments, improving sentiment and confidence all suggesting that there is still more upside.

DaHKGKid 17 yrs ago

Increases from last fall to now were approx. 20% and this is what this post is referring too as overvalued. To Be Buyers believe that this period will scale back to reality by 10-15% with the ability to negotiate the rest to 20%. There will come a time in the next few months when real numbers come out of USA and UK and overall global slowdown will assist in this happening in HK for home buyers. There is no buying activity right now and worst in years. Agents are starving so they have already started looked to Sellers to lower asking prices and take lower commissions to activate some buying. Once the market corrects itself in this manner, new buying activity occurs and then goes back up by 10% by end of year.

This is only my opinion, the logic is only based on overvalued property pushed by agents in the first place and there has to be a correction backed by negative global slowdown news.

DaHKGKid 16 yrs ago

Latest news in my neighbourhood, which consists of about 1000 singles and semi detached homes ranging from 1850 - 3500 sqft homes is prices have come down on ask by 3-5% already and negotiations to 5-7% so max. 12% on neg. price. Supply is high so my agent says try 10-12% off ask to start. Ideally in my area we see that the July timeframe is also the best time to buy. I would also look at annual low point trends in your neighbourhood as they could mean another 3-5% in negotiation.

DaHKGKid 16 yrs ago

that is fine but where are the transactions??? They just launched the Palattso in the Shatin area right by the racetrack. 10,000/sqft, no buying!

HK investors who used to put money in property when the stock market was bearish are now pausing for reflection I believe. Agents are counting on income from rental agreements only as you have to live somewhere.

Again, watch for property to come down another 10%-15% after negotiations on a drop on asking prices but 5-10% May June July maybe August. Even the Taoist Lee Shau-kee, Asia's Warren Buffet conceeds the HSI rebounding as originally thought needs to be further deferred.

sxc 16 yrs ago

I thought the Palazzo was selling strongly:

http://www.thestandard.com.hk/news_detail.asp?pp_cat=1&art_id=65973&sid=18985022&con_type=1&d_str=20080519&sear_year=2008

DaHKGKid 16 yrs ago

Yes I read the same article and my agent seems to think they credit this to deposits which are unsustantiated (as on hold units), with intent to buy. These are reserves only.

DaHKGKid 16 yrs ago

Can someone comment of the definition of Luxury flats both pricing range and demographic and why they should factor into the lion share of market projections OR is this the only real estate news where sales are positive and way to fuel buying activity in other ranges. Again, the property owners big and small and agents in this town seem to live in another dimension most days.

HKForGood 16 yrs ago

Anyway you look it at, HK apartment prices are currently over-valued. It's no surprise that price rises came to a screaching halt in 2006 when interest rates started to rise (see link below) and have boomed in the last 6-12 months with the recent cuts in interest rates.

http://www.globalpropertyguide.com/Asia/Hong-Kong/Price-History

It will certainly be interesting to watch the rats jump ship once interest rates start to rise in the US (and they will).

beachball 16 yrs ago

> Property sale prices are at historical highs

They are not in real terms.

> HK has the highest rents in the world

It does not.

>This is clearly not sustainable.

May be, may be not.

>Already we are seeing resistance, my call is that things will start to drop hard around the end of the year.

Let's hope so - earlier would be better...

sxc 16 yrs ago

"Anyway you look it at, HK apartment prices are currently over-valued. It's no surprise that price rises came to a screaching halt in 2006 when interest rates started to rise (see link below) and have boomed in the last 6-12 months with the recent cuts in interest rates.

http://www.globalpropertyguide.com/Asia/Hong-Kong/Price-History

It will certainly be interesting to watch the rats jump ship once interest rates start to rise in the US (and they will)."

A few interesting points from this article:

- Looking at the graph, even after the dramatic slide of 1997, prices have now largely recovered. Yes it's taken 10 years, but goes to prove the point "Time in, not timing"

- The article neglects to note that the massive 1997 slide was prompted by the very unusual circumstances of the Asian currency crisis. Signs of which do not exist in today's environment.

HKForGood 16 yrs ago

"The article neglects to note that the massive 1997 slide was prompted by the very unusual circumstances of the Asian currency crisis. Signs of which do not exist in today's environment".

There is always a "crisis" out there in some shape or form. The fact that the Asian currency crisis started in Thailand (not exactly an economic powerhouse) is a clear sign that we had a bubble in '97. No doubt about that. So when we are comparing prices today to '97, we are in fact comparing the size of one bubble with another.

The sub-prime fiasco will most likely have a knock-on effect globally coupled with the impending slow-down in the US and high global inflation etc... doesn't really equate to strong fundamentals. I don't want to sound overly-negative but when dinner conversations start to revolve around how to flip properties after 3 months for quick gains (by school teachers of all people !) with arguments along the lines of "it is a good time to buy now because property prices have doubled in the past 3 years and interest rates are very low" tells me we have a peak and there is currently far more down-side risk in my opinion.

At the end of the day, property is treated just like the stock market in Asia. And if one looks at the Asian bourses, it certainly doesn't make me feel comfortable (Hang-Seng down 30%, China down 35%+, Vietnam down 75% etc... over their 2007 peaks).

Interest rate hikes will take care of the speculators and only then will the true market value of HK property be revealed. But hey, if you are bullish go out there and try your luck - but I'd rather watch from the sidelines in 2008/9.

DaHKGKid 16 yrs ago

My original forecast for correction was 3rd quarter 08 (made 4-6 months ago). This in my opinion will now start in this time frame but likely not realized until 1st quarter 09. I agree with HKForGood's comments and well said.

HK realestate is again propped up by both the landlords and agents so thier expectations take time to be lowered, and at a pace that is slow until they start to jump. Again, the 20-30% increases since mid late 2007 may drop back at least 15% plus.

If you are planning to stay in HK for at least 5 years, they purchase spring summer 2009 likely as the long term growth is very strong.

spannermonkey 16 yrs ago

If you have a moderately high value property and you are worried about the market, it would be a good idea to cash in, and rent. With the cash, you could buy a much cheaper (and smaller no doubt) unit in a still affordable area such as Sheung Wan or SYP. at least then you can keep a foot on the ladder and if the market doesn drop, your risk exposure is much less.

Dive bum 16 yrs ago

How about a very unacademic and unresearched view of the market. Not sure whether it's been noted before (this thread is now too long to go through properly) but when we first came to HK (March 2007) we used to read with interest the monthly property magazine found in Pacific Coffee, amongst other places. For pretty much the whole of 2007, this magazine would run out fairly soon after arriving. Since 2008, we've noticed that there always seem to be lots of copies available, throughout the month. We take this to be indicative of a significant drop in interest in the market. Though I suppose they may just be printing lots more copies...

Ed 16 yrs ago

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJumrN.VohHs&refer=home

HKForGood 16 yrs ago

"The fund has already committed $2.2bn to investments in Singapore, Japan, China and Thailand, and is looking at South Korea, Malaysia, Taiwan and Australia."

Emm. Nice story. I wonder why HK isn't on their list ?

PS. Does any one have a website on property vacancy rates in HK ? I have been looking to rent an apartment and most real estate agents I have dealt with are plain liars on how long the apartment has been empty for (nice layer of dust in the bathroom is a dead giveaway).

DaHKGKid 16 yrs ago

Okay, now I am starting to see some movement downward on prices. There has been limited transactions in my development and specifically the unit model I want to purchase (and there are at least 100 units of these) with the last transaction in Feb 08 at 22.8M, whereas during the last 4 months asks around 24.5-26M with no transactions until yesterday one sold for 21M. My agent calls me up and says the unit that I like at 24.5M is open for offers and believes 20-21M will get it. All it takes is one owner to jump ship and the other follow but I still believe the gains since last October will be reversed in the next 6-8 months. I'm looking for 18-19M to get into the market this time. Note, FED US will likely keep rates down until Feb 09.

DaHKGKid 16 yrs ago

Oh Yeah, and HKForGood, to your comment, I dont know of a site which conveys the information you seek however when I drive through my neighborhood I would say every 10th house if vacant. These are owners hoping to cash in on high prices that will start dumping prices like the above shortly to take any gains possible since last October. You cant have a tenant in there to do this. Buyer market coming very soon.

Brit 16 yrs ago

a correction of some sort is definately on the cards. US rates are only going one way, to combat US inflation (and more worryingly stagflation). We suffer in Hk from having no monetary policy to comabt inflation; and an increased US rate will massively impact the housing market - both for sales and rentals. Landlords who bought high will have to rent or sell to cover their costs. The only question is how much 5%, 20% - who knows?

Brit 16 yrs ago

On oil, the % of US income spent on fuel is nowhere near the heights of the 1970's. So to get really serious there oil would need to double again. Food prices and inflation are more serious in a time of low economic growth. Only my opinion.

qpzmgh 16 yrs ago

So the US fed kept rates at 2% yesterday.

How about this for a scenario in relation to Hong Kong property:

With regards to the Macro economic factors that currently exists i.e. inflationary pressures - we could see increasing mortgage rates, falling property prices and falling rents.

Because:

Mortgage rates have to go up as HK banks are getting squeezed just now, this makes the decision of owning or buying property now a difficult one.

Property prices will fall as a result of this and also for the fact that they are clearly overvalued.

Landlords will need to lower rentals in order to keep tenants whose disposable income is being eroded due to higher living costs. Landlords will not be willing any longer to have property's lie empty for month after month for the same reason so will accept to rent lower levels.

This will further dent the valuations on Hong Kong property.

sxc 16 yrs ago

"Mortgage rates have to go up as HK banks are getting squeezed just now, this makes the decision of owning or buying property now a difficult one."

HK banks only have so much scope to increase their interest rates due to the pegging to the USD. Note that recent interest rate rises are not in the Prime rate but in their P-xx% discount for new borrowers only.

If there are less people buying due to high interest rates, then there will be more people renting. I think fundamentals for rental demand remain strong (look at all the new expats coming to town still). Many of the expats are ones buying property in midlevels area since it is more attractive than renting. If interest rates make buying look unattractive, then there will be further rental demand.

Even though investment banks are not doing well overseas, they all say there is still growth in Asia and hence why more and more staff are being sent here.

What I say only applies to the Central / mid-levels area. Other areas are subject to other demand/supply forces.

DaHKGKid 16 yrs ago

Those buying instead of renting right now are taking significant chances with the volatility globally right now. Look at the DOW yesterday. If buying was 20-25% to your advantage after taxes then you will likely be safe and strong for long term but again this would rare unless you are stuck in a high rental high demand area (ie Midlevels).

Other parts of HK that are less driven by expats (and will use that term loosely today as most people are either hired locally or under a modified localized package with expat benefits) have many flats or houses empty as the owners are all looking for high returns from last 6-8 months of peak growth. As mentioned, houses in my estate have bee asking 26.5 but latest transaction 21M.

I found out from my agent that prices are dropping or owners open to offers so the beginning has started. Also rental will become lower if owners have to resort back to filling the properties that are not selling. This will happen quickly, watch the next month or two and see for yourself, rent through next year say and if the market takes a sharp drop then jump in (who cares if you have to pay the landlord some additional fees) as saving 25% is nothing compared to the cost of exiting the rental. Only sign a two year lease with the 12 month term and 2 month notice clause.

Prime rates will only rise in the USA when the core necessity of housing and food costs are solved so you might see the first rate increase in February 2009 but could be only 10 pts say to 2.10 and four increases total next year to 2.5-2.6.

BOTTOM LINE : Look at a very long period of slow growth globally but Asia has best potential so wait until the market hits its lows and then buy. Best guess in HK is March - June 2009.

qpzmgh 16 yrs ago

sxc, you've completely missed the point. My argument relates to the effects of inflation on HK property.

More people might be renting but their ability to rent at the high rates 'due to inlfation' will be lower. rents will have to come down to accomodate this and they will. Rents and property prices move in the same direction in this town anyway.

Buying is only more attractive than renting when property prices are going up and you have been fooled by the short term false economy of 'negative real interest rates'.

qpzmgh 16 yrs ago

Ed not sure if you track the figures or not but from the property section of this website do you know how many properties were for rent and for sale 6 months ago and 12 months ago?

At the moment there are 1185 properties for rent and 1058 properties for sale. Only 3 months ago these figures were around the 800-850 level. This would be quite an interesting statistic to see if a glut is forming.

Ed 16 yrs ago

Interesting thought however there are many other factors that influence the total properties on our site over time so I dont think we could get a conclusive market barometer from such info.

We are constantly bombarding the streets with handouts + hitting the agents with info to let them know the best place to pick up top clients is on our site (our survey is in and the raw data shows over 70% of our site users are professionals or CEO MD level..and about 40% are high level locals) so this also effects the totals as we are seeing new agents start listing on an almost daily basis.

DaHKGKid 16 yrs ago

Owners trying to take profits over the last round of growth since mid last year, rents to high, empty flats and homes, traditional agents chasing both sides, nothing happening. Even the SCMP bearish.

Looking for alternatives to present to those with potentially deeper pockets, market understanding which might spur some REAL reliable conversation and maybe even a transaction , Asiaxpat!

Lomax 16 yrs ago

October October October watch property house of cards begin to fall !!!!

Nichola 16 yrs ago

Mass residenial property wills contnue to gain once this slow period is over. They haven't seen anything like the appreciation of luxury properties. With inflation raising its ugly head, stick to bricks & mortar!!

qpzmgh 16 yrs ago

Yes i am for real Fieter.

i think rental prices will fall. just an opinion.

Your thoughts that higher interest rates might also cause a rental slow down are similar to mine really - you've just expressed it differently. I also believe interest rates are going up.

Ed 16 yrs ago

Just picked this up for our home page headlines... no doubt this will further impact property:

Banking Stocks Plunge

LONDON (Reuters) - Fresh credit fears swept global financial markets on Tuesday, pushing world stocks to their lowest levels since October 2006 as concerns intensified that the financial sector would have to raise more capital.

Banks tumbled across the board after a Lehman Brothers report said a pending accounting change could force Fannie Mae and Freddie Mac to raise an $46 billion and $29 billion respectively at a difficult time, knocking their shares to near 16-year lows on Monday.

In Britain, shares in troubled mortgage bank Bradford & Bingley fell 20 percent to record lows, below the price of its planned rights issue, due to concerns over its future.

Fresh worries over the financial sector dealt a blow to risky assets, which have been already reeling from fears about rising inflation due to high energy costs and slowing growth.

"The crisis in the financial system, given banks are the lubricant for the economy, points to continued tight credit," said Jonathan Lawlor, head of European research at Fox-Pitt, Kelton.

"So we have a loop where tight credit leads to slower economic growth, which leads to higher losses for the financial system, which leads to capital constraints for the banks."

MSCI main world equity index fell as low as 341.35, down 1 percent, hitting its lowest since October 2006.

The index is down 20 percent from its all-time peak set in November last year, plunging into bear market territory.

Full Story: http://www.reuters.com/article/newsOne/idUSHKG35069520080708?pageNumber=2&virtualBrandChannel=10215

sxc 16 yrs ago

You will not see rates rise to 9% in the near future. There is no way that the economy in the US justifies rates this high, and it's going to take some time before the US economy improves.

boobert 16 yrs ago

Growth in the US is stagnating, inflation is spiralling higher = stagflation. George Soros has predicted the worst economic slump since 1929.

Whether Ben Bernanke likes it or not he'll have to hike interest rates aggressively. Which means that the HK banks will have to follow suit.

Residential property in Hong Kong will fall 25% in the next 12 months, followed by another 10% in 2009-2010.

Buy gold. Hold high-yielding currencies like the Aus $ which is backed by strong commodities demand.

SELL your HK properties and lock in your gains now. You have been warned.

qpzmgh 16 yrs ago

I would just like to pick up again on my 'simplistic' observation that there appears to be a significant increase the number of properties for sale and for rent on the Property section of the Asiaxpat website.

It looks as though a glut in the market could be forming. I mentioned that three months ago and even 6 months ago there were in the region of 750-800 properties for rent and for sale.

Well on the 3rd July 08 this jumped to 1185 for rent and 1058 for sale - which is a 53% and a 37% increase respectively from those levels.

And just in the last week the properties for rent are now at 1359 and properties for sale are at 1157 which is a 15% increase and 9% increase respectively just from last weeks levels and an increase of 75% and 49% respectively from 3 months ago.

This of course could be pure coincidence BUT I'm going to monitor this now as this is an interesting statistic to note and surely can not be related to the marketing of the Asiaxpat website alone as that would be an incredibly successful marketing campaign.

Ed 16 yrs ago

Over the weekend I was clearing the admins of property listings something I do from time to time to monitor activity and see if new property agents are participating - and I noticed that there seemed to be a lot more ads for sale vs lease being posted. We are getting close to an even number of listings in the Lease and Sale sections so you could have something there http://hongkong.asiaxpat.com/property/

Ed 16 yrs ago

A related thread: http://hongkong.asiaxpat.com/forums/living-in-or-moving-to-hong-kong/threads/118384/are-you-leaving-hk-due-to-high-rents?/

qpzmgh 16 yrs ago

A definite trend is emerging now.

In the property section of Asiaxpat there are now 1453 properties for rent (up by nearly 100 from just last week !) and properties for sale have edged up slightly also to 1160....

elysium168 16 yrs ago

The bearish commentators in this thread had already exited the market, and waiting for the crash before getting in again, hoping it happens sooner than later. The bullish ones are still holding on to the properties, waiting for the next price jump before cashing in.

to each his own view, and this makes the discussion very interesting exchange.

Ed 16 yrs ago

Very astute point. I have noticed same - friends with property tend to talk the market up.

Good to remember this when you read the Property Post because guess who one of the biggest landlords in HK is.... (which is a good reason to get your property info here eh)

spaceren 16 yrs ago

I have learned to only listen to people who know by experience, i.e have bought and sold themselves more than a few times and who are still relatively impartial (debt burden / negative equity not crushing them, no euphoria of 100% gain in a few months).

For example, the "experts" said not to buy during SARS (million dollar boys with grey in their hair) - I know I asked a number out there. Why was it a good time to buy - because it was cheap on fundamentals (cost to buy, rent, interest rates). Is now the complete opposite such that a bubble is about to burst? Have HK banks run out of money/capital? The US banks have, has China? Are average property prices in HK really going to topple?

And if they do, with current interest rates so what? With relatively low interest rates in the past few years could pay off most of a property's cost (on a true rent v buy). If more people are renting, presumably on a supply-demand analysis rents go up - no?

As to the "definite trend" on asiaxpat, the numbers suggest less than 0.04% properties for sale/rent based on 7m HK people. If you look at another city, say Sydney, the number is about 0.77% (about 20 times if assume 5m people). People are finding asiaxpat works, me thinks, rather than rushing for the doors. Also, 2600 flats is just a large development or a 2 minute slow walk past a few of your neighbour buildings - look out the window, or catch a ferry, there are lots of buildings out there (I assume more property keys in people's pockets in Sogo right at this moment).

I haven't read analysis in HK of the cost of property versus average salaries - the US toppled (as is the UK and as will Aust) because the prices were silly (like HK in 97). The cost to service the debt was too much versus the implicit value. Are they silly now in HK? Maybe for a few places on the Peak/TST, but who cares about the price of these places (and reads these forums). Tell me what prices are for regular places, $2-5m.

And as for this HK is doomed sentiment, while bankers are high profile part of the community and more than a few being asked to go, the rest of the world continues. In any event, aren't the banks currently putting their good people in HK/Asia to protect them? Doesn't this mean more senior people coming? Not doom and gloom.

Maybe not time to be going crazy with property investments, but surely a reasonable time to be looking for a home. 2-3% interest rates, got to love low interest rates (less than 10 years to buy a place on a rent v buy comparison).

Ed 16 yrs ago

Interesting article which is relevant to this discussion:

Is the Party Over in China

Unsold inventories are climbing, the consumers aren’t biting

China IndustryChina’s National Development and Reform Commission (NDRC) reported today that unsold inventories of cars rose 50 percent from the beginning of the year to a four-year high; this suggests that macro challenges in China have finally reached a crisis point. The future may have finally caught up with China.

Sharply rising inventories in such a strategically important industry as autos suggest that the slowdown in the economy is biting domestic demand such that corporate investment is likely to slow. If inflation weren’t already such a problem, the People’s Bank of China, the nation’s central bank, could ease monetary policy to boost domestic demand. But with inflation recently spiking and real interest rates already quite negative, the central bank is in no position to ease.

Rising inventories, slowing growth and rising inflation suggests a self-reinforcing cycle of gloom for the economy and financial sector, especially when the banking sector inevitably begins to feel the pain of rising NPLs into a slowing economy.

The last time Chinese policymakers faced such a daunting challenge in charting the domestic economy through such treacherous waters was during the Asian financial crisis of 1997-1998 when capital flight was of paramount concern. his time the stakes are much higher and the risks of a crisis are much greater. During the crisis, policymakers could count on capital flight reversing if temporary measures would just provide a bridge through turbulent external conditions. Asia recovered, China hung on and the world exhaled.

This time around, however, China is, ironically facing the opposite problem where so called hot money inflows are the problem. Unlike with the capital flight problem during the Asian crisis, just hanging on won’t solve the current hot money crisis as nothing short of a domestic economic crisis seems likely to slow or reverse hot money inflows into China. The growth rate of foreign exchange accumulation has gone parabolic, with reserve growth doubling in 2006, 2007 and set to double again in 2008 judged by inflows in the first half of 2008 already matching total inflows for 2007. Parabolic growth is a classic symptom of an unsustainable trend in markets.

In the fall of 2003, I advocated a maxi-revaluation of the Chinese yuan. At that time I even argued naively that Chinese policymakers might even consider such an option because they would eventually come to the logical conclusion that if they didn’t do it now, it would only get harder and more painful to do it later as foreign capital continued to pile into the economy in a classic boom–bust cycle.

By June of 2004, I finally gave up on the idea that policymakers might seriously consider a maxi revaluation. All of the rhetoric coming out of Beijing rationalizing the current account surplus as temporary, combined with a number of administrative measures aimed at neutralizing the macro impact of foreign capital inflows, including the beginning of an aggressive sterilization program finally convinced me to give up my “radical” notion that Chinese leaders might actually consider a large adjustment of the yuan.

Since June 2004, my theme on China has continued to be that nothing the authorities did would slow (let alone derail) a booming economy thus as the debate has raged about whether there might be a soft landing or hard landing for China’s economy, my mantra has been: “no landing”. As long as capital inflows continued to surge into the economy – which I didn’t see any reason why they would slow let along reverse—my view for China’s economy was full speed ahead. After our latest research trip to China, I came back with the same bottom line view on China: inevitable crash, but not yet, and meantime, continued boom.

The report on rising car inventories, however, has changed my view. One of the keys to our positive short-term view on China was that as long as inflation remained relatively contained and inventories weren’t building up, there was no reason to think the self-reinforcing cycle of capital inflows, higher investment and growth wouldn’t continue – short of a trade war or protectionist backlash. Rising inventories for cars, however, is a huge red flag, especially with inflation rising into slowing growth.

For the last several years, I’ve talked about Chinese policymakers systematically eliminating the usual canaries in the coal mine that indicate macro stresses, and thus reducing the usual triggers that derail economic booms in other countries, such as rising inflation, rising interest rates, an appreciating currency, bankruptcy or a bank run. Through various administrative measures Chinese leaders have been able to keep such usual canaries in check. Until recently. With hot money flows rising and inflation finally breaking the canaries are finally starting to break their silence.

Rising inventories has always been a potential canary that we’ve kept an eye on because it is something the government can’t really control directly. Until recently, however, rising inventories haven’t been a problem. As long as that remained the case, it was hard to see any serious trigger for a financial and/or economic crunch in China. Rising inventories are potentially the proverbial straw that breaks the camel’s back because they indicate falling corporate profits, slowing investment, and slowing growth, in a self-reinforcing cycle in a downward spiral that is the opposite of the positive cycle in the boom phase of an investment boom/bust cycle.

http://asiasentinel.com/index.php?option=com_content&task=view&id=1340&Itemid=32

spaceren 16 yrs ago

http://www.centadata.com/cci/cci_e.htm has lots of data.

Overall about 72% of peak (in nominal terms but long period of deflation and now inflation, so maybe inflation up 10% overall since 97), but luxury/large properties well up presumably because of real scarity (but I assume luxury propy not the discussion going on here).

I would be interested to know public housing percentages - anyone know where to find? All the locals I know are buying private property (a good point though).

I think affordability is key. Asset cost, interest rates (positive / negative), salaries, inflation / deflation, and economic outlook all come into the mix. Plus expected time in HK. My view is most people have not lost their jobs and are doing fine. A lot of fear sure, but unless you are in financial markets all seems fine. Has capital dried up for HK banks? That unfortunately is a/the main determinate of prices - if money available people will borrow (even if cannot afford - look at credit card debt). And valuations by banks, if valuation too low people won't borrow. Very little has to do with all the other issues raised. Subprime in the US shows that clearly, and HK doesn't have 105% mortgages with low or no docs etc and bankers working on commissions to the same extent as other markets.

For the broader market (everything excluding top end) affordability has just improved in recent months. If a few rain clouds, buy an umbrella to protect yourself (whether insurance, lower loan amount, longer period, smaller place, or the good old fashioned way of waiting till you can actually afford it). Assuming we know what property prices will do is delusional or fantastic - if you do, you must be able to buy some derivatives and then either lose all your wealth by Monday, or make m/billions - make sure you tell us how to get your due credit from everyone.

So why isn't it a good time to consider buying a home (a residence to live in), or at least not a bad time?

Whether to buy an investment property, that's different of course and who really knows - like all business ventures, some great and some horrible. And a flipper, when is it ever a good time for most of us to do this?

qpzmgh 16 yrs ago

Spaceren, it interesting that you say:

'unless you are in financial markets all seems fine'

All seemed fine in financial markets also up until July 2007 and then look what happened. None of the experts predicted the mess that followed.

The reality in Hong Kong is that property prices are driven by speculation as opposed to real supply and demand factors. The average Joe however believes that supply and demand is the factor when they look to buy property in Hong Kong and have to suffer the consequences of the speculitive bubble when they make a purchase at the wrong time in that speculative bubble.

Most 'experts' in November last year were predicting a 30-50% increase in property prices for 2008, but that was during the frenzy that was going on in the market between November 2007 and February 2008.

Almost every single one of those experts has reduced their initial target growth claims now that the market is softening.

Like all these experts they recommend to buy when the market is at the peak and they recommend to sell when the market is on the floor.

I didn't hear many experts advising to buy property in 2003 during and just after SARS !?!

qpzmgh 16 yrs ago

Article in The Standard this morning with news that Centaline is to cut back on underperforming staff with possibly 600 agents to be fired and a number of agency branches to shut down just months after Centaline expanded its offices and work force.

I recall about 3-4 months ago i gave a very crude beromiter for the property market in Hong Kong and that was to take a walk along Robinson road and see how many dry cleaners there are versus real estate offices. During SARS there were virtually no Real Estate offices on Robinson Road!!!

Trust me when i say that the market will have bottomed and it will be time to buy property when there are very few real estate offices and more dry cleaners.

The initial stages of this clearout seems to have started.

spaceren 16 yrs ago

I thought the experts' comments were 20-50% by end of 2009 - and I though at least 20% was achieved by end of 2007, and 25-30% in some areas; it has softened I think by 10% since then. So not bad predictions, but could just be the effect when 5 or more banks sing in harmony. But I agree, reports like this are not much to rely on, it is only true experts who are buying/selling that I listen to - e.g. friends, contacts, Jake, that UBS guy a while back (separate comment: ask your agent if they have bought property - most haven't even bought a carspace, like bankers who don't own shares).

And I agree that dry cleaners v realtors is a reasonable predictor of a crash, but I don't get stopped too often on the street by realtors these days and most people I know have been cautious for a while - hence think the signals in this respect are mixed (too close to negative equity issues during SARS?!?).

Re financial markets, I think a lot of people were warning: Bob Rubin wrote a book a while back that there was trouble, as the Economist has commented, and lots of others - Hyman Minsky the economist did as well a long time ago (a whole career), Faber, and Roger Bootle's book Money for Nothing (2003) was pretty blunt, etc so not quite true that no experts were predicting problems - and GS recently held up as apparently they saw problems ahead. Of course the main song being sung was onwards and upwards.

My final conclusion, if a HOME is relatively cheap to buy (i.e. cheap now, not necessarily historically simply based on nominal prices, but cheap based on long term and current fundamentals including yields and opportunity costs and inflation etc etc), why not buy? If anyone really has the goods on where the property market is heading I would love to know, but I for one am betting that cheap interest rates (i.e. below 8%) for the next few years added to the last few means I will be debt free on my HOME before most people have worked out that they can't work out the market ... then on to thinking about retirement planning, but that's a different post altogether (e.g. is HSBC currently expensive or cheap being a member of the group of 19?).

zukerman 16 yrs ago

Prices are NOT going down, more and more people understand that it's better to buy and live in your own apartment, renovate it the way you want without the fear of being kicked out or have 30% rental increase ... many units today are for self use and people are not letting it go that easily ...

I'm holding my current apartment, bought it for 4M today worth 5.2M ... and I live in it, so YES, in theory I've made 1.2M if I'll sell it, but I'm not selling it because there's nothing else in the area that worth moving into ... same the other way around ...

Price can drop to 3.8M ... and still - where would I go ? nowhere ... so, whatever person that already bought an apartment - knows it and not worried about it ... the panic and rumors are coming from people who never bought an apartment and they are so sorry about it, the only way they can feel good with themselves is to say : "oh, i heard the market is going down" "I'm so happy I didn't buy an apartment because prices are going down ..." "prices are going down after the olympics" bla bla bla ... you need a roof to sleep under, olympics or not - paying rent is a pure way to blow money away ... buying is the only way to survive in hong kong and long term, it worthwhile, it's a fact in the hong kong history.

qpzmgh 16 yrs ago

I am continuing to note an ever increasing number or properties for rent & for sale of asiaxpat property section.

Beginning of July; Rent = 1045, Sale = 975

Last week; Rent = 1453, Sale = 1160

This week; Rent = 1574, Sale = 1179

Indicates more people trying to rent and to sell property all at the same time.

qpzmgh 16 yrs ago

This is interesting from Bloomberg. As far as i am aware this is the first recent article they have written on the liklihood of a slow down in Hong Kong Property. We even have an estate agent agreeing that a correction is on the way:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=al4v5xOBT4J0

Interestingly as has already been suggested on this forum inflation is likely to be the main problem for any continued up trend in the HK property market overall.

BBM 16 yrs ago

The recent articles point to a slumping stock market and the subprime crisis as the reasons for the "softness" in the property market and that once these abate then the property market will bounce back. The problem with this argument is that once these concerns ease, then this would finally give the Fed room to remove its ultra-accomodative interest rate policy to combat inflation, which is a very real threat and concern. Of course we know what this will mean to the HK property market, as "negative interest rates" has always been one of the major "drivers" of demand for housing. And the market will not wait for interest rates to peak before they sell.....once the Fed raises even by just 25 bps, the direction would have clearly been established as north, that's when the selling will accelerate. So I'm skeptical about bullish projections for the HK market even when the financial markets stabilize. And forget about above trend global growth in the next few years: the US housing mess still has some ways to go, and then it stabilizes will still take years to really work itself out of the economy, and given that the US consumer is 70% of GDP, this means that we will continue to experience below trend growth as least in the coming years.

qpzmgh 16 yrs ago

interesting to note also a sharp increase just overnight of properties for rent and for sale on Asiaxpat property listings up to 1613 to rent and 1208 for sale. These figures just keep going up and up !!!

mmsG 16 yrs ago

Those bloomberg,SCMP and most of the posters here are keep saying that the property price for rental and sale is going down and down. But my rental is up for almost 35-40% in last 10 months. So, when I renew my contract I have to pay 40% more but no changes in my pay.

Ed 16 yrs ago

For those keeping track, I just pushing pending ads to the site that built up in our admin since just before lunch:

110 Sale

94 Lease

Anonymous 16 yrs ago

A friend of mine was looking at an apt in Soho two weeks ago, asking 4 million. She thought it was too high and declined to post an offer. The agent called her today and said the owner will take 3.5 million. My friend said to the agent, she might consider 3 million.

She smells blood and is going for the kill. Could this sort of thing be the beginning of a market fall? Anybody else can report similar stories?

freezingpan 16 yrs ago

I just want to clear one point for investors from my own experience. Please do not get led into buying a property because rents are going up. Rents could be going up because investors are cashing out from their own homes and renting. If this were true, it would be a very bad sign for property. And knowing HK, where someone pointed out in this thread, that property market is treated like equity market in HK by investors. you could be seeing a long and deep slump aided with inflation, increasing interest rates, slowing economy and what not. And a high five to Cynical who points out the importance of Common Sense, lets not lose that....

qpzmgh 16 yrs ago

Just an update on property listings on Asiaxpat:

Apartments for rent:

Last week - 1574

This week - 1671

6% increase for the week.

41% increase for the last month

Apartment for sale:

Last week - 1179

This week - 1213

3% increase for the week.

15% increase for the last month

Wolves306 16 yrs ago

Just trying to get my head round the idea that "...rents are going up because investors are selling their homes and renting...". Isn't that a zero sums game? An owner-occupier selling a flat to an investor who in turn has to rent it out, doesn't that increase the demand and supply of rental flats both by one? If he sells to someone who was renting, then the exact thing to demand and supply happens, no? Did rents go up last time we had an Asian crisis? I am comforted by the fact there are now a sizeable contingent of people who are predicting a major property price correction in HK, because everytime there's a major price correction, of anything, it's not been preceded by such calls. In fact it happens when everyone, including cab drivers and your doorman, is still screaming, 'buy, buy, buy'. HK's current mass residential market reminds me of the UK's property market in 2002-2003 when commentators were predicting an imminent crash, and at the same time people were moaning about prices. A slowdown would hopefully flush out all those speculative demand, and put the market back into a more stable footing for end users.

qpzmgh 16 yrs ago

Wolves 306 your spot on.

In HK what happens is when Property prices fall rentals also fall. Likewise when property prices increase rentals also increase.

Plain to see from my crude tracking of property listings in Asiaxpat that supply of properties for rent and for sale is increasing at the same time. This is not a coincidence !

If we assume that this same effect is happening across the board in Hong Kong on a larger scale i.e. property agents having an ever increasing glut of property for sale and for rent to shift on their books that they can't shift. Then prices have to give eventually.

Both rentals and property prices will fall at the same time. Just my opinion.

freezingpan 16 yrs ago

I agree with you from an academic perspective. Its plain economics. My point was that if property market is treated like equity market in HK, the short term investors sometimes wont bother renting out the properties as its usually difficult to sell a rented property esp. one with 1-2 year contract as genuine buyers lose the option of moving in quickly. In addition, the yield on a residential property is 3-5% p.a. so this investor is not really interested in a yield play, he is mostly looking for capital gain on an asset sale. But in the long term, I agree with you, if there is braodbased correction, it will be both in rentals and prices. What I was talking about is a temporary blip in rents creating an illusion that may not be true of the market in general.

DaHKGKid 16 yrs ago

Stay in cash! Mr. Cynical is dead on! add car loans and then commercial real estate which secondary banks within US regional areas are heavily weighted and you will see the market tank.

Exports reported as down 10% today, look at 30% by end of year and buyers market for those who have cash on hand. Banks may reduce risky loans in HK but they do need your business so look for sweet incentives come 1st quarter 2009.

HKForGood 16 yrs ago

Emm. A friend of mine has just arrived in HK. She has managed a 15-20% reduction off the listed rental price on 3 of the 'best' apartments... The one she took was a new renovation and was empty "only for a 1-2 months" according to the estate agent. Is the tide turning ?

Ed 16 yrs ago

I just approved 170+ new properties for lease and about half that number for sale... over the course of the day I expect we will see over 400 new listings... I think that would be a one day record for new listings

Kiz27 16 yrs ago

For a lot of you I doubt there will ever be a good time to buy... most people can always find a reason not to, and always find someone to agree with them. It depends why you are thinking of buying and also your position. If the HK economy goes down the toilet will you feel secure enough about your job to then buy? if rents go down substantially will you have the motivation to buy? If you want to buy you could probably find a good deal now... find a very motivted seller... If th correction is only expected to be relatively small as most people are suggesting well then no major difference in the long run. Also why sell a property now... fundamental of accounting, never sell a fixed asset... but remember your home is a liability, not an asset as real estate agent have you believe

Also why listen so much to what real estate agents say...unless you are their boss... clearly not a good source of unbiased information.

Also seems most of you aren't in it for the long term, but right now there are a few things which are happening which may eventuate in there being shortages of residential property in the furture, but also decrease the chances of being bought out by developers in certain areas. It's all still in the processes of happening so too early to tell the extent of the rammifications, but in the short term this won't have much effect.

Be careful who you listen to and many of the trends and statistics you are looking at are somewhat irrelevant in HK, lots of people put property on the market here just to see then take it off, doesn't mean they are actually intending on selling. But with some people in hk being heavily exposed to the US economy and for all the usual reasons (bankrupcy and divorce etc) you can mind motivated sellers in almost any market, esecially when most people are 'waiting and seeing' like right now to buy

Why not use exsiting equity in a property to buy another one rather than selling to buy another one.... then have the option to sell both or one later, but can still collect twice the rent until that time...

Ed 16 yrs ago

Interesting... we have almost every serviced apartment in Hong Kong listed on our site and often are asked to increase the asking rents on their ads ... this morning we had a request to amend prices by almost 30%.... downwards...

qpzmgh 16 yrs ago

Ed, sounds about right, as pointed out by clear indications of increased property listings a glut has formed/is forming in the market. Its only a matter of time now until this feeds through into residential rentals and sales prices.

Another increase in listings this week -

Rentals - 1943. Increase of 4% on the week and 16% over last 2 weeks

Sales - 1316. Increase of 8% over the last week

As i sugguested back in March we will have relatively flat prices through the year and are going to get a simaltaneous reduction in sales and rental prices in the final quarter of this year.

Ed 16 yrs ago

Keep in mind the number of total listings is increasing because agents are getting loads of leads from their property ads with us - word is getting around to all the big and small agencies are piling in (many new branches of Centaline, Midland and Century 21 have started posting in the past month or so - as well as many agencies that I had never heard of).

HKForGood 16 yrs ago

Article in today's SCMP.

HK market forecast to drop further

Analysts say slowing economy to extend retreat for 15 months to 30pc below March levels

Sandy Li

Aug 27, 2008

Falling Hong Kong home prices will not recover soon as buyer demand continues to retreat in line with a slowing economy and weakening affordability, warn analysts.

Coupled with poor investment sentiment owing to the current credit crisis and slowing world economies, this could mean prices may continue to retreat for a further 15 months until they have fallen by up to 30 per cent from peak levels reached in March, say some bearish forecasters.

The comments follow data showing that Hong Kong's gross domestic product growth decelerated to 4.2 per cent in the second quarter, the slowest growth rate since the third quarter of 2003.

"An economic contraction is bound to affect the physical property market. The only argument is over when it will arrive," said Fitch Ratings property analyst Michael Wu.

Mr Wu forecast a further 10 to 20 per cent price drop in the property market, but did not rule out the possibility of a steeper fall once corporates cut their year-end bonuses as a result of profit being hurt by the unfavourable global investment climate.

Investment bankers, who are major buyers or tenants of luxury residential units, would tighten their purses in fear of being sacked or having their salaries cut, he said.

"Investors are now either considering whether to exit their investments or to put buying decisions on hold," he added.

Given this lacklustre buying interest, Centaline and Midland Realty forecast the number of residential transactions this month would drop to between 6,000 and 6,500, and could be the lowest since February 2006.

Law Ka-chung, the chief economist and strategist at the Bank of Communications (SEHK: 3328)' Hong Kong branch, said property prices would lag falling transaction volumes by four or five months.

"Fewer transactions tell us that people are reluctant to spend when they see a negative market outlook," Mr Law said.

He said he remained cautious about the market outlook and did not expect a recovery until the United States housing market reached a bottom some time in the middle of next year or later in 2009.

Home prices could tumble by 20 to 30 per cent from the peak early this year, he said.

Last week, Cheung Kong (Holdings) (SEHK: 0001) chairman Li Ka-shing warned the worst was yet to come for Hong Kong's economy.

"The US credit problems spread quickly to Europe and then the rest of the world. Hong Kong will no doubt be affected and an even worse time is coming," Mr Li said.

He sounded a note of caution despite Cheung Kong reporting a higher than expected 93 per cent rise in underlying earnings to HK$5.55 billion, which excluded property valuation and the contribution from Hutchison Whampoa (SEHK: 0013), last Thursday.

On the back of global uncertainties, Merrill Lynch has cut the city's GDP growth forecast to 4.7 per cent for this year, from a previous 6 per cent, and 4.8 per cent for next year from 5.5 per cent.

The brokerage house also revised down its residential price forecast to 10 per cent growth in both this year and next, from a previous 20 per cent increase for this year and 10 per cent next year.

As a result of the fall expected in home prices, it also lowered next year's earnings forecast for major developers. It expects earnings from Sun Hung Kai Properties (SEHK: 0016) to fall 10 per cent to HK$16.6 billion, and a 5 per cent or HK$4.97 billion fall in earnings to be reported by Henderson Land Development (SEHK: 0012).

To compete for buyers, owners with large holdings are being forced to dump some of their units at a loss, agents say.

According to a survey conducted by Ricacorp Properties, about 140 sales were done so far this year at losses ranging from 5 to 10 per cent from what buyers paid during the peak in March.

"Most were cash-strapped investors that were forced to cut losses as they were holding more than one unit," said Ricacorp Properties research manager Patrick Chow Moon-kit.

Mr Chow said there were only 222 secondary transactions recorded among 50 major housing estates for the past week, a slight increase from 202 a week earlier but down 74 per cent on the 871 deals closed per week in November last year.

"Market sentiment is absolutely not good right now," he said, adding that residential prices had declined 0.2 per cent from a week ago.

So far this year, residential prices in the secondary market had dropped 5 to 6 per cent, he said.

In the primary market, sales were dominated by HKR International (SEHK: 0480)'s new project Le Bleu Deux in Tung Chung.

The developer said it had generated HK$1 billion in revenues from the sale of 250 units in one week.

Knight Frank said rents in newly completed housing estates, where many flats were owned by investors, would come under downward pressure.

rsantill 16 yrs ago

US property prices has been down for a while, London's prices also coming down, is Hong Kong next? But When?

rsantill 16 yrs ago

I guess the time starts today?

Anonymous 16 yrs ago

My friend who was looking at the property that was asking 4M last month, well the agent has come back and said the owner will now take 3M "for a quick sale".

I think the market sentiment is becoming much more negative day by day.

qpzmgh 16 yrs ago

Stock market hitting recent lows and things only looking worse for the economy and property sector.

I've seen a number of real estate agencies now with big red crosses through the original asking prices of properties on their windows and posting lower new prices next to the old prices.

We're going to have dramatically lower house prices and rents by the end of the year.

qpzmgh 16 yrs ago

Stock market hitting recent lows and things only looking worse for the economy and property sector.

I've seen a number of real estate agencies now with big red crosses through the original asking prices of properties on their windows and posting lower new prices next to the old prices.

We're going to have dramatically lower house prices and rents by the end of the year.

qpzmgh 16 yrs ago

thats great that you've re-financed on a fix payment deal but its not going to stop your property losing value is it?

ltxhk 16 yrs ago

Property prices are down throughout HK by 3% - 5%. Yes, many property owners will not sell at a reduced price, but others who need to/ want to sell will have to accept the reduced prices. Bank valuations have not changed much yet.... which is good for buyers; before bank valuations were usually under actual price but the gap is closing.

HKForGood 16 yrs ago

Loyd Grossman is Miss Venezuela,

I applaud your confidence given the outlook on the global economy + local economy. As I have previously stated, the HK property market shows very similar characteristics to the HK stock market (which broke through 20,000 mark - a nice drop of 35% since Oct 2007).

Interest rates will not stay at 2.x% for the next 20 years. I for one would not look to be buying in the next 18 months or so (recent transacation volume tells you a lot in my opinion). Good luck if you are seller - the rats are jumping ship. Enjoy the ride ...

qpzmgh 16 yrs ago

LG is MV

You are really missing the bigger pitcure. The scenario that is probably going to unfold is a large increase in mortgage payments and at the same time a large reduction in rental prices. What landlord would honestly want to hold property in that environment especially when they see the value of their property going down also.

Kiz27 16 yrs ago

It depends on the situation, my mortgage is currently covered twice by the rental so even if there was an increase in repayments and a decrease in rents it is unlikely to make me sell...and I doubt I'm the only one in this position. Also why would I sell now...seriously, hardly a good time to sell and if I hold in the longterm I still have someone paying off my mortgage(or even just most of it) and prices will eventually rebound. If anything its a buyers market so if you have the cash it would be a great time to buy, not sell. Unless you were financially forced to sell now would be stupid time. You buy when the market is struggling and sell when its high... and just sit and wait in times like now...the property value is really not that significant unless you want to sell or refinance. It is just a book value. If the prices go down, then it just is another reason NOT to sell.

HKForGood 16 yrs ago

LG is MV

"I think you are dazzled by short-termism and are missing the bigger picture. Of course mortgage payments will go up because they can't really drop much lower but a 500bp increase in rates could be easily absorbed by someone renting out mass residential property with a 30% deposit 5 or 6 years ago. If you bought into the luxury end last year and are highly geared, then you have problems."

Yes, I completely agree on this - but only for those people who had purchased 5 years ago ! But the truth is, I do know many people have purchased over the past 12 months with a 95% loan ! 25 to 1 leverage is very dangerous. Why on earth would you want to buy an asset that has already more than doubled in 'value' in these current economic times ? Your downside risk is far greater than your potential return. I have been investing in property (successfully) for 20 years now and I hold severe doubts that HK property prices will hold firm over the next 18 months given the current economic environment.

And to reply to Kiz27 comment:

"Unless you were financially forced to sell now would be stupid time. You buy when the market is struggling and sell when its high"

Exactly !! If you followed this principle, you would have bought in 2003 and sold in late 2007 early '08.

Kiz27 16 yrs ago

While in theory you would buy at a low time and sell at a high point in the market, I think that if you know what you are doing and have patience you can get a good deal in any market. I bought early last year at a crazy price because the seller was going bankrupt and the place needed lots of work. If I was going to sell I'd sell when the market was high, but having said that unless there is a reason I won't sell because in general you don't sell a fixed asset. I personally prefer to use the equity and acquire another property that way. Obviously not what you would do, but it's been working pretty well for me for the last 10 years.

I guess you have to decide when you buy a flat what your strategy is, of course this can change with time, but different people like different levels of risk exposure and no one strategy is going to suit everyone at any given time. You can debate the merits of any given strategy till the cows come home, but at the end of the day as long as whatever strategy you choose works for you, who really cares? =)

BBM 16 yrs ago

I don't think any of you people are really aware of the gravity of the current situation. I work in the industry, and the situation is so terrible and bordering on catastrophic. Consumers globally still haven't digested the events of the last few days because the situation is so fluid and snowballing every single day. The way the global financial markets work will be changed drastically, and so will the proftits banks make and compensation for bankers. This is not just another economic cycle, its a structural shift in the global markets that will take many years to recover from. You think the Asian crisis was bad? Try a global crisis, with the US right smack in the center. Global stock markets have already lost USD 12 trillion in value and are still falling. Firms are severly cutting costs and expat packages everywhere, and forget about the bonuses that have fueled the property market in the past - these are all but gone. Wait until a few more weeks, then you will start to get a sense of the gloom and doom I'm referring to. So for those who think property prices will hold firm or recover, dream on. Also, remember that property prices have risen 30% the past year, so a decline of 25% would would bring them back to prices from a year ago, before all this craziness that's going on. HK's dependence on finance and property makes it most vulnerable, and both prices and rents will collapse and take many years to recover. And even before that time the Fed will be raising rates which will also be a negative for the property market.

qpzmgh 16 yrs ago

LG is MV you seem to keep thinking that 500bps is a large increase for interest rates. 500 bps is a normal increase in normal circumstances.

I think were looking at mortgage rates in the region of 10% plus over the course of next year while HK$ is pegged to US$

qpzmgh 16 yrs ago

Will be interested to see what price Morgan Stanley can get for the HK$5.5 billion of property they are about to put onto the Hong Kong market for sale.

qpzmgh 16 yrs ago

Look property and rental prices are going to get absolutely whacked.

People renting office and residential property should be in a position to negotiate their rents downwards probably by end October, November latest.

Any equity you have in your home is going to evaporate in months. That said property should offer some excellent deals maybe in 18 months time. However interest rates are going to sky-rocket but you should be able to pick up property on the cheap so wont need a huge mortgage if indeed banks are still lending by then.

Finally property is nothing like a commodity. Assuming the price of a property stays the same value and does not increase then it is a depreciating asset, just like a car or a boat, as the cost to service and maintain it eats into your intial outlay.

Buying a property for investment i.e. in the hope that it might increase in value is pure speculation. People who bought towards the end of last year and beginning of this year are going to figure this out soon.

freezingpan 16 yrs ago

My agent just brought me to a property in Kennedy Road which was renting for 30k last year and now she says I can get it for 22 k. I am still thinking if I should lock myself as the crash has just started in real estate. Investors, whether in stock market or in real estate are all the same. If HSI can come off 30% why cant property? For those of you who are thinking it still wont tank, you must be smokin something really cool.

freezingpan 16 yrs ago

Loyd, you could be right, but its hard to imagine if 10 M apartments drop to 7-8 M, will the 3 M apartment still be 3 M? Anyhow, my point was we are going to face extremely hard times in the next 12 months, I would be very cautious about buying anything right now. And like you said if I had a property that I was living in, I wont wanna sell either but if it was a speculative buy, I will jump off this ship without any second thoughts.

qpzmgh 16 yrs ago

Lloyd, but renting out a property also provides shelter you dont need to be an owner to get this benefit of property. Also some people i know use a car for shelter and also a boat for shelter - so whats your point? and whats that got to do with commodities.

If the Fed raises a white flag to inflation then the value of HK$ is going to be de-based dramatically which is a huge concern - you'll be lucky if you can afford a car for shelter when that happens!

wongalx 16 yrs ago

It's interesting to see the train of thoughts here... but it's hard to think that the recent market events won't affects property market in HK. The area that I look to buy for the last 2 years has started to see dramatic drop in transaction volume, a lot of these properties for sale have been around since I started looking.... there is just so much speculative pricing in HK is unbelievable.

Property market is always the last sector to be hit when there is a wider economic problem. HK property market is not a cash market like places in Phuket or Bali where the market is insulated from adverse market events. The owners of these HK properties so far can withstand the impact but when the market forces filtered thru and squeezing their wallet or when foreign organisation is not there to subsidise inflated rental, that's when owner will price their property at realistic prices to sell....

wongalx 16 yrs ago

LG is MV, put this in context and not in isolation of market vs. demand factor. Your logic is very flaw!

I merely pointing out that , the market is holding back becuase of uncertainties. Where you should be applying the "market vs. demand factor" view is on the large stock of property on sale and staying on the shelve going nowhere.....

punter 16 yrs ago

What was the reason why people sold their flats during SARS? Is the same reason existing today? Maybe not, flat owners who don't have to sell (due to divorce, cash flow problem, etc.) will hold on to their properties.

freezingpan 16 yrs ago

I refuse to believe that asset markets can be predicted using logic. Ofcourse we as educated adults rely on logic for most of our decisions. However, panic, insecurity, greed etc are usually the reasons for decisions to buy/sell. These are hardly logical. What would be interesting to analyse is the extent of madness the above factors can cause thus resulting in asset inflation or deflation. Loyd, you are using a sample which involves genuine buyers of homes so my point is invaid for that group of ppl. My sample involves the investors and I am sure you wont disagree that there are plentiful in the HK real estate market.

jessieng 16 yrs ago

I wanted to buy a flat which was overpriced, the owners asked for few millions higher the the bank evaluation). Even all these crisis happened recently, it seems that the owner is not willing reduce the price.

qpzmgh 16 yrs ago

thats because people are still in denial about:

1) the real value of their property

2) the over-valued price they probably paid for their property

3) the seriousness of the financial crisis that we are currently in.

Don't worry though just hold on and it will all come good for buyer's.

punter 16 yrs ago

The standard reported today that prices has gone down double digits in percentage. There are sellers, we don't know their reasons, but they do sell. How many sellers are there? Let's watch and see.

elsdon 16 yrs ago

Just another view which I am not sure has been covered yet. I'd like to premise my post with the fact that I know nothing. I'm a fresh grad, no experience with housing, and additionally none especially in Hong Kong.

But, to my knowledge, isn't the HKD pinned to the USD? Based on my naive perspective, I see the USD inflating heavily within the coming months/years, as they print more money to try to help cushion their own impending depression.

This would in turn affect the HKD in an equally detrimental way. As Hong Kong has some of the lowest salaries of the civilized world (especially young people like myself), this should close the huge gap that currently exists in the Hong Kong housing market. With theoretical rising inflation, questionably lethargic stagnant salaries, but falling property prices, wouldn't that make housing more affordable? It does all depend on the interest rates / mortgage rates which banks offer to keep the market in equilibrium, but this could benefit the new buyer (like myself) at the cost of the current property owners.

I, for one, am looking forward to this.

HKForGood 16 yrs ago

HSBC have just increased their interest rates on mortgages by 0.5%, coupled with low transaction volumes = weakening property market.

I agree with Mr Cynical - owners will eventually crack. They always do, especially here in HK due to the herd mentality of investing (if the HK economy is so strong, why has the Hang Seng dropped by more than 40% in the past 12 months - it has fallen more than the US ?)

It is not a comforting feeling living with negative equity. Given the high transaction volumes in 2006/07 and early '08, there have been many people who have purchased in recent years. These will most likely be the first to jump ship and property agents will start to reduce owners expectations in order for themselves to survive. Its all part of the game of fear and greed ....

HKForGood 16 yrs ago

Lloyd - are you finally admitting that there is a chance that property prices will fall by 30% ?

elsdon 16 yrs ago

Is it easy to find somebody to rent to in Hong Kong? Loyd makes it sound effortless, like rent prices are static forever.. It comes down to faith in the market really, you say that majority of the property owners in Hong Kong are rich (debatable).. and went on to say that the HK housing market is cheap?

I'm turning 26 years old this year.. If I hadn't been saving money since I started working at 14 in Canada I have no idea how I could consider purchasing property in HK, nevermind how anyone else my age does. I only make a little over $20k a month HKD though, with 1.5 years working experience in the IT industry, so I think that is my greatest problem. With more cash flow, of course anything is possible.

Would take the average person like 10 years working just to save up enough to put the down payment down on an apartment or condo.. and another 20+ years to pay it off (assuming no market anomalies.) How is that 'cheap'?

rjmjong 16 yrs ago

Mr cynical and loyd grossman...

I have been reading this thread for many months now and i have to say both of you are hillarious...so thank you.

After todays events however, i think it is even more than clear that USA will be heading for a severe technical recession, with interest rates being cut and further unemployment across the board...the eurozone is now cracking and all the asian mkts can do is watch and burn...

in the hkg property mkt i do sense fear, even with rich investors, as the reality of the world economic situation worsens every week. In regards to cash rich property investors/owners loyd, looking at the way things are now, as an investor, why hold on now when you know you could buy a better property at a better price in 2010 with the capital recieved in todays mkt ? The reason is because a good sale in todays mkt wont occur because liquid buyers have dissappeared...and hence there are no buyers...its not that ppl dont want to sell...and when your stocks are down and revenues are down dont even try and tell me the tai tai's wont reason with their husbands to sell the frills. i agree with mr cynical that maybe your opinions are too subjective and maybe you are in denial...all your arguements are based around a pot of money under the rainbow.

The reality is the key issue here is emplyment rates...if you are paying off a mortgage and trying to live off your income as well, i dont think you would wait around for one yr loyd after you become unemplyed...

Another issue is the valuation that mortgages are based on as a mkt correction may well put banks in a position to readjust their capital valuations too...the same way that there are margin calls in stocks, there is the same with property.

i recently had a meeting with analyists from barclays capital in london, and their opinion is that mkts wont even bottom till spring 2010 and then still, the drive towards non inflationary economic growth looks slow and painful.

Unfortunately, being cynical right now is the most positive attitude. Its sad but true that as consumers we must wake up and realise the most difficult financial crisis of the modern world is upon us- dont try and convince me this wont affect a particular income range with however much in their savings account...and thus dont tellme the hkg mkt wont be severely corrrected when over the past 3-4yrs, prices have only been driven by speculators from hedge funds, ibanks and hkgs own fantastic property funds/companies-the consumers (also known as the pigs/suckers) have simply followed in their footsteps. lets get real here and not generalise in favor of our own situations...lets dicuss the truth....

qpzmgh 16 yrs ago

I'll answer that for you rjmjong.

Loyd, Yes you generally would because:

1. You're about to lose you're job and now you need to re-finance and dip into your home equity and are offered a higher mortgage rate on the re-finance amount.

2. You don't want to see your HK$10,000,000 of home equity evaporate into thin air in a few months time while your left holding a bag of debt that you need to service.

3. You realise you could have sold a few months ago for a fine profit and now be renting out a nice place at a lower level than your mortgage costs to service with even lower rentals to come in a few months time.

4. You realise that of course it makes sense to sell high and buy low.

5. You wish that you hadn't piled into the market at the peak on the promise of a quick profit due to 'under-supply' and 'negative real interest rates' and now realise what a load of rubbish those fundamentals were.

6. You realise in the current climate that your property is not an investment but a depreciating asset which is becoming a burden and you just need to get rid of it before it ruins you and take what cash you can.

7. It's dawned on you that there are no rich banks/bankers left willing to pay your big rental prices so your yield is whacked down and in fact you are now struggling to rent the property out and cover the mortgage costs.

anything i've missed ?

punter 16 yrs ago

What evidence do we need to see that prices has gone down? A newspaper report that a 5.2M flat sold for 4.5M and a 1M flat was sold after a 10% discount is one. But it is not a solid one as transactions are thin. Only those who are desperate to sell (divorce, lost job, higher amortization than rent, etc) are selling. How many are there? No one knows of course.

Ed 16 yrs ago

Picked this up when going through news sources for today's headlines:

HONG KONG, Sept 30 (Reuters) - Hong Kong property stocks slid for a second day in a row on Tuesday, as mortgage rate rises deepened gloom over the city's housing market, with new apartment sales slowing to a trickle.

A spike in Hong Kong's interbank rate, as the money market was sapped of liquidity, prompted HSBC (nyse: HBC - news - people ) to hike its mortgage rate in the city by 50 basis points on Monday and other banks were set to follow suit.

The move jolted many analysts into changing their tune on the Hong Kong property market, with prices now tipped to drop by anywhere between 10 and 20 percent in the next year.

Shares in the world's second biggest developer by market capitalisation, Sun Hung Kai Properties (other-otc: SUHJY.PK - news - people ), had fallen by nearly 10 percent by 0210 GMT on Tuesday, compared to a 5.4 percent drop in the benchmark Hang Seng index. The stock lost 5.1 percent on Monday.

Rival Cheung Kong (other-otc: CHEUY.PK - news - people ) (Holdings) had fallen 7.8 percent, while Henderson Land Development was down 7.7 percent.

Hong Kong developers are now trading at an average 40 percent discount to net asset value (NAV), far below historical discounts of 10-15 percent, but that was almost irrelevant, analysts said.

'It's meaningless unless global stocks settle down,' said JPMorgan analyst Raymond Ngai.

Housing market fundamentals in Hong Kong are also decent. Supply of new apartments hitting the market in 2008, at an estimated 10,000 units, is at its lowest at least since 1990, with the long-term annual average usually at about 20,000.

Affordability is also back at 2005 levels because of interest rate cuts at the end of last year, while salaries have risen.

But global financial turmoil threatens to bring layoffs to one of Asia's main financial centres, and homebuyers know it.

Last week only nine new apartments were sold, and eight were sold a week earlier. Normally, Hong Kong developers manage to sell at least 70 homes in a week, and when a big project is launched, sales usually climb into the hundreds.

'It's about uncertainty over the stock market, about the economy,' Ngai explained, adding that home prices would probably fall 17 percent to where they were a year ago.

'It's more a sentiment and confidence issue. People don't know what's going to happen in the U.S.'

Credit Suisse analysts now expect home prices to fall 10-15 percent next year because of an economic slowdown, and recommend that investors who want exposure to Hong Kong property should stick to low-beta stocks, such as Wharf Holdings Ltd and Great Eagle Holdings Ltd.

Both firms have an office portfolio providing steady rental income, although many analysts also expect office rents to fall next year as new supply of space comes onto the market.

http://www.forbes.com/afxnewslimited/feeds/afx/2008/09/29/afx5487110.html

qpzmgh 16 yrs ago

its always good practice to generally avoid forecast given by the 'experts'. In fact these experts proclaimed that with negative real interest rates and a lack of supply coming into 2008 then property prices could only go up and we would see gains of between 20% to 35%.

so i'm no expert but i reckon we will comfortably see prices fall by the 10%-20% predicted in the article from Ed by the end of this year never mind the end of next year.

qpzmgh 16 yrs ago

Lloyd, your comments seem to lack understanding.

A Fed rate cut will have no impact whatsoever on mortgage rates going forward. US mortgage rates are linked to overnight Libor. Libor spiked up to 10.5% a couple of days ago - did you know that?

Also these 'spikes' will become the norm going forward which is why you will see your mortgage rates move up to 15% or so in the near future.

That is why we are going to see mortgage rates increase regardless of what the FED does. The FED is out of bullets and can't save you this time.

Our only hope is a pro-active move to cut our link to the US$. Otherwise the fat lady will be singing.

Ed 16 yrs ago

LG > I have removed you from this serious discussion as I sense that your comments are not serious. If you would like to be reinstated you will need to get in touch with me directly.

freezingpan 16 yrs ago

LG...understand that you are passionately optimistic about the real estate market and there is nothing wrong in having a view but the point Cynical is making is very relevant. Property stocks are plunging owing to bleak future prospects. It affects both stock owners and property owners. You need to think beyond the simple mechanics of home owners otherwise your view gets tainted. I am also a property owner and wont like to see prices slip but I wont wanna be in denial. Facts/views presented by Ed, qpzmgh, Cynical are very intelligent ones that have benefitted viewers like me and many others, so lets respect it.

Ed 16 yrs ago

We are rushing to put out a property newsletter tomorrow that will include a Feature Article directing people to this thread so they can obtain ranges of opinion on the property market.

Most if not all other sources of property information are either completely biased because they are in the property game heavily or rely on the market of ad revenues so you do not get a comprehensive view of what is happening. Also none of them allow for interactivity so investors, tenants and owners have no opportunity to interact.

Given the state of the economy is it crucial to be informed hence our decision to push out this property newsletter asap.

DaHKGKid 16 yrs ago

Ed this is a very good idea. There is allot of valid discussion going on here which as you can see are from a number of very strong contributors. Whether your an owner, seller or waiting in the wings to buy, people need to see a REAL exchange of information which is as you say UNBIASED by the Hong Kong publishers who are owned by the property developers.

selda 16 yrs ago

Prices might have started dropping, but on Lamma they are still going up. I really don't know why. Maybe this is a Lamma property bubble and will soon burst. I hope so, because I am looking for a flat to buy, and what i have seen so far is less than impressive. I saw a flat that now is 1/3 more expensive than what the landlord paid two years ago...and he hasn't even renovated it!

sghkcn 16 yrs ago

Walkup2 and Loyd: Take a look at the market data

http://www.centadata.com/cci/cci_e.htm and see if you agree.

HKForGood 16 yrs ago

I wonder how many of the 256 flat's were sold given the 6000 'visitors' ?

DaHKGKid 16 yrs ago

Let's face it, if the chiefs at HSBC are revealing this position in the press then they are preparing thier stakeholders for the worst and you can get away with it given US EURO UK press through September.

As for seeing show flats, Hong Kongers will look for anything to do on a Sunday when its rainy and staying out of shopping malls to save money.

Wheels are coming off and the landlords, agents and newspapers are running out of reasons to prop it up.

On the flip side if you sitting on cash and in wait, and you missed the buy-in from previous dips, you will not want to miss this opportunity as even though the recovery will be slow, the Asian recovery should be the best.

qpzmgh 16 yrs ago

Elmerthe1st,

Most of your arguments have already been discussed in earlier posts but more than happy to debunk these for you:

1. Indeed banks have always been very stringent with their lending standards in HK as we are all well aware but that has not stopped property prices racing up 40% one year and dropping 40% the next year. Also a mortgage offer based on 70% of valuation is all very well but what if the valuation was conducted at bubble levels. Its not going to protect a punter from negative equity.

2. The government has always been the largest landlord and land owner. Nothing new there. There is indeed a low level of new flats hitting the market and from what i've read there will be an even lower number ' due to a downturn in the market'.

But developers don't keep property off the market to stablise the market they do it because they realise they won't be making large profits during the leaner times and demand is not maintained at a high level just because fewer properties are coming onto the market. Other than end user demand most demand in HK is based around speculation which leads us nicely onto your 3rd point.

3. Mortgage rates are low in HK for sure, but they are artificially low as a result of our unfortunate peg to the US$. Unless there is a pro-active move to de-peg, which i doubt there will be, then this low interest rate environment is going to change and it will change quickly. As i mentioned in one of my first posts on this forum buying at the wrong end of the interest rate cycle especially when inflation is high is a false economy. If inflation is high interest rates should be moving higher to counteract this. We've got it all back to front in HK. This effectively has created the bubble we now find ourselves in all we need now is the pin to pop the balloon - rest assured we will find the pin.

mdap 16 yrs ago

My neighbours landlord (who is my neighbour too) just increased his tenants rent 28%, after increasing it 10% last year. This is a desperate (if not smart) move by the landlord to lock in a rent rise before the market comes off. I own three properties here and and will ride out this fall - which has to come. HK is not immune from global crisis and the market here is due for a massive correction

Scottgw 16 yrs ago

Like most readers I enjoy this article. Though I must say it is starting to border on hysterical on some counts, and is quite general.

Isn't someone who is an end user, comfortably living in his/her own flat in Mid-levels or happy valley, and on a 2.35% mortgage in a different position than someone who bought a "hot"launch investment property in Kowloon/NT?

I wonder if it is really smart to sell your own flat, uproot your life and go into rental just because you are scared of the volatility over the next 2 years. People reading this article may get caught up in the "we are all going to h*ll in a hand cart" brigade.

Yes I believe prices will go down and yes I believe life is going to be rough for all of us over the next 2 years. That doesn't equal sell your house in my view though.

DaHKGKid 16 yrs ago

mdap, thanks for an honest unbiased opinion from a HK property owner. If they are moderately priced properties to begin with and rentals then you should have no problem unless your overextended and interest rates go through the roof.

We all wonder if this will be the catalyst for the HKD to go to an asian floating currency.

boobert 16 yrs ago

My next door property in Repulse Bay was asking 32 million in May. It is now being offered at 28 million. Go figure. We are going down!

DaHKGKid 16 yrs ago

Yes and anyone thinking its just the banks and financial markets that are going to get mauled are new to the planet as the trickle down from all industries will be effected and this is very true for HK who relies on banking, hospitality and retail for growth and jobs. Those HKers who are running factories in the PRD who have been beating up by both the increases in labor costs, raw materials costs and appreciated RMB and still alive and kicking are now going to face low consumption globally and huge reductions in exports which may be the final knockout punch.

I'm in agreement with Mr.Cynical, my timing from post 180 days ago also missed the window but slow drawn out recession with depression and an dash of stagnation is the cocktail we're all going to drink.

widemoose 16 yrs ago

It is relevant what happens in Repulse Bay. This economic crisis will hit people of most backgrounds in HK (highly dependent on the service industries) due to the trickle-down effect. The main culprit being job loss/insecurity. It is a fact that high earners' (i.e. Repulse Bay residents) spending patterns have a big impact on the overall health of the economy (including tax receipts). It doesn't matter if you are in a $40 million flat or a $2 million flat as a tenant or a landlord. If you lose your job, face pay cut, or lose money in the stock market, you'll think twice about your monthly cash out flow, including cost of carry. Some may think that a $2 million flat is a low-end property, or that a low monthly mortgage payment is perpetually affordable, until you lose your job. Of course this assumes that it won't be just the bankers losing their jobs, but teachers, waiters and car sales people.

ArtHK 16 yrs ago

This is mainly anecdotal but I saw a lot of friends moving out of the building in Repulse bay and looking for other options because increases in rent last semester. A lot of people live in apartments at the top of their allowances and given the current situation it is quite hard going back to the boss to request an allowance increase or to pay the difference out of pocket.

I did a quick check on the rental prices and was surprised to find some apartments in the 50 – 70k at the same levels as in 2004 (when I first house hunted in HK) but premium apartments and town houses that used to be in the range of 120 to 130k are still listed very high at 170- 180k levels. My guess is the adjustment is already happening there are options at lower prices already and it will catch on to all segments in time.

The high to mid level house market in HK is very dependant on expats and as sad as it is the redundancies caused by merges, acquisitions and cost cutting as well as the reduction in bonuses and other income will reduce the demand in this segment.

Price differential proportions to other segments will of course remain and all the rental market will adjust. The purchase price of a property is in great degree a function of the rental potential and this will adjust as well.

Ed 16 yrs ago

I am noticing enormous numbers of listings coming onto the site today (ever time I check our admin this morning there seems to be 30+ more to clear in both sales and lease). We are about to go over 3000 listings an all time high.

Ed 16 yrs ago

LG > we don't charge to post listings so unfortunately I won't be able to retire soon (working next to the pool in Bali is ok though).

At this point, I am not sure if anything can be considered a 'safe' investment let alone a certain section of the HK property market. I spend most of my day looking at online and tv news sources and what I am seeing is that this is going to get far worse before it gets better. The dotcom crisis was nothing compared to this because that was more isolated - this time round there is a barrage of problems - and the financial industry is many times larger than the dotcom industry when the last crash happened... hold tight :(

HKForGood 16 yrs ago

LG - its obvious to me there are no buyers out there, hence low transaction volumes. Not sure why you are sticking to your guns and claim there are no sellers in the property market when real estate agent window fronts are filled floor to ceiling with properties for sale.

As pointed out by Ed, there are now a record numbers of properties for sale on this site - surely the cracks have started.

Ed 16 yrs ago

we've just broken through the 3000 level...

Mog77 16 yrs ago

We have just been in the process of trying to purchase a property in HK. We have found a property in Central that we really like. The valuation is below the asking price (by a lot $1.2 million at least!). What is interesting is that over the past 2 months we have talked to many banks and credit corporations. One credit place was willing to lend us 90-95% and to allow us to use our other property in NZ as equity for the deposit. After speaking with them today, they are predicting that property valuations are going to decrease or to be far more conservative. But even more concerning is that they have changed the policy of TODAY to lending no more than 70% of the mortgage and they will not use bank guarantees anymore. They also commented that other banks may change to only lending only 65%!!

I have been reading this thread for pretty much the whole period that it has been running and have been interested with all parties comments. I thought that people were over reacting.

After being in the process of seriously looking to buy for the past 4 months, I believe that in the short term at least sales are going to drop considerably because who has the 30% deposit in cash as a buyer for a Hong Kong property? And also the spare cash to make up the difference between asking price and actual valuation? Sellers are at least going to have to get more real with their asking prices.

I am aware that HKMC does lend up to 95% for properties so I guess it is not completely impossible!

Looks like I am out of the market as a buyer!

punter 16 yrs ago

Mog77, there are a lot of people with oodles of cash "under their mattresses". Not all are going to buy properties though; they're just waiting in the sidelines. When these people who have the cash to buy don't want to buy is the the time I think that the Hong Kong property market is going to fall. In the meantime LG is right, most property owners are going to hold.

Mog77 16 yrs ago

I agree with you, if I was an owner and didn't need to sell I would hold. And if I had oodles of cash I would be in.

DaHKGKid 16 yrs ago

Some of my friends are holding to wait for SARS Like conditions for buying and when they asked me my opinion, I was same as Mr. Cynical basically. The key here though is SARS was something that was HK/China based and when the problem began to go away so did the fear. The problem we have here is that the fear is global and I have now downgraded my readiness to buy to mid to late next year but fear a lengthy recovery of at least 3-5 years. Secondly, banks will tighten their lending to cover all sides, further depreciation and valuation to be accounted for along with strict due diligence on who the loan is going to and keeping an eye on where interest rates might be headed and reduce what you can qualify for thus your ability to replay the loan if worst case steps in.

Special circumstances may favor those who are getting the loan and in fact living in the property. Defaults on property loans over the last 12-18 months will become evident also starting the next 6-12 months so again while the bank would like to offer you a loan, they will make it very hard to do so AND you should just sit on your cash until a recovery is in sight.

Honestly, I dont believe there will be that many ready to jump back in as between the stock market and real-estate and the coming hit to HK all other fronts, many will be looking to survive.

I've only seen one property sell in the 1000 house estate I live in and it was 2 months ago. It was a unit which was purchased pre 1997 for $24M, finally was offered at $26M at the peak 6 months ago and they let is go for $21.8M. These guys didnt want to go through the pain again and it's coming ladies and gents.

nicnic 16 yrs ago

There a several reasons to buy today:

prices are negotiable and not many other buyers to compete with

agents are desperate to close deals and may work for the buyer for a change

rental demand is greater than supply for a half decent place

contractors are quiet with fewer jobs on

HK banks are still keen to lend money

interest rates may be coming down further

In all likelihood prices will come down but if you were a long term buyer 6 months ago then count yourself lucky because today you have more choice, more time and more buying power.

qpzmgh 16 yrs ago

nicnic,

there are also several reasons not to buy today:

prices are too high and will be coming down a lot

agents are always desperate to close deals and usually work for themselves

rental demand is still high but rentals will be coming down and renting a place will become more difficult

HK banks are becoming more stringent on their lending & their valuations are too high

interest rates are coming down but I guarantee you mortgage rates are heading up to the stratasphere.

buy now and 6 months from here you will be wishing you had not. hold on for the next 12 - 18 months atleast and then you'll be picking up some bargains.

i owned property in HK but sold it in January 08. i want to buy more BUT i'm holding on as i'm very sure my analysis is correct. it has been to date.

nicnic 16 yrs ago

wow, wish i had your crystal ball and could guarantee to time the market so well too.

of course trading property on leverage is very risky today and maybe cash is better if that's your game. if it's not and you will hold for the long term then maybe today is a better time to buy than 6 months ago and maybe better than 6 months forward. if it's not and you lose money on paper then sell at the same time as buying a bigger cheaper bargain.

qpzmgh 16 yrs ago

Nicnic,

i haven't got a crystal ball and am not guaranteeing anything close to market timing because that's impossible.

the only thing i am guaranteeing is that mortgage rates are unsustainable at these levels and that they're going to head up sharply.

everything else that i've talked about just seems to be common sense to me.

nicnic 16 yrs ago

lots of wise words all round but a bit contradictory. My view is that current credit crisis is caused largely by major economies printing far too much money over the last 8-10 years leading to cheap credit to bad risks but that there is still a lot of money being held in cash at the moment. if interest rates go up then so does the dollar so hk assets are worth more relative. if the peg is released then even more impact. anyway, none of that is very bad for hk property and probably it'll take something more like sars to send prices down to 5mill for a mansion. could happen so i'll make a note to come back to this forum in 6 months to check.

boobert 16 yrs ago

Yes nicnic, but how on earth will the US$ go up if the US has to come up with another $1 trillion to bail out the banks. It means they have to print more money which means a weaker dollar.

Regarding my next door property in Repulse Bay which recently dropped from $32m asking to $28. I called up the agent and asked whether the owner would consider a $26m bid and they came back with a yes.

I don't care how rich people are they still hate losing money. Property prices haven't even started to reflect this. In baseball terms I would say we are in the 2nd innings out of 9, and my guess (and of course it is just a guess) is that we will see prices drop back to SARS levels and then still continue to fall. This is financial armageddon. As ED says, go buy gold.

nicnic 16 yrs ago

boobert, i agree that the dollar probably won't get stronger. i also agree that asking prices are 30% above the bid for a lot of apartments. i'd be really surprised if prices went anywhere back to sars levels though because there is just so much pent up demand. sars was a bit different in that everyone wanted to get the hell out of this cat eating disease ridden city. and if it is financial armageddon remember that you can't live in gold.

qpzmgh 16 yrs ago

nicnic, you start to make some sense in some of your points and then you go and say things like 'you can't live in gold?' look when fiat currencies begin to fail like the US$ is probably going to do gold will be the only thing other than cigarettes and alchohol that you will be able to use to buy things with. Gold is money. Paper 'money' is just convenient. and what good is a house if you can't afford food and water?

walkup2 the US$ link is a lock-in you're right about that but its a bad lock in and is going to cause most Hong kongers a few financial headaches in the months ahead.

qpzmgh 16 yrs ago

there doesn't appear to be a time frame for these figures - is it daily, weekly or monthly? regardless most of the figures look like their down to me unless i'm looking at the wrong figures.

punter 16 yrs ago

It was mentioned earlier that there's no reason for property owners to offload their flats. Nobody has got negative equity yet, the mortgage rates are low, rentals rates still covers the mortgage. Why should owners sell then? Because they're afraid prices are going to tank and rates are going to fly? There's no fear yet, so there's no selling, yet.

ltxhk 16 yrs ago

Yes, selling will come later.... as for now, transactions are stagnant. BUT, valuations are not; HKB and other majors have adjusted valuations downwards by 5 - 7% on key HK locations including more mass areas such as TKS, Kornhill etc.

solomani 16 yrs ago

This thread has been very interesting. I have only gotten here but on paper it seems to make sense to buy a place as opposed to renting relative to the rent you are paying.

Going to seriously look at this once we are settled. However an example budget like 10 million HKD is equal to aprox 1.8 million AUD. Assuming you pay 32k/month in rent now and pay that at a minimum on your mortgage its still going to take you 26 years to pay it off. Then again if you are not aiming at owning the place forever it may make sense - assuming you can sell it when you leave.

It just seems 1.8 million AUD will get you more in Australia than 10 million HKD does in HK. Then again rent money is mostly dead money as opposed

Having said that what areas should I be looking at for a 3 or 4 bedroom place that is 1000+ sqft (1500 or so)? Assuming a budget of 7 million HKD? Essentially I am looking for somewhere to live with the potential of selling it off once I leave HK (or, if rent covers mortgage rate then keeping it ad-infinitum).

Based in the info in this thread I should wait until next year to buy a place for one (which works out fine since I just got here). And either way renegotiate my rent even if I decide not to buy a place.

Is there anyway to see the selling/buying history of a house in HK? Something similar to this in Australia:

http://www.homepriceguide.com.au/index.cfm?source=domain

Thanks.

punter 16 yrs ago

I don't know if LG is gloating or just being sarcastic. He might be right though, it's the "beginning of the end" of the financial crisis. He can be wrong too. But remember that the subprime mess is not yet solved. How many institutions have these toxic loans on their portfolio? How many more US homes are going to be foreclosed? How derivative products are not going to be paid every time one of these houses is repossessed? These things need to be written off.

novaflux 16 yrs ago

Every downturn there needs to be fools whom will rush in and the market will have an orderly downturn!

dabbagmm 16 yrs ago

Query and advice for rental?

I will be negotiating a long term rental agreement soon and I would appreciate an insight and expert advice with regard to current rental market. I'm looking at apartment in the Mid Levels or in the new developments above Kowloon station.

Thanks

Ed 16 yrs ago

Global meltdown set to hit Hong Kong's luxury market hardest

Hong Kong - It is home to some of Asia's wealthiest and most successful people - a city where tycoons, celebrities and high-fliers live in sumptuous surroundings in some of the world's costliest properties.

A pad on Hong Kong's exclusive Peak will cost you in excess of 7,000 US dollars per square foot (75,000 US dollars per square metre) - more than in New York or London - and a down payment on a shoebox-sized studio flat will set you back as much as a town house in other world cities. Sponsored Links:

In the past five years, luxury property has flourished in Hong Kong, bouncing back spectacularly from the slump of the Asian financial crisis 1997 and the dark days of the 2003 SARS (Severe Acute Respiratory Syndrome) outbreak which saw prices fall 60 per cent from their 1990s heyday.

The last year was especially bountiful with prices increasing by 25 to 30 per cent as interest rates in the former British colony, which pegs its currency to the US dollar, fell in line with those in the US, keeping lending rates low.

The volatility of Hang Seng Index, which has lost 50 per cent of its value in the last 12 months also boosted property markets with investors choosing bricks and mortar rather than stocks and shares.

But now the tide is turning and a fall in year-on-year transactions since April indicates that not even the Hong Kong property market is immune to the global meltdown.

According to Peter Smith, head of research and consultancy with Savills Valuations and Professional Services, the luxury sector looks set to fall by 25 to 30 per cent in the near future, wiping out all of the gains of the past year. This compares to a fall of 15-20 per cent fall in the mass market. Sponsored Links:

'The reason why the luxury market will be worst hit is that it has come a lot further than the mass market over the last couple years,' said Smith, adding that affordability at the mass market remained quite good.

The recent economic boom in Hong Kong and Asia generally over the last few years has moved upper quartile incomes a lot further than other incomes - particularly in cities with a significant financial services sector such as Hong Kong or Singapore, he said.

'That has meant prices at the top end of the residential market have risen quite quickly because they have seen a quite sizeable increase in demand for luxury stock both for rent and for purchase driven by the partly growth upper tier financial services economy and the high income growth we have seen among those people.'

Smith said this demand, fuelled by the scarcity of new luxury development coming on stream had spurred prices significantly upwards over quite a short period of time.

'Now a lot of that froth has to come off the market,' said Smith. 'There is uncertainly. Transaction volumes have been slipping since April on a year-on-year basis suggesting people are holding off making major capital commitments. Sponsored Links:

'Also the luxury residential market is quite highly correlated with the stock market on a one or two quarter lag and so as the stock market comes off, then the luxury market will follow.'

When exactly that fall will happen, how fast or over what time period of time is more difficult to predict, he said.

But the good news, said Smith, is that the low volume of luxury supply in Hong Kong will help support prices and the market should show signs of bottoming out and improving in the latter half of next year.

Peter Tebbutt, Senior Director of Financial Institutions, Hong Kong, Fitch Ratings, is similarly optimistic for Hong Kong in the longer term.

'The market will be soft, particularly in the higher end residential market,' Tebbutt said.

'But I think Hong Kong will do fine. During the Asian crisis prices went down 50-60 per cent and the losses Hong Kong banks made on mortgages was negligible,' he said.

'People continued to pay back on their house. They (the banks) have been lending to many property developments in China but from what I gather most is to a handful of very large property developers here in Hong Kong, and they do have very strong balance sheets.'

China too remains a factor in the equation that cannot be ignored. 'Asia generally seems to have learnt its lessons from the 1997 Asian crisis which has put us in a slightly better position to weather this one. We also have the motor of China growth for as long as that continues,' Smith said.

'At the moment that is positive. But if that economy slows too rapidly and there is evidence of a hard landing then that is going have a knock-on effect on somewhere like Hong Kong.'

http://www.monstersandcritics.com/news/business/news/article_1436767.php/Global_meltdown_set_to_hit_Hong_Kongs_luxury_market_hardest_

novaflux 16 yrs ago

dabbagmm - go to any rental you like, make an offer 20% lower and the landlords will consider this is already happening. If they say forget it, you have 20 other desperate landlords desperate to get their properties rented before winter. Empty apartments over winter tend to f up the unit.

Oh btw if your agents tell you otherwise, there are 20 - 30 other agents whom will think the other way so do not let the agents bs u into believing for one moment any properties are so hot it will go like hot cakes. It aint happening

dabbagmm 16 yrs ago

Thanks novaflux.

That's a very useful tip. I had a feel of the market tone but was unable to quantify it. I thought about soliciting the people who know so I dont exaggerate the downturn of the rental market.

Cheers mate..

novaflux 16 yrs ago

no worries buddy i am lookinig for a new place myself too. And i know all the dirty tricks the housing agents use to psycho you into believeing you are getting a good deal. someday maybe i will write a book on it hahhahh. The agents here are the ones talking up the market when times are good to fatten their own pockets. They aren't any different from i-bankers that are being slammed right now about sub prime in reality.

They use many "internal tricks" that will ensure the prices go up ha ha. I am all too familiar with those now.

And frankly right now, go to www.squarefoot.com.hk and find the building you wanna rent. look at the prices on rental for a start, pick the lowest offer, minus 20% off that price and bargain your way through.

oh and agents will always say you will get desperate when your lease is up and you are on the streets if youdo not get a place soon. To that, I advice you to tell him in the face. A) I will put everything in stroage B) I will rent a cheap service apartments which do NOT require agency fees and C) take my time now that I got tons of time to burn to find that special place. :)

AYM 16 yrs ago

I agree with Ed's saying that the "Global meltdown set to hit Hong Kong's luxury market hardest"

The local newspapers said that the asking price for properties in Central Mid-Levels are down by 10-20% already. A flat at Hillsborough Court (Block 2, mid-floor) has just been sold during the last few days for $6.1M only (below $8,000/sq. feet), down 35% from March this year.

It is pretty clear to me that a major property price correction has already started. Long term investors would probably hold on but many others are desperate to exit ASAP.

HKForGood 16 yrs ago

dabbagmm - Had a friend who arrived in HK 2 months ago. She was able to negotiate 15-20% rental decrease on her final 3 apartments. Now that economic sentiment has detiorated, I'd ask for a 25% rental decrease and negotiate from there. After all - rentals have increased 50-100% in the past 2-3 years when times were good but now is certainly time for a correction.

Don't let agent fool you buy saying 'hot lease' - check the amount of dust on the floor. A dead giveaway that the apartment has been empty for months.

GedHongKong 16 yrs ago

friend just accepted an offer on his place 50% below asking price (they buyer backed out)

peak $200k/mo rentals are down to 140k/mo

Its a bloodbath. Expect 2003 prices very soon.

Chin 16 yrs ago

I need your advise. I'm about to make a bid on an apt. to rent. The price is 55K which is the same price as the present tenant is paying. The tenant signed the lease in 2006. Should I negotiate for a lower price or is this a fair price? The property is in West Midlevels.

Chin 16 yrs ago

Thank you Mr. Cynical. I will follow your advised.

HKForGood 16 yrs ago

Just went for a walk to the local estate agent.... Of the 25 apts advertised on the window front, approx 15 of them have a nice big red marker displaying 10-20% off the asking price. Yes, these are at the "luxury" end (approx $10,000+ per sq foot) although there is nothing too luxurious about them if you asked me...

dabbagmm 16 yrs ago

Today, I have viewed some properties at the Arch/Harbourside and the estate agent, unsurprisingly, seemed to discount all the bearishness in the market and calling a $65K a fair market price for a 1350' unit!! I guess either some are denying the obvious facts or they are trying to trick tenants.

I'm grateful to this forum as it offers true reading of the market. Keep it up guys.. :)

DaHKGKid 16 yrs ago

As I posted in CRISIS..., I put low bids on a bunch of properties early Sept and managed to nail down a 25%+ off asking. If any landlord or agent is not willing to deal to at least 20% then loose one or both of them.

Tip...after you run out of $$$ negotiations then drive for shorter term. I have a 7+2 months instead of the 12+2 so I can then negotiate down another 20% when the stuff really hits the fan. I can then stay at the lower rent or go for it again.

Try walking away, it not only feels good based on the insult of your landlord living in a dream but you will get the call to come back to the table. Try it with anything your deciding to buy in HK right now.

novaflux 16 yrs ago

Yes absolutely. You make an offer the landlord says no, you WALK. The landlord will get desperate and will want to negotiate. When you get back you offer 10 - 20% lower then your previous offer now this will really set them on fire.

For myself, when i offer i make it very clear to the agent and the landlord the offer is good for 2 - 3 days after that no deal. I walk.

But anyway I think now is the wrong time to buy property, as there is lower low . so wait a few months

spaceren 16 yrs ago

Seems to me most of the recent posts are just seeking a discount off asking (or a simple comparison to history), isn't the real enquiry what is the value? 50% off some asking prices is still too high, 5% on others is real value. People just might be too excited by the blood in the waters and have lost focus (kind of like year end sales).

As Warren B says for a different asset class (if I said it who cares), short term a voting machine and long term a weighing one. What is the weight?

But what I really want to know is how much did the above bears, who correctly called the correction early (congrats), make shorting the property market of late? Come on, rub it in ... tell us was it 9 figures or just high 8s or even just a few thousand? Due homage (envy and mutterings and one low bow) will be paid.

punter 16 yrs ago

You're still quite hopeful LG. Have you checked on the number of people losing their jobs in Hong Kong?

punter 16 yrs ago

How about this from the SCMP headline today?

The worst is yet to come for Hong Kong from the global economic

crisis, HSBC (SEHK: 0005, announcements, news) 's top executive in

Asia has warned.

"The impact is going to come more severely to Hong Kong and there is

going to be a slowdown. You can see it happening now," the bank's

Asia-Pacific chief executive, Sandy Flockhart, said yesterday. "But

exactly how it impacts or for how long is not something we can predict

yet. But it may be for longer than perhaps people think."

qpzmgh 16 yrs ago

Libor rates have come down, yes, but they are still high and they are going to start edging up again before they skyrocket.

gtancer 16 yrs ago

All,

Check the HSBC -> Mortgage -> Property Valuation site!

I purchased my flat in Aug for $5.1M. HSBC Valuation at the time was $4.95M, then it went up to $5.17M where it has stayed until last Thursday.

When I checked it Friday it had dropped down to $4.57M, 11.6% drop. HKD $600k down! So the correction here NOW.

So after I got over the shock, I started to rationalize that I knew well that there needed to be some correction at some point to balance out the US and Global issues. I just didn't expect 11%. However this is small compared to some other parts of the US and world overall.

I'm an optimist and believe in the strength of the Hong Kong Real Estate market. I don't buy into the "gloom & doom" picture painted by HSBC, or all the blackness being painted in the newspapers about unemployment.

This situation is temporary. Once the $700B kicks in, and with low interests and more accessable lending, I give it 6-12 months and we'll all be kickin' a** and takin' names again!

boobert 16 yrs ago

I very much doubt in 6-12 months all will be well gtancer. Property downward cycles last much longer, especially with the world falling into a recession not seen for 80 years.

kmagill 16 yrs ago

Found a property for sale at 22% below the bank evaluation.

A deal not to be missed, or just the tip of the iceberg?

evildeeds 16 yrs ago

Not unusual now. My agent called me today with a property that the vendor has now dropped 31% in a week and comes in at 21 - 24% below bank valuation (depending on bank). Tip of the iceberg, the speculators are beginning to offload a bit at a time. Those with no liquidity are beginning to panic. Plenty more coming.

kmagill 16 yrs ago

As I'm in the market to buy - but am wait for the bottom to fall out (as everyone expects it to over the coming months), i'll give this one away, it was posted in the property section today, Midlevels West, Bonham Road , Sale Price 3.05, called the agent who said the owner had been dropped to 2.8, and its valued on the hsbc website as 3.59 which is -22% below bank evaluation, the most i have seen listed on asiaxpat.

the speculators have started to jumpship.

kmagill 16 yrs ago

http://hongkong.asiaxpat.com/property/apartments-for-sale/117412.asp

property valuation from hsbc website, but you'll have to call the agent to get floor&flat.

maple888 16 yrs ago

So is the mortgage lending rate going to go down as the HIBOR already is?

janes addiction 16 yrs ago

I bought in mid-levels 18 months ago, and watched prices in the neighborhood go up and up after I bought. the apartment below mine (exactly same layout as mine, but a floor lower and not recently renovated) sold six months ago for 60% more than I paid. 60% in 12 months! I'm expecting all of that increase to disappear, if not more. I kind of expect prices to drop below what I paid 18 months ago before we see bottom.

janes addiction 16 yrs ago

2 more weeks. ha! Good one.

I live in my place, so am not under pressure.. and could rent it out at a rate that more than covers mortgage and management fees (even pricing in a 50% drop in where it would have rented at the peak of the market)

I'm actually a net buyer of HK property so look at falling prices differently than many recent buyers in HK. I was was actually looking for weekend place in CWB or Sai Kung this a few months ago. I've put that idea on hold for at least 6 months as I expect a serious price drop.

Libor rates plummeting is largely meaningless if banks won't lend. In my job I have a lot of occasion to talk to banks re corporate loans.. and no matter what Libor rates are at, credit is tight because banks still can't borrow from each other. Have seen an uptick in invocations of market MACs to move away from LIBOR based pricing on loans, because few banks can actually borrow at LIBOR.

We face a long period of credit contraction. HK may not be hit as bad as US and Europe as lending practices were more stringent here, but we will certainly still feel it in a significant way.

Ed 16 yrs ago

Global Real Estate Crash?

If declining home values have you down, and you'd like some company in your misery, here's a glimmer of good news: when it comes to the housing downturn, the United States is starting to have plenty of company.

It's been nearly three years since U.S. home values peaked at the height of what was, in retrospect, a bubble fueled by low interest rates, speculation and a general giddiness as millions of Americans began to look at their houses not only as a place to live, but as an asset that would make them rich. For years the experts assured nervous homebuyers that nationwide home prices had never fallen year-over-year since the Great Depression—a record that's come to a painful halt as the average U.S. home has now lost more than 15 percent of its value.

Meanwhile, a similar transformation has been taking place in other countries. In much of the world, home prices soared during the first half of this decade, rising far beyond the levels that you'd expect, based on traditional economic factors. In the last year, however, many of those markets have seen their housing bubbles burst, too. In fact, during the first six months of 2008, a host of economies—including that of Denmark, New Zealand, the UK, Spain, Sweden, Canada and Norway—have seen home prices fall at a faster rate than is occurring in the United States.

In a study published this month, economist Prakash Loungani of the International Monetary Fund examined how this boom-bust cycle is playing out around the globe. He and his colleagues looked at how and why home prices rose in a variety of countries between 1997 and 2007. They tried to figure how much of the rise could be explained by traditional economic drivers like income growth, population growth, interest rates, the availability of credit and the wealth being created by rising stock prices. In a host of countries, home price gains went well beyond the levels you'd expect based on those variables, and the IMF study looks at this "house price gap" as one indicator of just how bubbly each country's housing market became. In Australia, Ireland and the U.K., this gap ranged from 20 to 30 percent, and in France, Italy, the Netherlands and Spain the gap ran between 10 and 20 percent. In the last year, home values in all those countries have begun to fall more quickly than they are in the United States.

"By now the U.S. has undergone substantial correction already, so that the other countries are experiencing much more profound changes in their house prices," says Loungani, who's based in Washington.

While optimists have begun looking for the bottom in U.S. home prices, in Europe the sense is that their roller-coaster ride is just getting started. "In Europe, we're in the more early stage of the downturn," says Ruth Stroppiana, the London-based chief international economist at Moody's Economy.com. Stroppiana says the overseas housing-bubbles were driven by many of the same factors that drove U.S. home prices so high—low interest rates and loose credit among them. (American lenders weren't the only ones offering mortgages for more than 100 percent of the value of a home.)

http://www.newsweek.com/id/165154

qpzmgh 16 yrs ago

Lloyd, LIBOR is coming down but it is still high and as already mentioned banks are still NOT lending. Mortgage rates are not coming down either !

Also it is not good news that LIBOR is coming down because look at the amount of money the FED is 'printing' out of thin air and pumping into the system. It is having minimal effect and this in my opinion is the scary part.

None of this is good news and its going to end in financial disaster.

Also none of this action solves the FUNDAMENTAL problem. Property prices are too high in the US and they need to come down. Other countries have similar asset price bubbles still in property. HK does not have any subprime realted issues which is good but we're still going to be greatly affected.

novaflux 16 yrs ago

Posted by Loyd Grossman is Miss Venezuela (22 hrs ago)

[ Message | Report Abuse ]

If the spread between Libor and OIS rates narrow then it shows that banks are less worried about counterparty risk. If they are less worried about the other party defaulting, then credit will begin to flow again. As for the equity markets, I think this has a lot to do with hedge funds and mutual funds being wiped out and having to liquidate their positions. Mortgage rates in HK are still very, very low (Janes Addiction above obviously has no plans to sell). Property prices were too high in the US and UK. Top-end property in HK was also expensive (but the tax rate here is low so why not?). Mass residential HK property is not expensive and didn't boom like the luxury sector. Also many homeowners have survived 1997 and SARS and have strong balance sheets.

Hahaha you have completely no idea what you are talking about if you have not realised. LIBOR and OIS have got NOTHING to do with the prime rates banks are going to charge you. LIBOR coming down does not mean good news to homeowners!

novaflux 16 yrs ago

Even if LIBOR goes down 1% more, the mortgage loan rates will not go lower it will go higher actually. you are right when you said prime rate is a function of HIBOR/LIBOR. in a normal market it would work that way. But the issue with asset backed lending now is... the cost of capital has gone up too much to give anyone cheap loans. Becuase asset backed securitisation is now.... not possible. There's a whole host of details behind the implied lending rates now in HK and 2 things will kill the property market 1) banks will not finance anything more than 80% if you are lucky and approval process is stringent more than ever 2) Property valuations will keep falling as the fall out in stock markets erode wealth and people seek to liquidte property to fund their cash requirments.

novaflux 16 yrs ago

ya sorry ignore what i said :)

k end of contributing to this thread i am bored

all the best i encourage all of you to keep buying!

Scepisle 16 yrs ago

ok.. been buying HK property for twenty years now... all I can advise is if you are looking to buy...just wait 12-18 months.... I expect a good 20% correction in addition to what we are seeing today.... If you are patient... in another five years you can make a killing.... but now is not the time to buy.... be patient... my little ones... be patient...

Ed 16 yrs ago

Does anyone have a sense for where the market prices are now?

We are noting a big drop in enquiries for properties for sale so I think it is quite difficult to determine where the market stands....

It's a bit like the gun fight at the ok corral with buyers and sellers facing off across the street and nobody willing to draw their guns...

dabbagmm 16 yrs ago

Any update on the rental market? Three weeks ago someone was saying that rent will easily come off by 20-15%. Has anyone seen that? If landlords lost the chance of selling (at the highs of two months ago) will they be willing to discount their rental?!

qpzmgh 16 yrs ago

Yes they will be willing to discount their rental and in fact its already happening because there is a flood of rental properties hitting the market.

Some homebuyers were looking to flip and now can't so we now have an oversupplied rental market. Which is exactly what i thought would happen when i made my prediction some months ago.

Just look at the number of properties for rent on the Asiaxpat property section at a new high of 2333.

HKForGood 16 yrs ago

Well the Hang Seng is trading at 11K today (a nice 60+% drop from 12 months ago).

Paid another visit to the local estate agent - more red pens are out. The bubble has popped - no doubt about it.

As I was driving up old peak road yesterday, I saw ads on the side street advertising property 20-25% off asking prices (20M+ mark).

sarahjames 16 yrs ago

Seen a drop in selling prices, yet to see a drop in rental prices, they seem to be holding well, keeping my fingers crossed though!

DaHKGKid 16 yrs ago

After today, rental pricing is coming down. Hint : Ask for the reduction don't expect it on offer! 25% off to begin, don't accept anything less than 15%. Also, your landlord is looking for secure tenants as we haven't even scratched the surface of the downturn HK.

May I suggest if you can only get the 15% discount ask for a short contract. Don't go 12+2, go 6+2 max 8+2 so you can shorten your rental period and get in on even lower rental prices earlier.

Shoe Girl 16 yrs ago

It seems that my landlord must be the only person in HKG who has not been reading the newspapers and has just notified me that he is putting my rent up 30% on 1st December.

Ed 16 yrs ago

Another option is to stay in a serviced apartment for a couple of months and monitor the market...

http://hongkong.asiaxpat.com/property/serviced.asp

Shoe Girl 16 yrs ago

Apart from the hassle of moving, the timing is also bad as I really don't want to move just right before Christmas as I am planning to visit my family overseas. I have been living in the same flat for nearly 7 years and in that time I have always paid my rent on time, arranged and paid for all maintenance works myself. It will actually work out cheaper for me to buy a small flat and pay the mortgage than continue renting. I've asked my landlord if he is willing to consider something more reasonable, otherwise I would have no option but to move, but he's ignored my letter and hasn't contacted me, so I'm assuming I will have to pay the increase or move out.

Ed 16 yrs ago

We have the most comprehensive directory of serviced apartments in Hong Kong - have not noticed any requests to adjust rates advertised on our sites - but then we have not received requests to increase rates for some time now

punter 16 yrs ago

Shoe Girl, your landlord must be a mind reader! I would call his bluff though if I were you, but dcnoble's advice is very sensible.

elsdon 16 yrs ago

I've noticed though that you do lack Kowloon representation. Is this deliberate or just due to the fact that most expats prefer living in the staple 'expat' areas?

DaHKGKid 16 yrs ago

Shoe Girl, your landlord is not unlike the dreamers that exist in HK 24/7. If you are in a small flat moving is a pc of cake. Just get it done as the savings even on a lower rental property is significant with what is available. If you job seems secure to the landlord as well you a great catch.

You can even hire Man With A Van as he does small moves. My move costs were 15K but I saved that the first month and for some reason based on my previous moves, moving all the utilities and address redirection was very easy this time.

Has Custom Service picked up in this town???

If you don't do it, it's like burning money!

Shoe Girl 16 yrs ago

My flat is just over 500 sq ft gross, in West Mid Levels and he now wants $15,000. It's in an old building, the bathroom and kitchen have never been renovated from when it was built, hasn't been painted in the 7 years I've been there, wallpaper is peeling, so not in a very good condition.

AYM 16 yrs ago

Shoe Girl,

What your landlord is asking now is definitely too much. Rent has started to come down as well. I would not even just call the current condition a property price correction but a property price crash. Real estate companies' websites may not reflect this yet. Some people may disagree with this but we will be able to verify this in a few months' time.

Just look at the current economic condition here locally, many more businesses (e.g. retail stores, restaurants, travel agencies) are expected to go out of business before March 2009. Higher umemployment rate is on the way.

Shoe Girl, I think you have all the bargaining chips in your hand now. Good luck!

performershk 16 yrs ago

spoke to my agent in Ap Lei Chau 2 days ago, she sold a place last year in Sth Horizons for 4 mill and re-sold it least week for 2.9 mill.

qpzmgh 16 yrs ago

No Loyd sounds like someone who has chosen to sell their property at market price. the big red pens at the estate agents are showing prices now 30% off.

Unfortunately for home owners this is just the beginning.

qpzmgh 16 yrs ago

maybe desperate - but more likely sensible i think.

evildeeds 16 yrs ago

Why selling. Quite simple really. HK is full of people with property portfolios which they've been building up and a lot of those people are speculators. They're heavily into new properties which they have bought at inflated prices hoping to sell on but now they are caught up. Those new properties aren't selling so they have to offload some of what they have as quickly as possible to prevent getting dragged down by the mortgages on the new properties.

Even those with new properties on hand are beginning to tremble and they'll start coming back on the market soon at some huge losses for some as they have no choice but to offload. So for these people the housing market is like the stock market, they stand to lose all unless they offload. Which is why we are seeing 30+% off of some prices with more to come.

evildeeds 16 yrs ago

LGMV - agreed not all landlords do fit into that category. But we're not really talking landlords we're talking speculators who've overloaded themselves. As we know there was some downwards movement in the market before the financial meltdown which they weathered with little problem. The speed with which bank after bank crashed and the stock markets followed took them all by surprise and gave them no time to react. Not much we can all do but wait and see, my agent is literally giving me a daily report at the moment!

ltxhk 16 yrs ago

Yes, many will offload because they are investors (or some might say speculators). Most believe the attainable price in the short-medium term is only down, and so if they don't want to hold through the storm or most likely can't afford to, they will sell now hoping to get only a 20% off rather than the coming 40% off. More downward pressure will be the outcome, and regardless of how many sellers the property value is considerably less.

For occuppied home-owners, it is not likely they will sell unless personal situation changes dramatically and they have no choice. However, the HK property market is filled with thousands of investors/ speculators who do not make decisions based on having to rent in the interim.

desnesda 16 yrs ago

I have a fairly cheap rent and my landlord is asking for a price increase to adjust the price to a more normal level from 1st Jan otherwise we can leave 1st March. The landlords are open to let us leave now if need be.

Do you think it is worth waiting till jan-feb to move or should we try to lock-in a contract now (we have seen suitable flats)?

thanks

DaHKGKid 16 yrs ago

desnesda, don't commit to anything until you have to plain and simple. Put as much time and space between you and your landlord. They will come knocking on no increase if already cheap OR must reduce. Time is on your side right now as only more bad news is coming.

desnesda 16 yrs ago

If we stay with our landlord, they want to increase the price and start a new contract (12months locked in); we need to tell them now (2-month before end of first year of lease) whether we want to stay or walk away (1st of March or earlier).

Now I am wondering how low can it go? Was anyone here in 2003 ?

dave_lister 16 yrs ago

I don't have any doubt the prices and rents will come down substantially. Even if most landlords, speculators and people who actually live in the flats they own don't sell, at least some of them will and since NOBODY is buying at current levels they will have to drop. Examples of people who will sell:

1. speculators who bought 3-5 years ago and prefer to lock in at least some profit (which they would still get even at prices 30% lower than current prices) rather than risk losing all profit if the prices dropped lower.

2. Landlords having trouble renting (more on this later).

3. People leaving HK who don't want the hassle of managing a property from abroad.

4. People selling property because they need to move somewhere else for various reasons, those selling property of deceased relatives ...

5. People selling property to invest in oversold equities.

I believe these people will be willing to sell at prices well below current levels.

Rent will also drop as:

1. Expats leave HK as they lose their jobs.

2. Single people with their own flats double up with roommates to save money or move back in with their parents.

3. Young couples delay getting married due to bad times.

4. Retirees head for cheaper places (China for locals, Thailand or Philippines for expats) after having their portfolios hammered.

I don't think the mid price places $6-15,000 per month will benefit from people leaving the luxury market as people will also be leaving the mid price market for the very cheap places (or getting roommates).

88888 16 yrs ago

Owners and renters... From my experience......If you are seriously going to move use this local company for any removals.. 91770074

I moved from Ap Lei Chau to Wan Chai - my own renovated apartment and the service was supreme....... Man with a Van is outrageously expensive !!

punter 16 yrs ago

There was one desperate seller yesterday. He sold his 150M home for 76M.

kirby 16 yrs ago

We are just coming up on the expiry of our two year lease in Tung Chung (Nov)- The landlord initially indicated the increase would be 47% - now is hovering around a 20% increase. Landlord has indicated a willingness to go month to month for up to 3 months (at increase) while we make a decision. What do you all think? Is the 20% fair? or should it be lower? We certainly dont object to moving but what I find the most frustrating is locating the rentals within a given development. i.e. Harbour Green in Kowloon. Centaline has some lisitngs, century 21 different flats within the same building - is there anywhere that you can find a comprehensive rental listing for an entire development? or do you just go from agent to agent in hopes that you find all of the units that are available?

Any advice would be appreciated

qpzmgh 16 yrs ago

as i said many many months ago keep you eye out for those laundrettes on Robinson Road they'll be popping up left right and centre.

ltxhk 16 yrs ago

Loyd.... without you this thread would be far less entertaining.

OP asked if there would be a property correction. This is no longer speculation of whether it will occur but now a definite fact. One can debate the # of transactions, but the reality is if you decide to/ need to sell now....... the price will be less than 6 months ago.

Yes, we know that you won't sell.... actually we are not selling our flat either; we like living there. BUT we did sell properties in April that had been purchased in post SARS, and we sold a property in early 97 for the same reason..... investment gain had been realized, and we felt the odds were against further gain for some time.

One of the properties sold in April is on the market again...... purchaser was actually an end-user..... and asking is 27% off the April purchase price. Not super high-end, just your HK strong middle class area around TKS. Someone will purchase the unit, most likely for 35% off the April 08 price, and this will help set the new benchmark.

punter 16 yrs ago

Prices have definitely gone down, my agent told me so. I am waiting for about 40% more decline before purchasing. I've set my buying level for a 4M (2008 peak) property at a little over 2M sometime before the end of 2009 if it does reach that level. If not, I'll remain a renter.

Neo Dog 16 yrs ago

I too am waiting for prices to fall before buying as end user. A colleague suggested today that I go out and collect the flyers currently available at property agents, compare them in three months time to those listed post CNY, and then smile smugly for not paying 2008 prices. Childish perhaps, but the idea itself has merit and certainly i am in no rush to spend what little cash I have (so why the hell am I still paying off some one else's mortgage?).

On a more serious note, I think there may be some truth to LGMV's point about agent's red pen tactic, and would suggest viewing with some scepticism. However, I've been flat hunting in the Tin Hau / North Point area during October and have seen asking prices in one particular location that I like fall from $4.6m down to $3.5m. $1.1m may be peanuts to you big boys but not for peasants like me, and the 24% reduction even before serious negotiation is certainly as catching as a hook in the eye ... ok, bad analogy.

Still going to wait until CNY though, and go collect some flyers in the mean time;-)

twomoewyears 16 yrs ago

If the demand goes down (people want less) or the supply goes up (suppliers have more of something) then the price will go down. This happens because the suppliers would rather lower the price than have many unsold items. Usually there are multiple suppliers of the same item. The buyers will buy more from the supplier with the lowest price. The suppliers will lower the price so people will buy from them instead of from another supplier.

So the prices sellers (they do want to sell don't they? Else why do they advertise their property for sale?) are asking for high than the true market price.

Obviously they don't want to sell at too low a price, but unless they lower their asking price to the true market price they won't sell and the true market price will fall further and they will be in a worse position than now (my opinion.)

Sorry if this is obvious, but how does LGiMV respond?

twomoewyears 16 yrs ago

Don't laugh! but my user name should be twomoreyears. Can't be bothered to re-register. Can you even have two user names registered using one email address? No need to answer.............

nicnic 16 yrs ago

It's rare to see so much good logic in all the above postings. Now has anyone's opinion changed now that the Hang Seng has rallied 30% in the last 3 days? Maybe all those jobs won't be lost, couples can have the confidence to get married again and folks won't flog their flats to invest in equities cos they missed the bottom.

MilkMonster Laughs 16 yrs ago

desnesda - we negotiated our rent during 2003 sars $7000 for a 750sqft flat in a chinese walk up in midlevels. Before the crash, the going rate for something similar was $20-25K. I wouldn't pay or agree to an increase in rent.

twomoewyears 16 yrs ago

So we are back to the levels of 2 weeks ago and just need another 120% to get back to last years levels LOL.

twomoewyears 16 yrs ago

The difference between shares and property apart from the time it takes to liquify them is that shares have a clear market price (please check your SCMP for more details.)

Property on the other hand only reveals its market price when a transaction occurs.

When sellers live in cloud cuckooland and thet think that by holding firm they can still get their 'dream' price, their property remains on the market. Asking prices are just that - what the sellers are asking.

So sellers, hold your nerve for those high prices.

And dream on!

kiwimoa 16 yrs ago

Anyone got any idea if banks will still continue 95% mortgages (HKMC or second mortgage) and if it will be more difficult to obtain a mortgage? I've emailed my local bank manager, but still no reply....

As for the property values, I'm out in Tung Chung. Prices out here have dropped to what they were 18 months ago and up to 30% down on the recent price tags...

onemorething 16 yrs ago

Loyd> You are so in denial! Why do you think these "panic sellers" are prepared to sell at "depressed" prices? It is the collective economic reality of the overstretched HK households!

HONGKONGEXPAT 16 yrs ago

kiwimoa, just to let you know about 2 days ago in the SCMP HSBC advised all property above bank valuation of HKD20 million will only get 70% financing. They also indicated but did not formally state that anything with bank valuation below HKD 20 million will only get 80% financing, but generally they would also like to keep it at 70%.

Furthermore, close friend sold an apartment back in August, buyer wanted a long settlement period, now HSBC is advising that the valuation is only 70% of what they valued it in August, so buyer is thinking to either walk and leave the security deposit or try to get financing elsewhere. Plus HSBC will not lend 95% only 70% of this new valuation price, as they aren't comfortable with the buyers place of employment. Banks are doing case by case checks in great detail.

Anyway as the banks are covering themselves, they will keep lowering the bank valuation, as they are already forecasting seriously lower prices. I guess most buyers would need at least 30% but in probability about 40-45% in view of the banks taking greatly reduced values into account, which in all likelihood will be the actual market value in the next 3-6 months.

Hope this helps!

sammy13 16 yrs ago

can't agree more onemorething.

I've been reading this thread with interest and thre is defintely a very delusional propoerty owner here trying to dispute with the rest.

i do admire the perseverance so best of luck Loyd but this is getting boring.

onemorething 16 yrs ago

As with any sinking asset class. The first ones out have the smallest loss.

HONGKONGEXPAT> You hit the nail on the head. A lot of potential buyers soon won't be able to buy any longer, simply because they fail to get the desired mortgage. Reasons may include: cautious banks, job insecurity, or no cash for downpayments (locked up in other declining assets such as shares). I do not rule out that interest rates may start rising significantly in two years as well, if double-digit inflation takes off. That usually is the nail in the coffin for property. It may not come that far. The growing group of panicked sellers will start chasing the few buyers left in the market, cascading the fall in property prices.

kiwimoa 16 yrs ago

I am aware that most banks will only lend up to 70% of the banks valuation of the property for purchase, but the question is will the HKMC continue to insure and therefore allow a higher % mortgage?

I wasnt here durring SARs or the Asian financial crisis, did banks freeze credit then?

If so, how long after the recovery did banks again free up credit? As I understand it at one stage banks in HK were giving up to 100% mortgages after SARs.

twomoewyears 16 yrs ago

LGiMV I really think you are losing it now!

>Okay, so I suppose I panic sell now based on the sole reason posted by most >people here that that the only way for property prices is down. What am I going >to do with any cash that I make, if any? Stock market? Time deposit? Mattress?

I wish had a few million that I didn't need for the next 5 years. I would certainly buy shares. They are bound to go up in that period (they are cheap.) Why would I want to keep property if the market is down. Maybe in 5 years the prices will be the same as they are now. But that's about all you can hope for. Term despoit? A nice steady income. Under the mattress? Well unless someone grabs it, it's a much better looking asset class than property LOL.

>Not only do I get a bad price, I also lose rent and my Prime minus 2.9% >mortgage. I also get scr*wed if the market moves against me in the next couple >of years.

Who cares about a few percent saved in loans when your investment is crashing down?

>Most people will hold, property agencies will see zero transactions; you renters >will be short and caught in 6 months time. That's the common sense strategy.

Yes, common sense. Common sense says buy when the prices are going up (they are certain to continue) and sell when the prices fall (they may fall forever!) I believe that to make money you need to go against common sense. When everyone else is buying you better get ready to sell and when everyone is selling you better get ready to buy. Example. During SARS people were scared right off property. Looking at the graphs - that was the best time to buy!

dabbagmm 16 yrs ago

Jasja: Thank you for sharing your experience and observation. Indeed very interesting!!

I have been considering rental for the past three weeks and I have seen properties (original ask range 50-65K) slashed by 20%. I have been experiencing landlords reluctant to rejecting a deal and dream about having back the following week.

I'm currently staying at a serviced apartment and can extend my stay for another month where I will defiantly get a better deal, but frankly I'm not of the habit of waiting for the bottom. Also, I need to get settled and go on with my life.

twomoewyears 16 yrs ago

Frankly, I don't see the point of paying 65k a month (1.5mil) to live in a 'nice place' when you can save most of that, live in a standard flat for two years and buy a house with a garden in Australia. That house would be much better than the HK flat and it's be yours for keeps!

I guess we live in parallel universes when it comes to money. But sometimes I wonder how easily big money can disappear into the ether.

(I retired at 36 after working as a teacher [:)] )

dabbagmm 16 yrs ago

I cant disagree with you... I say the same thing when I look at rentals of 150K a month!! I guess it's all relative. This can apply to all sort of consumer spending from clothing, dining to travel and it covers all aspect of life. Why travel first class? Why buy Aramani not Next or BHS?!

twomoewyears 16 yrs ago

And those 100k+ flats are actually that that special!!!!!!!!!!

I get the feeling that a lot of people on big money save very little and have probably just 'lost' half of their savings in the recent stockmarket down turn.

I spent my first year in HK living housesitting someones 1960s public housing flat and slowly moved up to a $6k/mth village house with a stunning sea view. That was luxury living for me! It's all relative.

Salary, rent, car, clothes. It's all pretty meaningless to me. How much cash will you take with you when you leave HK? I walked away with more than I earned through a combination of forex transaction, interest payments and one no-brainer property transaction. Not many people could do what I did, but they cab do much better if they just start to think about how much cash you throw away each month.

But also, you have to draw the line at some stage and say I've got enough I'm going to semi-retire and enjoy life. Again not many people can do that. My salary was certainly in the bottom 25% of expats, yet I got out at 36.

Trying to get back to the thread topic, it's people who are too greedy who don't profit take who end up in the bad positions that most HK investers find themselves in now.

punter 16 yrs ago

I think that most renters paying exorbitant rates are those using company rental allowance. They don't care how much the rate is because it's not their money anyways. (Please correct me if i'm wrong). It doesn't make sense to part with money that huge on a regular basis if it's out of your sweat and tears.

onemorething 16 yrs ago

"I wish had a few million that I didn't need for the next 5 years. I would certainly buy shares. They are bound to go up in that period (they are cheap.) Why would I want to keep property if the market is down. Maybe in 5 years the prices will be the same as they are now. But that's about all you can hope for."

Twomoewyears> What makes you think shares will be up in 5 years? By what measure do you think they are cheap? It seems you suffer from the same cognitive dissonance that you accuse Loyd of! :-)

Neo Dog 16 yrs ago

The low transaction volume has probably less to do with the no. of sellers and likely to be more indicative of buyers holding off for a lower price point.

boobert 16 yrs ago

Look, you don't need a high volume of transcations to set a market price. Just like in the stock market, if a price of a stock begins to fall on tiny volume it doesn't lessen the impact, it simply means there are no buyers. The stock price will keep on falling until someone is willing to buy at the distressed lower levels.

punter 16 yrs ago

Number of transactions = number of flats sold.

Are we on the same page here LG? If there are more properties for sale and there are no buyers, prices will come down, yes?

If you're a buyer (like me) looking for a flat for own use, are you going to buy now? If you think prices are low enough, then yes. If you think (as I do) that prices are still going down, then the prudent thing to do is to wait, isn't it? In the meantime, volume of flats for sale goes up and number of transactions goes down.

Now if you're a property owner sitting on prime - 2.9 mortgage, why would you sell? No need to sell if you don't need the cash, just ride out the storm. That's reasonable too. For how many homeowners are willing to sell their flats, go to a hotel or serviced apartment and then bet on the prices to come down and buyin again later? Not very many I guess.

If you're an investor (maybe with 2 to 5 to 10 investment properties currently rented out) then you can also bet on falling prices by selling now and buying in in maybe 6 months to 12 months time. It sounds pretty logical to me. When that happens, prices are going to really fall. It's like short selling stocks, isn't it?

lucybrown 16 yrs ago

Increasing job insecurity from job cuts or pay/benefit cuts will put more downward pressure on housing prices at all levels. I believe even those buyers who are waiting for property prices to drop into next year will soon have second thoughts about buying as they start hearing more about the domino effects the decreased consumer spending, corporate earnings, and investments may have on their jobs. Even teachers and police will start to feel insecure as they start to hear about decreased tax revenues. As boobert indicates, the low number of transactions is more indicative of there being no buyers as opposed to there being no sellers. The simple fact that listings exist means there are more sellers than buyers. People who rent will clearly benefit because sellers who refuse to sell will still want to rent out their property at any price rather than to keep it sitting empty.

On a separate note, does anyone have any information about the fan-like building under construction in Repulse Bay?? The reason I ask is I remember when I came to HK in 2001, there was this big hole next to 127 Repulse Bay. Considering how quickly a building can go up in HK, I was shocked to see it still being unfinished. I know there were some scandals involved which delayed construction, but in the last few weeks, it appears that the construction is being ramped up. Is it going to be a hotel? Service apartment? For sale? Too bad they missed the 2006-2007 boom. Just curious. Thanks.

twomoewyears 16 yrs ago

That's the same as all investments. The markets will rebound eventually. But much BETTER to sell before they fall too much and then buy when they are down. How can you not see that simple logic?

twomoewyears 16 yrs ago

Onemorething.

It's called cycles and just about everyone know that if you wait long enough the markets will turn.

Why the rude comment? Upset because you can't control your spending habits and/or you've been hit hard by the stock market crash or the property slump.

onemorething 16 yrs ago

"It's called cycles and just about everyone know that if you wait long enough the markets will turn."

twoemoewyears> Here is a picture of a 20 year cycle for you:

http://4.bp.blogspot.com/_nSTO-vZpSgc/SQAN5Sk414I/AAAAAAAADm0/q8J0vQd_9CA/s1600-h/%24nikk-monthly.png

This is what deflation does to asset prices and the economy. That is why I am asking what is your definition of "cheap"? If you believe shares will recover, so will property and v.v.

"Why the rude comment? Upset because you can't control your spending habits and/or you've been hit hard by the stock market crash or the property slump."

twomoewyears> Which part of my post did you consider rude? May I kindly remind you one of us got almost banned for a rude comment... and it wasn't me! But I am used to abuse for telling the truth. I am not stopping anybody from buying or selling shares. If a person believes shares are cheap and will yield a high profit in 5 years, by all means do invest now! Same goes for property.

Ed 16 yrs ago

Just back from meeting with my account manager re: property issues.

She estimates the property market is down about 20% overall based on transactions they are seeing...

Many clients with cash have been coming in checking on the credit situation - they are holding cash and waiting for a big drop and plan to step in but want to make sure they can obtain financing - seems as long as one has a good credit history and reliable income there will be no problem obtaining a mortgage.

Ed 16 yrs ago

LG > Just because one does not bail out does not mean one's property is still worth top of the market.

The market is made by what people are paying for properties - and from what the bank is saying that would be 20% off peak prices.

If you paid 5M for a property 12 months ago it is worth approximately 4M now - just because you are not putting it on the market for at the going price does not mean it is still worth 5M.

It is worth the going market value and that is, at the moment, 4M...

You might decide not to bail out and wait for a recovery... and yes in say 5 years the property might recover to its 5M value.

But in the meantime it is not worth 5M - it is worth market value.

Ed 16 yrs ago

LG > how long has it been since the financial crisis truly started? The bail out package is not even two months old...

During the Asian financial crisis, property prices did not fall off a cliff immediately - it happened over the course of about a year...

sghkcn 16 yrs ago

Loyd, let's not waste any more time. I reckon you're just having fun on this thread and deliberately going contrarian when you know you've bet in the wrong direction.

But prove me wrong, have a wager with me that when this whole thing is over, this property crash will, peak to trough, be less worse than the 1997 crash, peak to trough. HK$10,000 to you if you're right. HK$10,000 to me if you're wrong. Game? Ed can be the independent witness and stakeholder.

Put your money where your mouth is.

twomoewyears 16 yrs ago

Ed. Your post 8 hours ago (4 posts up) was probably the best and clearest reply to LG, yet.

Onemorething. OK I overreacted somewhat!

twomoewyears 16 yrs ago

One more thing Onemorething. HK and Japan are very different markets. That isn't going to happen in HK IMHO.

Also, property has a long way to go in a downward direction. Shares are near the bottom (i believe.) But as you so modestly put it, what you say is 'the truth' and by definition I must be wrong (about everything!)

punter 16 yrs ago

Donald Tsang also is predicting a Hong Kong recession in 2009 where a lot of jobs will be lost. What effect would that have on the property market?

onemorething 16 yrs ago

"One more thing Onemorething. HK and Japan are very different markets. That isn't going to happen in HK IMHO.

Also, property has a long way to go in a downward direction. Shares are near the bottom (i believe.) But as you so modestly put it, what you say is 'the truth' and by definition I must be wrong (about everything!)""

onemoewthing> I appreciate your earlier comment. I think there are more similarities between Japan and the world economy than people realise or are willing to accept. If the world ends up in a liquidity trap in a deflationary environment, that will be hugely negative for both shares and real estate. I am merely pointing out what risk we are facing. The fact is that we are in a deflationary environment and the fact is that the Japanese markets and economy still have not recovered from it. That is the "truth". You might be right about the bottom in equity markets, I just believe shares still look very expensive.

Loyd> 3 month Libor is still a meaningless number. It is artificially pushed down by the Fed to get the markets started in vain. All the Fed has achieved is that overnight interest rates undershoot Fed Tartget due to excessive liquidity that nobody wants. The Fed has lost control over any interest rate policy they pretend to be in charge of.

miamia95 16 yrs ago

Hi

I am staying in Coral Court, North Point. Area : approx 1360 sq ft. My lease is expiring in Nov and the landlord is asking for a $3-$6k increase on the rental. I am currently paying $29k.

Also the building is scheduled to have renovation coming end month.

Anyone knows what is the currentl rental for that area?

punter 16 yrs ago

Mia, you better get the feel of the market yourself by visiting your property agent. You might be surprised by deals they can offer you. Internet postings are not always accurate and not always updated so you can't rely on them.

onemorething 16 yrs ago

miamia95> I sometimes use transaction history as a reference:

http://www.centadata.com/eptest.aspx?type=2&code=SBEPBPPOPE&info=&page=0

FWIW $30k for what might be a very similar flat on 1 October. Market should be lower since then.

miamia95 16 yrs ago

Thanks for the advice. Was reading some of the threads here and was surprised that you can negotiate for 6 + 2 , 7 +2 , etc lease? I thought the fixed lease has to be at least a year.

Could someone clarify this, please?

Thanks

punter 16 yrs ago

A lease is a contract. You can put anything there as long as both parties agree including the length of the lease. If the landlord wants to retain you badly as tenant for example, he might just throw in the 2 months free. Of course this kind of thing happens in the kind of market environment we are in now.

elsdon 16 yrs ago

What does 6+2 and 7+2 mean? Like.. 6 months locked in, and 2 months month by month? Or..

onemorething 16 yrs ago

6 + 2 = 6 months lock in with 2 month notice thereafter. Most common tenancy agreement is 2 year contract with 12 + 2.

qpzmgh 16 yrs ago

Some quite horrific figures in the SCMP & Standard this morning. No good news there whatsoever. Some prices down 16% in the last month. We're down over 30% year to date (from the peak in February) and i think we could be down 40% plus by the end of the year.

punter 16 yrs ago

Stocks are up.

I'm quite interested to see whether the "pattern" of a big drop, then recovery, then a bigger drop will happen.

The 2nd pattern is in Hong Kong's Stock Market and Property Market relationship. When the Stock Market collapses, property market will fall within 1 to 2 years.

punter 16 yrs ago

LG, it's historical pattern. It doesn't have to be like that but as they say, history repeats itself.

88888 16 yrs ago

PLS Loyd Grossman is Miss Venezuela ... take a break from this thread and let the it get back to reality.. you are sounding like a broken record and enough is enough of your dribble. It appears to consume you everyday !!

DaHKGKid 16 yrs ago

[opened]

Hong Kong Real Estate: Biggest Home Sales Drop Since 1999

* Hong Kong's home sales fell 58% y/y in volume and 63% in price in October as local lenders tightened mortgage lending amid a slowdown in the economy - this is the largest drop since 1999 and the fourth consecutive monthly decline. Bank lending rose 13% in September, the slowest in over a year, and almost half the 24% increase in August. Office rents in Hong Kong may experience a 20% drop by the end of 2009. (Bloomberg)

* Banks have not lowered their prime rates along with the 0.5% cut in the US interest rate and are adopting more conservative mortgage lending policies (loaning less and scrutinizing borrowers more)

* UOBKH: Prices have been sticky downwards as many home-owners have only just

woken up to the fact that the market is heading into a protracted downturn as

opposed to a brief correction. Average prices have only fallen 14% from the peak. The high-end segment is still outperforming and faces more downside risk. homebuyers may be cancelling transactions by forfeiting the deposits and delaying completion date of the transactions.Equity prices remain above their historical lows

* Citi: downward spiral in the Hong Kong property market will continue for the next 12 months - potential pushback in completions and the lack of new land sales by the government will result in further declines in construction activities, leading to rising unemployment in the sector, and deal a further blow to the economy (through other industries like property agency, interior decorations, furniture and fittings, consumer electronics) which in turn will adversely affect housing demand.

* Hong Kong's prime office rents surged 33% in the 12 months ended May 2008 (Colliers) but most assume that their growth will slow over the next year

* During the 2nd quarter of 2008, prices fell in several segments of Hong Kong’s property market. Smaller sized apartments were especially hit badly but property prices were strongly up over the year. The overall index rose 25.4% (19.4% in real terms) to end Q2 2008

* Strong consumption growth has been propelling residential and commercial property prices upward while negative real interest rates have been supporting the creation of new development. robust labor market has kept demand for commercial space tight (PREI) But with credit costs rising and slowing economic growth, Hong Kong's property market could be vulnerable

* PREI: total housing transaction value in the second quarter fell by 4.6% from that of a year before

* Decline in global shipping on higher costs/slower demand for raw materials might have negative effect on warehousing demand which has been a driver of retail property demand

* Jones Lasalle: despite slowing consumption growth, leasing costs have been rising. Sales volumes have fallen but so far prices are holding up so far (through mid Q3)

* Hang Seng Bank: Residential property prices were accelerating early in 2008, from 10.1% yoy increase in June 2007 to 27.7% in January 2008. Prices at the luxury end of the market are already back at 1997 levels. Low borrowing cost at 2.5%, high property yields at 4%-5% made property investment more attractive

DaHKGKid 16 yrs ago

Here's the Bloomberg Link

http://www.bloomberg.com/apps/news?pid=20601089&sid=aee.eXslZwkE&refer=china

onemorething 16 yrs ago

I don't think we will be at SARS levels any time soon, if at all. The underlying fundamentals are very different. There is still a lot of cash and wealth in the world that needs to be burnt up and destroyed first before the demand side collapses in the property markets. It may very well happen, but not within the next 12 months is my guess.

Ed 16 yrs ago

Just received this from a major property agency:

The worsening global economic conditions, particularly the recent financial storm on Wall Street, have subdued local market sentiment and dampened investment and leasing demand across all property sectors in Hong Kong.

In view of the rising economic uncertainties, sales activity in the residential market observed a slowdown in 3Q 2008. In October, transaction levels dropped substantially to a very low level.

We are seeing an increase of sales stock being put back on to the market for lease. The potential slowdown in corporate expansion together with the ongoing turbulence in the global financial markets will put pressure on the rentals.

It is inevitable that the leasing market will now be affected.

• Headcounts of large multi-national companies will start to shrink and it is expected that the number of break leases may increase.

• Companies may hold up their expansion plans in Hong Kong, lowering leasing demand and triggering vacancy levels in the luxury residential market to increase.

• The growing number of landlord investors over speculators will drive the rental values downward, leading to downward adjustments in capital values.

• From October 08, some corporate landlords have been more flexible and negotiable on rentals.

• Expecting to see a 5% drop in 4Q 2008.

• Expecting to see a further 20% drop in 2009.

• We will have a clearer picture of the leasing market sentiment early 09 once the current market news settles.

Ed 16 yrs ago

Correction on the drop in rents Q4... from 5% drop should be a 15% drop in rental prices...

punter 16 yrs ago

LG is playing the typical Hong Kong landlord. If he's really who he claims he is (a landlord), then his portfolio of properties must be down substantially in value (marked to market). Then he's just prepping himself up, or as others have mentioned he's still in denial.

punter 16 yrs ago

LG, I understand where you're coming from. Your strategy to ride out the storm is one way to deal with the current environment. I think nobody is dictating on what you should do, right?

But so far, most of us who are betting on a market slowdown and property prices going south have been right.

Maybe when prices are so low, I too will become a landlord. I won't care what people think about landlords!

Todge 16 yrs ago

Loyd:

You may be right, but there's lots of evidence here to suggest that property prices are trending down - can you provide data to back up your claims? What makes you think landlords are as debt free as you repeatedly state? Have you got any numbers on average debt loadings for res property in HK? What percentage of landlords fall into this 'long term investor" category?

The info is stacking up against you - from some pretty credible sources (eg - market analysts). Your case would be helped immensely if you could provide some factual basis to your claims.

qpzmgh 16 yrs ago

I would agree with you Loyd this time only that a decoupling is on the cards but just not right now. This will happen very soon though for sure. But a few more things need to be weeded out of the system in the months ahead.

In the meantime house prices are still heading lower.

qpzmgh 16 yrs ago

Elmer you sound like Loyds twin brother -

Look prices are heading down and have come down any landlord that thinks an 'idiot' is going to pay prices that only existed in the latter part of last year and early this year are kidding themselves. What you're really saying is that the cash rich don't understand that their property is now overvalued. It will ONLY sell at market value !!

These property prices rose on a speculative bubble and now that bubble has popped those prices no longer exist. These landlords can sit on their high over valued property prices all they want, but so what, the price of their asset, i.e. the market value, has dropped. Its pretty simple stuff Elmer !!

Ed 16 yrs ago

Reviewing client reports that come in overnight on Fridays and the clicks to Mortgages on our property listings has plummeted to about 15% of the usual totals....

This would appear to confirm that buyers are sitting on the sidelines waiting for better deals...

punter 16 yrs ago

The situation is really not that clear but many indications point to a bad recession. Even Hong Kong government officials have already commented on this issue many times trying to prepare people of some bad days ahead. These government officials rarely bring bad news so what they know must be compelling for them to come out and sound the alarm.

punter 16 yrs ago

LG, your call that landlords like yourself are holding up and trying to ride the storm is correct. Bears like me would however still wait and see what negative indicators will bring. For example, in today's paper, HSBC might get rid of 600 positions. How many more positions will be shed by other companies? How long will the downturn last? Remember that it's just about 2-3 months old.

Ed 16 yrs ago

This was posted here http://hongkong.asiaxpat.com/forums/living-in-or-moving-to-hong-kong/threads/120744/coping-with-the-crisis/

Keep in mind GM is on the verge of bankruptcy... no doubt many other companies are going to be in serious trouble in the coming months as spending has seized up.

I think that drop in property prices is the least of our worries at this point...

Posted by powderhound (3 hrs ago)

I dont know if anyone has posted on this before but the really BIG problem is credit default swaps and similar derivitives.

This amounts to 670 trillion dollars, 4 times world GDP.

If large companies start to fail then financial institutions that have guaranteed their debt with CDS's will be bought down by the sheer size of the debt. It willl again undermine their capital ratios and the sums are so huge , no goverment will be able to bail them out.

this is the elephant in the room that nobody is talking about, and its waiting out there like the first domino waitng to fall,

Also general commercial paper, i have been told that GM have 90 billion of Commercial paper that will need refinancing within 18 months, who is going to refinance that! at present no bank will touch it. The same thing applies to most large leveraged companies, they can be bought down just by their inability to refinance their current debt. Also in response to the previous post, GM make more money from Credit than they do from cars, they are in truth a finance house

If the rollover of debt failure happens then the CDs will start a domino effect on all our finaincial institutions

The only possible answer to this problem is a complete change in the rules of the game and a rewrite of the banking regulations regading debt ratios and a prinitng of more money, which in turn will fuel inflation.

lucybrown 16 yrs ago

People who jumped into the stock markets before October 2008, believing the markets are cheap, or they can handle a slight downturn, got burned badly. No one wants to make that same mistake with properties. People tend to think about the height of the price as a benchmark for where their investment can go again, but this time it is different. There will not be a credit fueled economic boom again for a very long time. So the smart thing to do is to consider affordability instead of whether something is cheap relative to its price at height. That's a trap you don't want to fall into. Right now, there are still a lot of business and property owners trying to wait out the holidays and the Chinese New Year, hoping that the sentiment will turn in their favor. But once the CNY passes, more business and property owners will start throwing in their towels. This is likely to hit HK quite hard. Buyers should avoid the temptation to transact anytime now and wait until at least the summer of 2009 to start actively looking.

lucybrown 16 yrs ago

From what I understand, the problems with CDSs is overblown and poorly understood (which is why the authorities are not making a big deal about it.) The way it was explained to me was, think of a lottery system. There is one winning lottery ticket that is worth $10 million. As the lottery operator, you sold 100 lottery tickets. Now, as the lottery operator, if your liability $10 million or $1 billion ($10 million times 100 tickets)? Obviously, it is $10 million. The journalists who are writing about this issue do not clearly understand and hence the misleading information. There is no elephant in the room in respect to the CDSs. Yes, it is a problem for the company insured, because if the spread widens, it's cost can skyrocket. But the "670 trillion dollars, 4 times world GDP" figure is meaningless and misleading. Just like the lottery operator's liability is not $1 billion.

onemorething 16 yrs ago

The CDS number is off by a factor 10. It is estimated to be USD 67 trillion by some. $55 billion is the most recent "official" estimate.

The problem is not its size, but the way it is one big spaghetti of counterparty risk. One counterparty failure may set off a chain of falling dominos... exponentially!

qpzmgh 16 yrs ago

the elephant in the room is the USD itself and treasury bills. US$67 trillion will be pocket change by the time this all plays out.

qpzmgh 16 yrs ago

Unfortunately that doesn't work. Zimbabwe has the most number of impoverished billionaires in the World. Debts are wiped out but unfortunately you will not be able afford to buy anything as your purchasing power crumbles so you will be poorer than when you had the debt.

Anyway we're getting slightly off tangent here.

onemorething 16 yrs ago

Property and shares are the two asset classes that suffer most in an inflationary environment. Inflation is not the solution to the problem (of excessive credit). The US has huge pension liabilities and medical benefit programmes that would bankrupt the US if they let inflation go unchecked. Besides we are in a deflationary environment right now. The risk is getting stuck in a liquidity trap where money comes for free (zero percent interest) and is abundant, but fails to ignite economic activity, i.e. Japan's lost decade.

Ed 16 yrs ago

Re: drop off in property for sale listings on our site... it has been suggested that this is because owners are not putting their properties on the market and will ride this out.... it just occurred to me that the drop could be related to agents not wanting to waste their time posting properties for sale when there is no interest from buyers....

Many buyers seem to be sitting on their cash waiting for a crash in the market.

What are the risks of holding HKD waiting for this crash?

punter 16 yrs ago

There are no deals because the owners think that value of their properties are higher while buyers think otherwise. Who can wait longer and win and who knows? Let's wait it out. In the meantime it's the agents who are losing out (e.g. report on Ricacorps 30% reduction in staff and branches).

Ed 16 yrs ago

LG > again, just because an owner is holding on his price does not mean a property is worth what he is asking.... as earlier indicated my banker says property values (based on the actual sale prices not valuations) are down 20% on average depending on the type and location of the property.

Recall HSBC head of Asia stated that the hit on property will be worse than in 98....

onemorething 16 yrs ago

Loyd> Inflation strictly is monetary expansion. Price inflation is often a result of monetary inflation. In an inflationary environment interest rates go up, which kills mortgage payers and therefore the housing market. Inflation also kills corporate profits, which makes shares unattractive. Eventually both are likely to catch up, but usually after the (price) inflation has been tamed. History has showed us this mechanism many times. Property and shares are NOT an inflation hedge.

onemorething 16 yrs ago

Loyd> Yes you are right about vegetables and fish balls: agricultural commodities and gold will do very well in an inflationary environment. But who cares... we are in a deflationary cycle right now.

It is funny to note that valuation would be considered "irrelevant" if it is not "backed by turnover". The very same attitude is what keeps banks from recognising the extent of their real problems and losses. It is called "level 2" and "level 3" accounting. It will keep banks posting losses for many years to come. It perpetuates the problem of chronic distrust of banks by investors.

punter 16 yrs ago

I commend LG for his optimism in Hong Kong's property market but I think that all arguments regarding this thread have been presented. It certainly helped me in my decision making. Now, only history will tell who will have bragging rights maybe 4 or 5 months from now, at least? (that's the first 6 months of the financial downturn).

onemorething 16 yrs ago

Loyd> There were recently some threads on gold. One about the merits and demerits of gold. Another about how to buy gold. The easiest way to get exposure to hard and soft commodities is through Exchange Traded Funds (ETFs).

Personally I would never consider property as an investment. Just a place to live in for my family. A valid reason to invest in property is rental yield. Neither would I invest in gold. Gold to me is an insurance against inflation or implosion of the financial system. Not to say that both can be used to speculate and a lot of money can be made or lost. Property and gold behave very differently and I guess gold tends to be the more volatile one.

Ed 16 yrs ago

Let's please not attack people for their opinions... feel free to disagree but at the end of the day we are all friends here.

And btw - 40% of our audience are holding HK passports - we are site for professionals, executives .... and expats...

Peter Pan 16 yrs ago

Is definitely a correction of the property market, but more on the luxury resi rather than on mass. If you look back at the property index since 1992, the mass resi market is still below 1997 level and hasn't really moved in the last 10 years. Only the luxury market has shot up in recent years so what we’re seeing is just a consolidation.

Obviously with the shock from the financial crisis there bound to be some adjustment in the mass market but that just temporary (my guess is it’ll probably last until Q3 2009). Think about it with interest rate coming down and tight supply and not to the mention the falling stock market, the focus and money shift will certainly going to be in the resi market. At the moment only cash buyers are buying, not because people don’t want to buy but because of the tight lending by banks. Things going to change once the banks start lending again. Banks also need to make a living and to that they need to lend.

Buying time is between now and late 2009.

Ed 16 yrs ago

Actually there is no problem with getting a mortgage - I met with my bank last week and they said there would be absolutely no problem with obtaining financing.

My account manager indicated that she has had loads of similar enquiries from people who are waiting to buy only when the market comes down further.

So it is not lack of financing that is seizing up the HK market - it is the fact that we are going into a massive recession - combined with statements like that from the head of HSBC Asia who indicates he anticipates the market will quite likely breach levels experienced during the Asian financial crisis.

evildeeds 16 yrs ago

"Ha, ha. But the mass market is not coming down further."

That one single statement has to be the most uninformed tosh in this whole thread. Go to the New Territories, look around. Prices in the mass market are tumbling. The island is but a small blip on the radar, go to where the real market is.

Ed 16 yrs ago

LG > again, we are only a couple of months into this...

Unlike shares which can generally be unloaded very quickly with a phone call or click of a mouse and can plunge on a dime on bad news.... property, because it cannot be unloaded quickly, generally follows the stock market but with some lag...

Perhaps someone can find a graph that shows how the property market historically follows the stock market?

All due respect LG but I visit dozens of news sources every morning and I have various tv news (particularly the biz new channels) running in the background most the day and evenings and I cannot recall one analyst claiming that the Hong Kong property market is not in for some pain...

As noted above, the head of The Bank in Asia is calling for a major downturn in property in the new year

Neo Dog 16 yrs ago

I would argue that transactions are low because potential buyers are worried about paying too much in a market where property prices are falling, and are expected to continue falling by the property analysts. There are also concerns that bank valuations will also fall, potentially leading to negative equity if mortgages were to be arranged today based on current pricing.

Neo Dog 16 yrs ago

I’ve also come across some IB property analyst reports recently projecting the property market downturn to continue to until at least mid-2010, with secondary market prices dropping between 20%-35%, and primary up to 50% on today's prices. Based on this, why buy now and take the risk of overpaying / negative equity?

punter 16 yrs ago

Of course LG's wish is for the property market not to crash as he's going to get hit hard. Reality though is proving him wrong as prices has gone down albeit the number of transactions is low.

Low mortgage rates and high rental rates, so far, has helped cushion the property market's fall. Landlords who receive higher rents than their monthly mortgage will definitely hold on to their properties. However, if lease contracts expire and renters ask for lower rates, this environment favorable to landlords will disappear. This is I think what LG is counting on not to happen. What are the chances of that?

That analysis doesn't include other factors like property investors losing money in the stock market, losing jobs, closing business, etc which a recession will bring.

Neo Dog 16 yrs ago

i think a bit of both actually, muttles. This place in Paterson Street i've been looking at over the past year, the corporate landlord has refused to budge from the asking price of $6m despite units of the same size on higher floors of the same building going for under $5m in the last few months. Not sure whether this is due to pride or self-delusion, but he appears to be foregoing the opportunity to realise profit now and potentially crystallise a loss in the near future, depending on how desperate his company's finances become.

Todge 16 yrs ago

Loyd

Here's a specific example.

According to the HSBC property valuation tool the apartment I've got my eye on was valued at 6.1 mil a few weeks ago, on the weekend (Sunday) it was valued at 5.7. I've just checked again and it's valued at 5.21. I got the feeling that HSBC were playing catchup with the actual market values and the rapid drop is most likely that correction being put in place. However, that property has dropped from 6.1 to 5.21 in terms of bank valuation. Now I know that you will argue that bank valuations are no indicator of property prices, and I'll probably agree. But, they are an indicator of property price trends. Market forces will move faster than banks - both up and down. Bank valuations will often be more conservative than market forces and I don't for one minute think I can buy that property today for 5.21 mil. So, while it's not an accurate indication of specific price, it is a good indication of the trend.

Local property agents (some I've known for almost 7 years) have, likewise, verified that house prices in that estate are dropping. Now you could say that they are acting on self interest to make me buy, buy they have all recommended I wait 6 months at least to see what happened to prices.

So the factual (bank valuation) and anecdotal Property agents) evidence is showing prices on the decline. Not rising, not plateauing - dropping.

As has been stated before - and I'm an example - transaction numbers are low because buyers (me) are waiting to see how much more the market will drop. Is it possible that the market will not drop any further? Sure. Is it probable? Given the current climate and the knock-on effects HK will suffer, no.

Neo Dog 16 yrs ago

Just to continue on my theme of peculiar sellers, a property agent friend recently told me of one seller who had been so insistent achieving a $2m disposal profit that she threatened to reduce my friend's commission $ for $ for any reduction in sales price compared to her asking price. Don't know whether that would be legal, but the story just serves to illustrate how irrational we can all be when money and pride are involved.

selda 16 yrs ago

Fine by me if you want to hold.

But prices will drop further.

The owner of my flat sold it two months ago. So, i am looking for a flat to buy, as i am tired of moving because owners sell. An agent told me that the flat next to mine is now for sale.

I thought "great. Easy removal, i can even do it by myself". The flat is exactly the same size, but the owner is asking for 120,000 more than what my flat was sold for two months ago, as if she refuses to accept that prices are going down, not up. The agent admits that she is delusional. I made an offer, saying that i am prepared to pay 5% less of the price of my flat, which i think it's only fair. She refuses to sell. Fine. She will lose even more by being so stubborn. I don't think she will even be able to rent it, because it needs some repairs, and the current tenant is moving out because she never fixes anything. Bathroom needs fixing, air con units need replacing etc... She is just a greedy, stubborn lady who lives in her fantasy world.

punter 16 yrs ago

Selda, that lady has the right to do what she's doing. HK is a free market after all. Maybe there's something better for you out there. Just don't be sidetracked by the hassle and cost of moving.

evildeeds 16 yrs ago

Transactions are low because people are not buying. It has nothing to do with selling. This is the basis of most property markets. HK is not immune, there's plenty for sale but very few people willing to buy.

onemorething 16 yrs ago

I was going to ask the same question as shuchising. Please define mass market and luxury market?

evildeeds 16 yrs ago

"Also developers don't have so many properties coming up on stream"

Joking, right? Gotta be, we have so many coming up here it's crazy - plus we're beginning to see the speculators drop out of deals on new stuff from earlier this year. The market is awash, however if you are only looking at mid levels then I can understand the sentiment......

punter 16 yrs ago

Personally, I will start actively looking for an own use property about 6 months from now. I'm betting that prices should have gone down by then about 30% from prices today.

The property I'm looking at at West Kowloon is at 3.4M today (about 4M a few months ago according to listings at Centaline and confirmed with my agent). If my projection is correct, I'll save about 1M. If my projection is wrong, I'll buy at whatever price it is by then as long as I have the money. My cash is stashed in HSBC at 1.4% interest per annum.

If people have the same view as me, who in his right mind is willing to buy property today?

mistersmarmy 16 yrs ago

In Discovery Bay, the rental market has dropped around 40% in the last month. Greedy Landlords whose tenants contracts are coming to an end are going to be badly burned when their apartments are lying vacant during the winter. Only realistic landlords who are prepared to compromise will be able to find tenants. Property agents are partly responsible by feeding landlords incorrect information. Just don't get it though. Anyone who has been in HK 5 years+ must have learned by now - don't trust property agents.

Neo Dog 16 yrs ago

... and on the theme of property agents, I am just reading the property section of the SCMP. Seems one of the exec directors of Centaline believed " ... prices will drop 15-20% rom now to the end of the year.". Again, why buy now?

Peter Pan 16 yrs ago

There'll definitely be a drop (may be 20%) but this window of opportunity won't last long probably 3-6 months. Take a look at the Property Price Index on page 2 of the Savills October research report. Here's the link http://www.savills.com.hk/cmsoutput/pdfs/uber_research/pdfs/HK%20SI%2010-2008.pdf

Remember HK people are cash rich and smarter this time round after getting burnt in 1998. Look at the stats in 1998 gearing was 160% and now only 59%. That says it all people are definitely waiting for the next opportunity and this is just round the corner if not already here. This opportunity may even create a rally for mass residential which we haven’t seen in the past 10 years.

Agree?

Peter Pan 16 yrs ago

Another research paper worth reading.

http://www.info.gov.hk/hkma/eng/research/working/pdf/HKMAWP08_15_full.pdf

Is just a correction not a crisis!!

mistersmarmy 16 yrs ago

Why does there appear to be a general concensus that HK people are cash rich? Who do you think lost money in the Hang Seng? People from other countries? Of course not, many peolpe in HK have seen their portfolios slashed and they don't have disposable income to take advantage of the current reductions in market prices. There were only a few savvy / lucky people who didn't see some large losses during the past year.

Peter Pan 16 yrs ago

HK people are better prepared this time round than last crisis. HK has HK$6 trillion on deposit compared to $1.3 in 1997.

Not only location you should consider but also type of property. Try to find one that you can add value to i.e. with a roof or terrace. Properties with roof or terrace are actually under valued and in some cases no value are place on the roof or terrace. Basically you're just paying for the internal area of the property. This will sure change in the future given the limited supply of roof/terrace properties and will sure demand a higher premium in the future.

Peter Pan 16 yrs ago

I would also stay clear from properties that are actually mass market class but packaged by developers as luxury, such as Belchers. Luxury are places like the Peak, South of the Island, Mid-Level etc...

tsuiwah 16 yrs ago

I'm not even close to being a banking analyst, but when I saw the HK$6 trillion deposit figure mentioned in a Standard article a few days ago, I immediately wondered about the change in loans outstanding. My immediate thought is that this HK$6 trillion figure only tells half the story...

Hankt 16 yrs ago

On both mass and luxury market flats you must factor for expats possibly leaving HK. Recent lay offs of approximately 10% of staff by Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Merrill Lynch, Morgan Stanley along with the Bear and Lehman folks on the pavement points to several thousand new vacancies in the next 1-3 months. There are no new jobs for these folks to fill and thus many of them will return to where from ever they came.

As the rental market would normally lag the primary and secondary sales figures due to locked in contractual prices, a high unemployment and repatriation effect could see the rental market decline quite rapidly along with new vacancies.

If vacancies are increasing and rents are dropping, wouldn't this take property investors/landlords out of play for 4-6 months?

onemorething 16 yrs ago

All the expats I know that arrived within the last two year are on expat contracts, which includes paid-for housing. Already the first few have been repatriated. I do not know any expats that are married with a local. I do not know any Chinese expats. So from my perspective this is an omen for the rental and the property market.

The long-term expats I know were here already during and before SARS, so these guys won't leave. They did not push the rents up the last five years, so the fact that they do not repatriate will not stop the drop in rents either.

HONGKONGEXPAT 16 yrs ago

Can only speak from personal experience and have lived here for 15 years. Live in a luxury mid levels development and in the past 10 days 4 bankers in my building have lost they jobs. All foreign expats, (European/Australian/American), leaving in the next 2-3 weeks back to their own countries. No more large expat salaries/packages. I work for myself so this hasn't had such an impact on me, but have found about 40% vacancy in my building in the past 4-6 weeks. Prices down from HKD15,000/square foot to about HKD6,500-7,000/square foot to buy a property (this is with full harbour view) and no takers, just give the owners an offer my agent said and they are more than happy to entertain. Asking rents already 30-40% less in the past 4-6 weeks and no takers. Naturally I'm taking advantage of this and looking to move as soon as my lease is up to a larger apartment with full harbour view for a fraction of the cost and then next year planning to give a price 20-30% lower than today's price to buy the apartment. Not sure if I will get but sure I will get somewhere in between. I do think long term Hong Kong is still a good buy, but you have to think long term if you wish to enter the market!

DaHKGKid 16 yrs ago

Hong Kong Residential Market Bottom? Who wants to call it in terms of drop in % from the Peak say 6 months ago and when the bottom will be?

In terms of purchase I say 40% drop ie. $22m down to $13.2M

In terms of rental I say 40% drop ie. $65K down to $39K/m

When is the bottom, Mid Q3 09!

housed 16 yrs ago

I've been following this thread for some time and just wanted to share my own experience - mainly b/c I think our overall home-buying experience reflected many of the things that are being discussed right now (on both sides of the argument too).

First, we just bought a property - in the Midlevels (Conduit Rd), 1500 sq ft for just over HK$6000 psf. We've been looking for some time now (since around the time this thread started) as we really need the extra space (we just had a baby). Not sure if you would call what we bought a "luxury" or a "mass market" property, but basically we've seen the price go from $10,000 psf (same size/config but a floor up, bought in March), down to what we just paid. (Ours is a low density dvpmt of only 10 floors so annually (in good and bad times), there is only about half a dozen properties that exchange hands in this bldg each year for the past 10 years or so.

Did we pay too much? I don't know. I fully expect home prices to correct further. So why buy now? Well for one, we need the space. Two, we really like this flat and in fact had offered $1.5 million MORE to the seller only 2-3 weeks before (except he rejected it then as he was hanging on for a better price). At that point, we weren't too bothered as we figured we would just keep looking. But then our agent pushed us to offer again (I think he knew something) and with HSI plummetting to the 14,000-level, we agreed but with a much lower offer price and surprise, surprise, he accepted! (Turns out he had initially rejected some higher offers but saw offer prices continuing to drop and so finally gave up his "target" price and accepted. In fact one buyer - whose offer he finally accepted before us - was unable to come thru with the cash (I think our agent said he had probs getting a mortgage) - so in the end, he accepted our second (lower) offer.

Once we renovate our new home (next Feb/Mar), we will look to rent our current home out as we don't want to sell it cheap in the current environment. (We've already paid it off so no mortgage to speak of.) Our agent tells us that we should expect to rent it for about 20% lower than what the going rate is for our bldg right now. Meanwhile, I have a friend whose lease is up and now she is moving to a nicer bldg on Old Peak Road (Hillsborough) where she was able to negotiate her rent down to $20K (from the $32K asking price) for a 900-sq ft flat. A different friend whose husband is on a very generous expat/housing package and lives in Branksome Crest told me that their neighbour is moving out as their lease is up and the landlord wants to raise their rent ($80K plus for 2000 sq ft) around 20% and refuses to budge. She has noticed a number of empty flats in their complex, most likely for the same reason.

Peter Pan 16 yrs ago

Well done i think you've done well in buying and got yourself a bargain.

punter 16 yrs ago

A bargain of course at today's prices. You will know if you really got yourself a bargain at least 6 months from now. If prices of the same type of property same location is not that far, then yes.

Macksy 16 yrs ago

Has this been posted already? - SCMP quoted Merrills as saying property sale prices in HK will drop by 30% between now and 2010. Bring it on I say - I rent and after 2 years my lovely landlord put my rent up 85%. Let's see how that's working for him now.

Landlord 16 yrs ago

To HONGKONGEXPAT:

Can you let us know (or send me a message) where is this place with full harbour view for HK$6,500 p.s.f.?

Thanks!

Cxbaron 16 yrs ago

LGMV - remember that it is always calm before the storm. I agree with Mr. Cynical - Early 1Q is going to be very interesting!

evildeeds 16 yrs ago

Transaction numbers? If there are no buyers what has transaction numbers got to do with it? There are panic sellers, looking at the local agents they have run out of room to advertise. But there are no buyers. Simple. Prices will tank more before you start seeing transaction numbers rise.

Neo Dog 16 yrs ago

Takes two to tango, and the buyers are not coming to the party until the prices fall further and the banks become more willing to lend money. Anecdotal evidence from a friend of a friend (of a friend ad infinitum) that banks are discouraging potential borrowers from taking out a mortgage, suggesting that now not a good time to buy and that they should come back later. Very different from the 1997 Asia financial crisis when banks were lowering mortgage rates to boost demand.

HONGKONGEXPAT 16 yrs ago

Hi Landlord and Walkup- Just to reply to your enquiry, I live in the Convention Plaza Apartments, which is Harbour Road Wan Chai (treated as Central Mid levels for pricing- part of the Grand Hyatt Hotel, assume you know the details).

Yes they are asking as follows:

HKD6 Million for 850 square foot full sea view and central view one bedroom and this is down from August. We had 2 sales for the same apartment at HKD10 million and HKD9.7 million respectively, (please check centaline details) same apartment. This is only asking, which is HKD7058/square foot and agent advises they will agree to HKD6500/square foot. Hence I am saying in the previous post HKD6500-7000/square foot. In addition for the large 3 bedroom/2 bathroom, just under 1,800 sqaure foot full harbour view they are aksing HKD16 million as of last week and willing to entertain offers, I have no interest in such a large place and this is asking at HKD8,800/square foot and they are ready to sell lower agent keeps advising, they would take HKD8,000/square foot today what they will accept within the next month who knows. Same unit was priced at HKD25 million in April this year.

Remember these are all asking prices and it is a luxury development that was fully refurbished only last year and is only 18 years old anyway. Full club facilities, amazing views. It might not be for everyone as it is attached to the Grand Hyatt hotel but it is a luxury development with a great location.

I have no problem to share info. and actually think that the more details on individual experiences the better!

Ed 16 yrs ago

Lloyd - I am not clear on your reasoning with respect to property speculators.

Extending that into the stock market then why would those who bought stocks a year ago not decide similarly to hold them for years and wait for them to return to last year's values instead of selling them?

If one were living in an apartment, I agree, one would likely not sell unless forced to (i.e. loss of job - inability to service the mortgage).

But if one had bought a property last year and they saw it plunging in value why would they keep it - any more than they would keep a stock that they saw plunging on a weekly basis?

xpatwilier 16 yrs ago

Ed,

Although I don't support many of Lloyd's claims, there is a clear difference between stocks and property and that is the liquidity of the two asset classes. Stocks can be bought and sold effortlessly in a few seconds. Properties entails more legal documentation, mortgages, renovation, significant transaction taxes, etc. It does take more effort to sell and then re-buy property later.

Landlord 16 yrs ago

Thanks HKExpat.

Yes I know Convention Plaza.

I think the 850 sq ft for $6M is a good deal but may get cheaper if

landlords get deparate. Btw, what room no. is 850 sq ft? Is it 03 - 05?

Thanks again!

Ed 16 yrs ago

Stocks are definitely easier to unload than a property and that is why the property market never exactly tracks the stock market - instead it lags behind a stock market crash by quite a number of months - but track it does....

HONGKONGEXPAT 16 yrs ago

Hi landlord- It is apartment No. 12, One bedroom, it is marketed as 850 square foot and actually it is exactly 843 sqaure foot, but has the highest ratio of net to gross for one bedroom which gives it about 670 square foot net. For the three bedroom/ 2 bathroom is is No. 19, which is marketed as 1,800 square foot, but it is really 1,772 square foot.

The apartment you mention 03/05 are the two bedroom apartments ranging from 1300-1550 sqaure foot also with harbour view.

I am a serious buyer for the one bedroom and gave a counter to their offer much lower naturally that HKD6 million and silence so far, but I can wait no rush!

Ed 16 yrs ago

My brother was speaking to a client earlier today - they just bought a flat that was asking 23M a few months ago for..... 13M.

Again, just because some people would hold onto that 23M flat does not mean it is worth 23M....

punter 16 yrs ago

Buyers who got the cash certainly have bargains to grab out there! But as LG has been insisting (and rightly so as supported by the low number of transactions), there is no selling rush.

How should one view it?

If you're a buyer/investor and the property you're watching has hit your sweet-spot price level, grab it! If you're an owner and can hold/wait out 2-3 years, then hold. Or if you're an investor who wants to lessen your losses and expecting the market to go further down, get the best price you can get now and re-enter sometime in the future. Each has to make his own decision after all, good or bad.

HONGKONGEXPAT 16 yrs ago

Hi walkup- yes it is Wan Chai, but not treated as such, meaning it is priced at the Midlevels Central level not Wan Chai, this is the building attached to the Grand Hyatt hotel and is priced as the buildings on Conduit/Kennedy road etc. This is not the upcoming area of Wan Chai, (star street/johnston road etc) it is quite different if you know the area. Located on 1 Harbour road. Basically it is the serviced apartments of the Grand Hyatt, like the serviced apartments of the Marriott and Conrad, but you can't buy those. You can buy the convention plaza apartments. The only issue is that a lot of people don't like the feeling of living a hotel style apartment, but the actual price per square foot for the apartments with a view at market high levels is about HKD13-17,000/square foot depending on the condition etc. Now it is much lower and falling, half of this level already. The same can be said for top notch buildings in Central mid levels.

kmagill 16 yrs ago

threads been very quiet today... does (did) everyone work for hsbc?

DaHKGKid 16 yrs ago

Hey, when you are a HKer who has lost 50-60% on the HSI, had to bankrupt your PRD factory and leveraged to the hilt you gotta sell that property and lay low.

I just spoke to my buddy in SING who said the property market has fallen off by 13% for mid market flats and close to 20% for homes and luxury condos.

In this type of market, there is always a seller who needs to dump property. They will be of plenty shortly but again the banks dont know the bottom so lending is tight.

onemorething 16 yrs ago

Another thing that I noticed when looking for a flat to rent: a lot of flats have been for sale for half a year or more. These flats have been vacant for so long that quite a few property owners decided to rent it out instead. This is pushing rents down. It is true that there are more letting listings lately.

cheeky 16 yrs ago

Just out of interest, has anyone reading this thread bought in the last few months and/or managed to get a mortgage for more than 70%?

HKForGood 16 yrs ago

Rents are getting hit. My ex-landlord called 2 weeks ago to consider moving back to her Soho apartment. After spending a considerable amount on renovations, she has now dropped the rent by 25% of what I was paying in June 2008 (and approx 50% less than what she was asking to renew the lease in July).

I have no sympathy for her. I was a great tenant and looked after the unit like it was mine. Greed get the better of these people (where in world do people expect to afford 50-100% rent increases in 2-4 year period). Silly.

Does it sound logical to pay between 1-2million USD for a subpar 1000-1500 sq ft unit ? I think not. Lets get real people.

Prices to keep dropping for at least the next 12 months. Cuts in global interest rates are now immaterial.

evildeeds 16 yrs ago

LGMV, why you do keep talking about the mass market when you have no idea about the mass market apart from the area you live in? The mass market is getting hit, especially in the NT. Remember expats do not keep this market running now! The money from north of the border way eclipses that and they have been dropping out like stones. There's a glut of new property and property being built as well as a few thousand dropped speculator deposits which are beginning to hit the market. For every good landlord / property owner who can ride out the storm there are speculators or the pure greedy mortgaged up to the hilt who have no choice but to let go.

It's funny actually I heard these exact same arguments and predictions at the beginning of SARS. I'm sure we'll hear the same again in the future.

mistersmarmy 16 yrs ago

okay, glad to see that most recent comments have finally come round to facing reality. I just rented a new apartment a couple of weeks ago but wish I could have waited until January as I'm sure rents will go down further. Still, I'm happy I didn't start to rent last summer......

mdap 16 yrs ago

my neighbour recently dropped the price of his house on the Peak by 20% and still no interest, now it is dropped by 25% and a few nibbles. My friend recently had a landlord try to lock in a rent increase of 40% so he immediately terminated the lease only to have the landlord immediately cancel the rent increase! Property is stagnant at best and I expect to see retail come off by 30-50%, commercial to collapse by up to 60-70% and rents to come off by 50%. Expats are fleeing and not being replaced, those staying are taking cuts to salaries and bonuses so are reducing rents accordingly. Luxury cars are flooding back into the market, club memberships are being offered again etc etc. This all points to the same indicators we have seen before .... things are going to get nasty and property will suffer accordingly.

evildeeds 16 yrs ago

LGMV - I did write a long reply earlier but due this site was going through is twice daily connection fart and it lost it all.

Please take your time to visit the NT. There are several new developments all over. I will try and recreate my earlier reply with several examples and the reasons for costing in certain places, the developments available, etc when I have the time.

mistersmarmy 16 yrs ago

yep, what a week. all bad news. nothing good on the horizon. if you've still got a job in 12 months then you can consider yourself a very lucky person.

mistersmarmy 16 yrs ago

ps. sorry to be so negative, especially on a friday........

punter 16 yrs ago

Sad Sack, are you telling LG that his strategy makes no sense?

punter 16 yrs ago

In a recession, a sharp rise usually precedes a great fall. Let's follow the market and see if this again will be proven to be correct.

Ed 16 yrs ago

Well over 300 new apartments for lease went onto the site today - that is definitely a record for us...

Something is happening here - take your pick:

1. People are leaving and vacating flats

2. Previously for sale properties are not selling so owners are putting them up for rent (which will drive down rental prices as they flood the market)

3. More agents are using the site and posting more listings.

Ed 16 yrs ago

Ya that's pretty crazy stuff - I'd like to see half of those go into Direct Owner though ... at $360 a pop I could buy myself a private jet in no time to shuttle to Washington to ask for some bail out coin eh...

I don't imagine Tsang will be cutting spending - HK is still in a strong position with tons of cash reserves and the time to spend that cash is when times are tough.

Here's an idea - as unemployment rises let's maybe use some of the loot to like build a sewage treatment plant that cleans up that sh%tty harbour - that should put a few people to work.

Was in Singapore recently and why cant we have a Clarke Key... imagine sipping wine harbourside gazing at the skyline of this great city!!!

Imagine... The Beatles... ho hum...

onemorething 16 yrs ago

This week for the first time I saw property agents listing properties at sale and rental prices reflecting the change of the economic reality in current environment. Some sellers clearly have moved beyond the "denial phase". I expect the herd to follow over the next two weeks.

Ed 16 yrs ago

Another massive day for new listings for lease... apts for lease are now roughly triple the for sale listings... in the past it was at most 2-1.

qpzmgh 16 yrs ago

this forum seems to becoming more panicky! and yet many people on this forum seemewd to forewarning this mess.

Hankt 16 yrs ago

Transactions have not been low due to the lack of sellers - when supply is greater than demand the transaction volume falls due to lack of buyers. This weekend's property sales figures prove that out. Prices were dropped and flats sold.

SHK to release two new residential buildings this week??? Smoking what?

bing2 16 yrs ago

property prices wont go down much lower than the current price because of demand and supply. buyers think there are a lot of supply but in reality how many units your agent can show you in the area that you like within your budget? i can tell you not many, especially in the core areas. right now there are still a lot of demand for property however people are just adapting the wait and see attitude with the world economy. hk people have a lot of cash and unlike the 97 crisis where a taxi driver could have 3 apartments in his hand with a loan ratio of almost 100 - 120% of his income, as banks were lending money to everyone like what we saw in the US for the last 5 years, coupled with tung chee hwa's policy of providing at least 85,000 units to the market. government is the biggest landlord in hong kong and they had learned their lesson the very hard way! also, prices wont fall anymore because currently most of the seller have much stronger holding power than in 97. they had either paid it out or used only less than 50% of their income. hk people buy news and sentiment, remember that! when there are some good news popping out (which will be inevitable after all the bad news), people will start spending on property again and will drive the prices back up. so if you are waiting for property to crash further, in my opinion you will miss this golden opportunity. buy now till next year as there are many sellers who are panicking and afraid of the gloomy outlook. invest when everyone is fearful - as quoted by the investment guru...mr buffet himself...

punter 16 yrs ago

That's a funny comment bing2, first you said there's not much property on sale, then in the end you tell us to buy now because there are many panicky sellers? Hmm?

What bad news did we have? Lehman bankruptcy, loss of jobs, toxic assets? Do you think there are no more bad news to come? Who knows really?

There's no question that there's a lot of cash deposited in Hong Kong banks (records show). These moneys are just waiting for the right time to buy. That's good for the property market, isn't it? But for market watchers, this is a sign the bottom hasn't been reached yet! A sign that the bottom is reached is when there are so many good deals to be had, but still no buyers.

That's what "buy when people are fearful" means.

HKForGood 16 yrs ago

bing2 - I think you are a little premature to claim prices wont go down much further. Prices will continue to fall - simple. A 15-20% reduction is just the beginning The '97 Asian financial crisis popped the HK property market bubble and it was in a 6-7 year bear market (well, SARS didn't help either). We are in a midst of a global financial crisis here so I'd be very surprised to see prices start to rise until end of '09/early '10 at the earliest and then starts the next property bubble. I'd love to be proven wrong !

Regarding supply/demand - there is plenty of supply out there (all real estate shop fronts are full top to bottom) - it just that prices are simply too high (by the way, can anyone help explain why HK has a rental market vacancy rates of 5% ?)

Last but not least - I don't buy the general argument that HK has a limited amount of land therefore prices will remain high and will be immune to the global financial crisis. Every major city around the world has a limited supply of land (and have been around for longer than HK) so I don't understand why HK is different to any other city in that respect...

Brit 16 yrs ago

HK is the same as any other developed economy and so will suffer the same in 2009. We are on the verge of the biggest recession in our lifetimes and globally governements are desperate to stave off the worst of it.

As for house prices they will fall - its just a matter of time; how far they fall will largely depend on the state of the regional and global economy in 2009. So its not looking good.

UK prices have collapsed even though there was apparently an unlimited amount of pent up demand to pick up the slack from people who have waited for years for the prices to drop. I suspect the same will happen here - prices will gradually fall over the next few motnhs and then stablise. Then people may start to trade again.

Our biggest problem was the huge rises in 2007 which landlords are reluctant to let go of. So until prices drop by at least that much i doubt anythign will sell.

My 2 cents to an entertaining thread!

DaHKGKid 16 yrs ago

50% off of transactional prices ending Feb 2008. Bottom 3rd quarter 2009. Slow recovery hold for 5 years.

bayfield 16 yrs ago

Just negotiated lease renewal for a large Midlevels flat. Current rent 70k. Landlord wanted 83k. Finally agreed on 65k.

bayfield 16 yrs ago

sorry..no more info to preserve privacy.

bing2 16 yrs ago

some properties have reached the bottom, some properties have not, and some landlords are still in denial or have been living in mars. i am actually not saying that you should or have to buy now, what i meant was you should position yourself from now till probably june/ july next year. start looking now and dont be afraid to take advantage if you find a bargain. i really dont think property will go down much further because hong kong people have been waiting for this chance since SARS and there are still a lot of people with fat cash in their pocket, despite the down turn. and i am sure good news will come sooner or later, and i think buyers already factored in further downturn in the economy. if right now is not a good time, i dont know when is the good time. no one knows the bottom but with the current prices, i dont think it would go down much further. no way prices will fall to SARS level. world economy is in bad condition but the world leaders are now much more sophisticated and educated (except you know who) than before. also, my agents and bankers told me that sales have picked up again this month after the rate cut and discounted prices. prices have been slashed to 2004 - 2006 level, if you are still afraid to take the risk in hong kong property, shenzhen is only one hour away,......where prices have dropped 50%.......

bing2 16 yrs ago

also, can anyone remember when was the last time you can find a 450sqf unit with a 100sqf terrace on hollywood rd , central, for 1.75M? good price, right?

bing2 16 yrs ago

Hi LG,

It was on 200+ Hollywood Rd and it's been sold out...the next day after I viewed it....

Shoe Girl 16 yrs ago

It seems to me that the only place where property prices don't appear to have gone down is on the Property Section of AsiaXpat. I've noticed that there hasn't been any adjustments made to the asking prices whatsoever. Of course, just because people are asking for a price does not mean they will get it. But it is interesting to see that the lower prices have not been reflected there.

punter 16 yrs ago

Shoe Girl, that's one very good reason why the number of transactions is so thin. Sellers still expect to get high prices and buyers expect low prices. As LG so often insists in this thread, buyers and sellers can't agree!

evildeeds 16 yrs ago

I'm loving it where I am. Thousands of properties have dropped like stones in what's being referred to as the "mass market" here and so many new developments being released. Got a call yesterday from the agents, asking prices for SHK's Peak 1 have already tanked 40%, and that's from the developer!

evildeeds 16 yrs ago

LGMV, I also own several properties so have been dealing with these people for years all over the NT. Unfortunately what you do not know about Peak 1 is it's location which is next to the other lemon the Great Hill. Therefore it has been priced at premium over the primary market, not secondary. With the Grandville selling in Fotan now at hugely reduced prices and the giving up of deposits that's beginning to filter through from the Palazzo the squeeze is on. We still have the Tai Wai MTR apartments to come in yet. Secondary market prices in both mass market and luxury market in the NT are beginning to go down to 2004 levels already. I'm watching with interest and biding my time before I sweep in again and increase my own portfolio.

onemorething 16 yrs ago

Loyd Grossman is Miss Venezuela said:

"Is this credit crunch now coming to an end?"

No, it is worsening as we speak!

A property owner in a Mid-levels flat had posted small notes in everybody's post boxes, offering his property for sale or rent directly to avoid "property agent commission". Of course the delusional fellow was asking above market prices. That reeks of desperation if you ask me! Maybe I should put in a cheeky bid 40% lower!

evildeeds 16 yrs ago

Plenty of local money in Ma On Shan, was the MOS rail that boosted prices in the area. It will be the MOS rail that get's extended to Central eventually. Obviously in all of these areas there is a lot of mainland money as well, but that's the market nowadays and it will become more and more controlled from north of the border. Personally for me the East Rail is great as it serves where I go regularly, and that's north.

Although I don't live in MOS I do have property there and it has to be said that the P'n'S there is probably the most international in HK! The ESF foundation school will also help no end.

Now for Yuen Long proper I have not seen the price changes as not an area of interest, although around Fairview Park and especially Palm Springs the prices are dropping. The several new developments around the Kam Tin area have now dropped their initial asking prices - I saw lots of these just before this crash and I was surrounded by mainlanders who subsequently panicked. Seasons Monarch for one.

Ed 16 yrs ago

Unprecedented numbers of properties for lease continue to pour onto our property channel... closing in on 3000...

Interpretation?

evildeeds 16 yrs ago

Hmmm, I can't agree with the expat thing. Since 97 any distortion by expats has receded to almost nothing now and I doubt very much they had much to do with the MOS boom. I noticed prices raising there once the rail opened in Dec 2004 and also with the school in 2006. But those moving in because of the school seemed to be more local families and a few mainlanders.

Actually I do remember back in SARS when the developers were desperate and people moving into new MOS developments with no deposit and 24 months mortgage free! Was a crazy time. Made for great speculation though if you were prepared to take the risks. Overall now I've watched the prices drop at the more established like Villa Athena and Monte Vista, and the new speculator heavy Sausalito, etc. And with Lake W coming into the picture as yet another human warehouse.....no speculators.....more empty apartments.

punter 16 yrs ago

Today's frontpage news of SCMP regarding the number of Hong Kong people losing their jobs (around 6,000) is no joke. If more people lose their jobs (cannot pay mortgage, or won't buy flats) will mean more slowdown in the economy including the property market.

onemorething 16 yrs ago

Sad Sack said:

"Thousands of people are selling, nobody is buying."

Ahem... for every seller there is a buyer and v.v. You cannot sell to the void!

Ed 16 yrs ago

Lloyd - we prefer to keep the listings for agencies free just as most sections of the classifieds are free... these ads are our content and they bring traffic to the site and drive our banner rates...

HKForGood 16 yrs ago

Lloyd - buyers are in control and that is why we are seeing double digit drops in transaction prices. Simple. You may not want to sell your property but believe me - there are more and more who are trying to sell properties as prices are showing similar traits to the HK stock market 6 months ago. I would not care about 1-2% increase in interest payments - the bigger issue is you are losing 20-30-40+% in your asset price.

Remember that the property took almost 10 years to recover from the Asian Financial Crisis. I don't have a crystal ball but considering this is a global problem on an massive scale, who knows where the bottom is. I for one would not want to hold on to 10M HK property in this environment.

Rents are dropping considerably and impending lay offs will start to hurt the real economy... the cracks have well and truly opened.

HKForGood 16 yrs ago

To add to my previous post, when a few transactions in a block start to sell at "fire-sale" prices, then this generally affects the sq foot price of entire block (c'mon - just how many apartments are that unique in HK !). Conversely, when prices shoot up (as the did over the past few years), then owners use recent transactions as a benchmark. Hence, when prices go up - they go up rapidly but when the fall, they get hit just as hard if not harder.

I wouldn't been at all surprised too see prices drop 30-40% from their March '08 peak by Chinese New Year/Easter '09.

maxis 16 yrs ago

even landlords who owe nothing or nearto are offering tennants near end of leases or at the 1+1 breakpoint significant inducements (without even being asked!) to re-sign (with very very good deal) or stay on for another year, with the last x months thrown in for free.

they are not cash strapped at all, are leasing out apartments which are valued at today much more than they paid,and are getting very good return. These sort of guys know the market, have been in the game for very many years, and know that significantly reduced rental return locked in now is much better than vacancy in a few months and/or potentially (and most likely) even less yield.

good news for renters in any event, and potentially good news for purchasers dowmn the track.

Ed 16 yrs ago

Lloyd - before you predict a bottom to this crisis you may want to follow along on another thread... this crisis is only beginning...

http://hongkong.asiaxpat.com/forums/living-in-or-moving-to-hong-kong/threads/120744.asp#bottom

Posted by qpzmgh (6 mins ago)

Article;

The UN Economics team believe the US Govt debt now at unsustainable levels and that the dollar will likely collapse.

http://www.ft.com/cms/s/0/12eab3b4-bf06-11dd-ae63-0000779fd18c.html?nclick_check=1

Posted by qpzmgh (5 mins ago)

Also the CDS on US 10 Year Treasuries hit a record high on Monday.

qpzmgh 16 yrs ago

Having read the SCMP article you can draw some fairly accurate figures of how far prices have come down Year on Year from November 2007.

Average HK$ consideration for properties sold are as follows:

November 2007 = HK$4,495,443.25

November 2008 = HK$2,812,995.25

Thats a drop in average price of 37% which will be a mixture of mass residential, middle tier and luxury properties.

Now bearing in mind that the market peaked out in February/ March of 2008 then the drop to November 2008 will likely be higher could be up to 50%.

Now if things continue to worsen, which i believe they will, then we could see a year on year drop from March 2008 to March 2009 of between 55% - 60% possibly higher.

This would make sense.

Neo Dog 16 yrs ago

Just wanted to point out that the calculated 37% drop should be viewed with a little caution. The mix of properties used to calculate the average should be taken into consideration (i'm guessing more luxury units sold last November) and the Nov-08 average being the average of a much smaller volume of units. I don't dispute the weakening of the property market though, and have similar bearish thoughts on 2009.

qpzmgh 16 yrs ago

For sure but as we don't know the mixture it is probably still safe to say that the spread of properties will be similar as values have come down and people are still buying at the luxury end.

It's not an accurate figure just a fairly accurate figure and i think it looks about right.

punter 16 yrs ago

Many businesses will close after Christmas or after Chinese New Year and add to the gloomy financial environment. If no good news will come, or more bad news will come, this downturn is going to turn real ugly. It won't matter whether it's luxury or mass residential, prices are going to go down.

Look at the big 3 carmakers in the US, part of their plan is to fire thousands of workers. Look at how many big companies have scheduled production holidays. Look at big airlines planning to stop flying to many unprofitable routes. All these are bad news. Where will the good news come from?

Let LG stick to his strategy, it's his call. It has worked for him for some time. But for the many who still will have money when the "bottom" is reached, I'm sure there will be a lot of bargains to be found.

qpzmgh 16 yrs ago

what sector? if you don't mind me asking.

Ed 16 yrs ago

Lloyd I admire your optimism.

You might want to have a read of Tom Hollands column on The Back Page of the SCMP Business section this morning... perhaps someone with access to their online might drop that here with a link back to the source.

As he points out this is just the beginning and it is already very bad. Mortgages are 40% off peak values which means the banks see the market tumbling 40% at least, and they are financing only 60% of the sale prices, again that insulates them against what they no doubt feel is on the way

bing2 16 yrs ago

i got this 900sqf unit walking distance from central at an old building fully renovated to a very high standard for 2.5M and meet the bank valuation. what do you guys think? fire sale or should wait? give me your thoughts as right now i am not as confident as before, to he honest...

punter 16 yrs ago

Which price point did you start to negotiate Bing2? Without knowing much details, I would say it's a good deal.

Ed 16 yrs ago

It would not seem in the banks' interest to raise mortgage rates either because that will certainly lead to defaults - but as the article points out that is what they are doing...

From the article:

Of course it could be argued that the banks' fears are self-fulfilling. The combination of higher mortgage rates and lower loan to value ratios deters buyers, further depressing prices.

qpzmgh 16 yrs ago

interest rates as far as i know are mainly only going up for new mortgages not for existing mortgages. mortgage rates have to go up though as bank credit flow has dried up. eventually i suspect that all mortgage rates will need to go up even for mortgage customers that have existig mortgage deals where they have been 'promised' that they are on a fixed deal.

as for Tom's column he seems to be concerned more about negative equity but for banks as long as the mortgage payments are being met then negative equity is not an issue. Obviously for home owners who were hoping to make a killing in the property market this year negative equity is bad.

Howver, the real problem is defaults and that will force more home owners to sell their property during a poor market which will exacerbate the overall problem.

Neo Dog 16 yrs ago

bing2, how does the asking price compare to those of previous transactions in the same building or of comparable units near by?

If for self-use, you really like the location and do not feel too strongly about a potential further short-term 20% decrease ($500k) after your purchase, then why not? The only downside of waiting would be somebody else nipping in and buying it.

If for investment, then probably best saving ammo for next year. Even if somebody else does buy it in the meantime, there are always bigger and better fish to go for.

evildeeds 16 yrs ago

Interesting call from friends who are now in the poop. Own a flat in Tuen Mun and in 2006 bought a flat in Amoy Gardens, Kowloon Bay to rent out. Current tenant lost job (bank HQ in Kwun Tong) so has moved out. Now friend has been made redundant also so needs to shift apartment quickly. To make matters worse looks like her other half may also be made redundant so may have to get rid of Tuen Mun place also.

This scenario will play out even further in the next few months.

Balii 16 yrs ago

When SARS hit Hong Kong, an apartment in a building where I stayed was up for sale at $3.5m. I just checked HSBC's website, it is now valued at $5.2m. Given that banks tend to value properties conservatively, I would think the current value should worth about $5.5m? Why is this property holding so well?

Balii 16 yrs ago

Regarding US$, i still believe it is a safe heaven. If everyone abadons US$ which currency would they buy? Which currency can replace the US$?

Balii 16 yrs ago

Mr. Cynical, I was trying to say the property market seems to be doing OK. If it was really THAT bad, the market value of this propery would have gone down to $3.5m.

Loyd, the US$ is THE major trade settlement currency. If one wants to abadone, one must replace it with another currency, which is safe. Which currency is safe at this moment? EUR? forget about it. Look at what's happening in Europe? No currency can replace US$. Don't even think about JPY. Japan has been in recession for the last 10/15 years?

RMB? The Chinese government would sure try to depreciate it to boost its export and it can do that as it has a huge bargaining power right now.

Balii 16 yrs ago

Two more examples. A friend bought an apartment during SARS for $3m and sold it when the market started recovering for $4.5m. At the peak, the apt was for sale at $6.5m. Currently the HSBC valuation is $6m.

Another friend bought an apt on KL side early this year for $7m. He is in the process of arranging the mortage and was just told the bank valuation is $6.5m.

My estimate that so far the market has gone down about 10%, not 30 or 40% as some people have suggested. I do believe though the price will go down much further.

I have noticed the huge reduction (30% 40%) in asking price. Not sure whether it is just the agents' selling strategy. So I reply on bank valuation and add a bit more for the market value.

onemorething 16 yrs ago

For once I side with LGMV. I agree with his choice of currencies. However I do think that CHF is not the safehaven that people always believed it to be. As a matter of fact it may fundamentally be the weakest of the currencies mentions. The Swiss economy has a lot in common with Iceland. Its banking exposure and dependency is even bigger to be honest, but perhaps the ECB will come to its rescue. I am missing gold as a currency in his list.

The USD can and will lose its reserve currency status in the foreseeable future and it will happen overnight. No time to escape once it happens. Until then people will continue to treat it as a safehaven and it may rise more for that reason alone.

Disclaimer: I am just expressing an opinion and should not be taken as advice!

bing2 16 yrs ago

thanks for your comments. i negotiated the price down from 3.6 and the transaction in that building is around $3500/ sqf. building is old but location is very good. global economy does not look good, but if you see the umpleyment rate in Hong Kong it is still very strong at 3.5%. I am sure this will go up more but anyone think it would reach 6% as during Sars? I think the property will not burst as in 1997 because of the holding power that people have now and how the banks are much smarter and sophisticated when lending money for property. as i mentioned before in 1997 you will see a taxi driver or a bus driver with 3 apartments in hand, with a mortgage from hsbc, hangseng, boc and maybe personal loans from creditors. his mortgage is probably 200% over his salary if not more. currently is is only 30 - 50% of anyone's salary. and if anyone could recall Tung Chee Hwa's policy of releasing 85,000 units to the market. i think the goverment has learned a lot, as well as the banks, so the same catastrophic in 1997 i personally think would not happen. unless something really bad is going to happen. every world leader currently has the economic situation in their country as their top priority. i am still bullish of the outlook of the property but i can tell you that my confident has been shaken a bit by such a gloomy outlook and bad news that more often than herpes. so the question is to buy or not to buy........

kissy.missy 16 yrs ago

after waiting for the property prices to go down, i've now another problem of getting upto 90% loan from banks. HSBC and Standard Chartered said "no" as they can only offer 70% due to this crisis. went to Bank of China and the bloke took a good half an hour to explain about the mortgage, premium, interest, etc. to me and he said that he can give me 90% but i have to pay about $60k to HKMC as premium. i really cant figure out if he's giving me a good deal while other banks wont even give me more than 70%...? should i wait till the banks are offering 90% again or jump to take the offer from the Bank of China bloke?

ltxhk 16 yrs ago

even in good times, the banks did not offer 90% mortgage without paying the premium interest to HKMC. This premium is standard for mortgaging more than 70% before, and perhaps 60% now. Previously, I think some banks would roll the premium into your overall mortgage payments, however, I doubt any bank would do it today. There is a table for this calcualtion if you think BOC is over charging.... but not likely the case.

Seriously consider what you are buying. Prices will drop further before they rise $1.... and this is in all property categories.

punter 16 yrs ago

Missy, if you don't have the 30% to pay your equity, it's better to wait for prices to go further down. Banks will loan you max 70% and the government (thru HK Mortgage Corporation) will guarantee the discrepancy (you can get max 95% mortgage) when you pay the insurance amount.

punter 16 yrs ago

LG, what has come true?

Balii 16 yrs ago

Missy Kissy, I won't buy property now. I believe the price will go down much further. As for the loan, I believe you should act more conservatively in this environment, i.e. do not take the 90% loan. I don't suppose you have cash to burn or you wouldn't ask the question in the first place?

Beerboy, those may be individual cases but I believe those are just average properties. And there is no reason why those properties should be holding better than other properties. I checked few more properties. Same story. My view would be wrong if the HSBC valauation tool was completely crap. Anyone knows how accurate is the valuation provided by the HSBC website?

punter 16 yrs ago

HSBC valuation is not good in determining the market price. It is useful to the bank as it is what they think the value of the property is and from which ceiling to base the loan amount.

kissy.missy 16 yrs ago

sorry, i am a first time buyer and not sure what to do, where to start, etc etc. well, the rent contract on my flat is ending in april and i dont want to extend as i do really want to mortgage a flat rather than waiting another 1-2 years.

i dont want to take 70% because i'll end up paying higher interest, that's why i was thinking about BOC's offer of taking that 90% (paying HKMC that $63K in one go as premium). the second option he gave me was 70% from the bank and 20% from HKMC and the interest is higher than the 90% option. i'm totally lost. i understand why you all are asking me to wait but i've to rush a bit for this property thing because of personal commitments.

thanks for the posts. really appreciated! :)

Balii 16 yrs ago

punter, i understand that bank valuation doesn't equal market price. But I would think that the bank valuation is less than the market price, and if this is true, I can use bank valuation as a benchmark to assess the market. The question is whether it it is possible that HSBC valuation > market price? I don't believe so but am more than happy to hear from anyone who hold a different view.

punter 16 yrs ago

Personal experience: I was looking at a flat and the realty agent bragged that the property is 300K lower than HSBC's valuation. I checked it out, and he was right.

The bank will use its valuation if it's lower, and the selling/contract price if that is lower.

Balii 16 yrs ago

Thanks for sharing your experience. If this is a common practice, I really need to adjust my view re current market.

onemorething 16 yrs ago

HSBC effectively has not raised the rate. It is reducing the discount to Prime. The reason for this is that future rate cuts (which are firmly expected) would leave HSBC with margins that are too low. So reality is that mortgage rates are still expected to come off more in the near future. Having said that, we are in such uncertain economic times that there is always the off-chance that banks may stop lending alltogether.

bing2 16 yrs ago

crash is not going to happen but rather a deep and long price correction. property agents are working again now and transaction is up. peak one just had a second hand transaction the owner made 2M profit in a few days. i know this is too early but a lot of people also think that the market is stabilizing. it is already 30% down, crash would be bad for hk economy. you also know how many chinese top officials and their family, friends, relative, whatever have property here in hong kong? too many of them so they will do something to stimulate the economy as they already have been doing with over 500billion stimulus plan. also hk goverment just announced yesterday that they will create 250,000 new jobs to build infrastructure. look at these steps that didnt happen in 1997 crash. gov in hongkong and china are more afraid than the big time investors who have 150 properties in hand so they would do anything within their power to not let the market crash. this is just my opinon.....

evildeeds 16 yrs ago

2M profit on Peak 1! Really? When 80% is still unsold - SHK dropped prices originally by 40% and dropped again this week......just been there this morning.......mind you I saw the English press bs'ed initial sale prices when reporting - chinese press reported much lower figures which were much more realistic and are what I have been offered....

bing2 16 yrs ago

hmm if it didnt happen why would the paper published so? in 97 there were too many speculators. everyone in hk thought that the gov would let in chinese people to hong kong so they can buy properties here. of course that didnt happen as the gov only allowed 150 chinese immigrants per day into hong kong. too many speculators without strong holding power were in the market. these days only investors with strong flow of cash are in the speculation market. some of them have already got burned by 10 - 30%. projects in palazzo and harbour place already have many buyers defaulting their deposit (10 - 15%). another 40% down will be catastrophic for hong kong and all of us who live here.....this could translate to taiko shing at 3300/ sqf and academic terrace at 2500/ sqf, bel air will be 4500/sqf, so basically you can buy a 1000sqf unit in mid levels area for 2.5M.....this will be the end of hong kong.....if that ever happens......

i dont think it will be as bad as food riots, china gov had made so much money you wont believe in the last 10 years. basically they have enough money to support and spur domestic economy for the next 10 years and by that time the americans would have learned that they cannot live above their means!

also look at the saving rate in hong kong. it shows people have money still and i believe they can go through this bad time. the projects in yuen long is an evident that if your price is right, people will still buy....every discounted shopping in hongkong attracted so many buyers.....still......

i didnt read the comment from hsbc boss but did he say worse condition for hsbc or for hong kong or for the world? maybe it is for his bank? surely with losing billions in subprime mortgage in the us, hsbc is not delighted and probably think the current situation is worse than 98 as they are now a global bank.

let's all hope there will be no crash this time just a long and deep price correction! peace...

onemorething 16 yrs ago

"i dont think it will be as bad as food riots, china gov had made so much money you wont believe in the last 10 years. basically they have enough money to support and spur domestic economy for the next 10 years and by that time the americans would have learned that they cannot live above their means!"

All that money can be gone within two years. It needs to be spend on their banks that have been lending recklessly to companies held by the corrupt "connected". All these companies in Guangdong that are now going bankrupt will not be able to repay their bank debt. As China has to sell its US Treasuries to recapitalise its banks and stimulate the domestic economy, this will force down the value of the US dollar and therefore reducing the value of China's reserves.

bing2 16 yrs ago

so onemorething, sadsack, in your opinion we are heading for the worst time of our life and it is time to stack some food at our tiny whiny apartment? or should i rent a few storages and start stacking up rice, canned food, water, etc? are you doing that already? i really want to know since you guys think there will be food riots in probably next few months right? i may as well start stacking up some food now while i still have some cash then be in the middle of the food riots, no?

Ed 16 yrs ago

I have read that 20% of free cash is the right number

onemorething 16 yrs ago

Huggy> From your previous comments I think you will be doing fine in your retirement. No need to gamble away any savings if you know that what you have now is more than sufficient to live comfortably. Gold should be considered as an insurance and not an investment. It is entirely possible that gold will fall a lot more because of the debt deflation we are experiencing. You just have to look at the price of platinum to see what deflation can do to commodities. What makes gold different is that it is often considered to be an alternative form of money. Don't overdo any purchase of gold; 10 to 15% maximum I would say.

In the end you can't protect yourself against the greed and mistakes of others...

Bing2> I do not know. It never hurts to be prepared.

punter 16 yrs ago

This financial environment is quite complex and difficult to understand. There's still a lot of bad news but markets are going up.

People has a lot of money and they've got nowhere to put it.

Hong Kong people are awash with cash, but they don't buy property (no transactions). They go to Sham Shui Po and snap up bargain electronics or Yata to buy stuff.

bing2 16 yrs ago

uncle four said today that property has bottomed out and he thinks it will rise 5% next year. he is a property tycoon, should we listen to him or those of scmp , property experts and hsbc bankers who are most likely work for him? mind you uncle four also said hsi will bounce back to 30,000 by last feb after it went down 5000 points. of course we all know hsi never even touched close to his prediction. so will he make another wrong prediction? if yes i think his reputation as hk's warren buffet will go down my toilet.....luckily last time i didnt follow his comment to buy stocks at 25,000.

also, what do you guys think of US$ now? time to sell and buy other currencies?

bing2 16 yrs ago

sad sack, it is only your opinion that people could lose their down payment if they buy property now. what if you get the price down to a very attractive price and you really like the place? my friend just bough a commercial unit in front of h&m in central for 1.8M (over 550sqf) and is rented out for 14k which translate to 15% yield. if you have deals like this will you pass and say wait 6 more months because this unit will go down to 1M? the next thing you know some rich investor would have bought it and put it back on the market for 3.6M. since he's got money, and he's got a very handsome return he is in no hurry to sell if it does not reach his asking price.

Ed 16 yrs ago

Interesting that you should quote tycoons predictions... perhaps you might take some time to read about how these tycoons made their billions then see if you think it makes sense to listen to their investment advice - this is an outstanding book http://www.asianreviewofbooks.com/arb/article.php?article=816

HONGKONGEXPAT 16 yrs ago

Just catching up on the forum. Just wanted to ask bing2, do you think HKD1.8million for a commercially zoned property even if it is in Central (550sqf) is a good deal? Forget the $ rental return, even if it is 20%, don't forget even in good times it is very difficult to sell a commercially zoned property for domestic use. The point is your friend paid about HKD3200/sqf for a commercially zoned property in a downward going market, I think this is very expensive. To get a mortgage for this property in a good time is difficult, let alone a bad time. Banks value these properties much lower and over the years people have had problems with renting commercially zoned properties for residential use. I believe he could of bought something around the same size/$ price that has a normal residential use in a similar area. Perhaps paid a fraction more, but not taken on the hassle. Have friends in the same boat, bought these commercially zoned places, did them up over the years, now 3 years later still can't sell. They were unable to even sell throughout all of last year and beg of this year when the market was hot. Yes their return is still high, but it is very difficult to get rid of the property.

I assume for people that just want to collect rent perhaps this is not an issue, but the point is in this market nobody's rental return is guaranteed and nobody knows when/how quickly they might need to liquidate their property position, that is why one must think many times before purchasing any property anywhere in the world in this time. I am still positive on Hong Kong property long term and keep giving offers in for the the luxury market but doing all with great caution, not just because at the moment it "seems" like a great deal.

punter 16 yrs ago

But isn't it supposed to be this way? In a downturn, there will be ups and downs (but more down). When those who turn bullish first gets burnt, more people will be more afraid and then the bottom is found.

So people like Bing2 (who sounds like a new owner of a HK property) should be present, and when they get burnt, more bears will be more afraid and not buy anything.

Of course, the current situation is unlike any we've seen in our lifetime so who's to say who is right? Each one has to make his own call.

bing2 16 yrs ago

i agree with you hkexpat that commercially zoned units are more difficult to sell, but the unit that i was mentioning is located in the heart of central, so i would not worry too much that i dont find buyers, as long as you price it right. dont you think this also goes for residential property? if the price is right, someone will snap it qucik. maybe your friend was asking too high? if you own a commercial unit in sheung wan, that would be more difficult to sell, but in front of h&m and on queen's road? location as you know is the most important thing for property.

3000 something in central location is not expensive at all.....even in shenzhen the unit would cost the same or more and we are talking about hk here....

i am not new to the market, i just think the down turn has not affected hk that much and property should recover in about a year time unless people are losing thier jobs like never before. just see the unemployment rate for your benchmark, if this goes up by another 2 - 3% you can definitely bet that the property will go down another 10 - 30%, but if it's stready, i bet my little saving that property price will be steady. right now i feel we have seen the supporting level for hk property, we shall see in the next 6 months.......going up or going bust.....but i can tell you for sure we all better hope is going up steadily.......if there is another 40% down, the effect will be felt by everyone.......badly......

punter 16 yrs ago

Why do you think the CE said that we HK people should bite the bullet? He knows information we don't, and he's got gov't statistics and numbers to use in making decisions. His announced "to do" list shows that HK is going to have it hard next year. Buy now at your own peril (or gain, if you call it right).

Ed 16 yrs ago

http://www.bbc.co.uk/blogs/thereporters/robertpeston/thenewcapitalism.pdf

punter 16 yrs ago

The stock market crashed in September. Count at least 6 months from there. That's not movable.

Corporate earnings, manufacturing output, sales numbers, job losses: these are the sources of bad news. They're verifiable, not a figment of the "doom club's" imagination.

bing2 16 yrs ago

punter, the stock market crashed in september this year? correct me if i'm wrong in oct 2007 we were at 31,900 and in june/ july we were already 10,000 points down....dont you think september is a bit late? stock market has crashed since last year december in my opinion, that's already good 12 months.........if you are looking to buy for own use, i think this is the time to go shopping, as LG mentioned before this window of opportunity may be gone soon. just make sure you offer 10 - 20% below bank valuation and if you can get it for 10% below bank valuation, you really like the place, it's unique and you can afford it, why not? better than paying the same unit 30% more in the beginning of this year.....at the end of the day, you cant really put a specific value to your own place.......if you really like it, no? for example, if you go to nt and you want to buy these beautiful village houses with big garden, many landlords would never sell. they rather pass it to their family, no money can buy their place....

dzysheep 16 yrs ago

You are right that the decline started in December last year, but things got much worse from June onwards. The HSI was still at about 26,000 back in May this year.

http://finance.yahoo.com/echarts?s=^HSI#chart1:symbol=^hsi;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

punter 16 yrs ago

I don't know how you define crash Bing2, just take a look at the HSI graph. September was the month the subprime mess unraveled.

As I've said, each of us has to make our own call. If you did already and bought that flat, you're sounding as if you're trying to rationalize or self-justify your buy. For myself, I'm still waiting because I believe the bottom hasn't been reached yet as more bad news are coming, in Hong Kong maybe after the CNY.

dzysheep 16 yrs ago

I am in a similar situation as punter, holding cash and waiting for the market to fall further.

In my view, property prices, unlikely shares, have less direct interaction with market news/anticipation. It is more directly related to actual events. Things such as unemployment, exodus of expats, rental yield have a direct impact on house prices. Now we are seeing 1) rising unemployment 2) expats leaving HK (or becoming unemployed) in rising numbers 3) rapidly falling rental yield.

Property prices will continue to fall until these are corrected.

Also, on the flip side, is there ANY reason for property prices to rise. I personally cant see any.

So my interpretation of the situation (from the view point of someone intending to invest) is that best case scenario - property prices continue to fall OR worst case scenario - property prices remain flat.

bing2 16 yrs ago

no need to justify my buy as i am actually in both sides. i bought property in the middle of this year brand new from developer which i rented it out quickly. i am actually also hoping the price to go down further so i can make another purchase but i can tell you that i have been trying really hard to get prices down by making offers below bank valuation by 10 - 30% attached with a cheque for these past weeks but no landlord is willing to lower their price anymore, not even by 10% below bank valuation. i just think we have hit the supporting level and it will stay like this for some time. many expats are leaving hk but there are also many new ones coming in - it's just that they are not from the financial industry. rents have gone back to 2005 - 2006 level which is more reasonable and i think this is a good sign, not a bad one. i feel prices for both rent and buy have come down to a very reasonable price.

so it is up to you to jump in now or wait on the sideline. i just think when the market has really stabilized you will never find good deals as when everyone is still guessing where the market is heading, agree? good deals to be had when everyone is not sure where the market is heading....once it stabilizes you will not get good deals anymore......my two cents...

qpzmgh 16 yrs ago

I am also of the opinion that prices will continue downward for another 6 months at least.

I would caveat dzysheeps analysis that property moves in line with a number of known factors.

This is generally true, but maybe not so relevant to Hong Kong property which is very much a speculators market that drives prices up very quickly and then as a result has very sharp property price corrections.

For example during the frenzy of October 2007 - February 2008 it was the news that we had ‘negative real interest rates’ that made people believe that this was a good thing and that as a result we would have another year of high returns in the property market. This of course was nonsense especially when 99% of the population had probably never heard this concept. But speculators, estate agents, expert analysts and unlucky punters jumped on it for the FEAR of missing out on this phenomenon.

Look, there is still a lot a dreadfully poor economic/company news to come and i think we could be in for a few surprises from some major companies/banks that maybe the 'market' thought were sound but in fact are not. One of these companies being in Hong Kong !!

This event, if it were to occur, would get the panic levels up and at this point, or just after, we would have the ideal time to buy property in Hong Kong at least. Of course the chance of obtaining a mortgage would be slim OR you might be able to get a mortgage but you would need to be paying 20% plus interest rates.

dzysheep 16 yrs ago

I agree with qpzmgh about the influence of the speculators. From my own perspective I don't factor that into my consideration as it is too hard to estimate the nature and/or impact of any possible spectuation which may or may not happen in the future.

bing2 - yes you probably have found the current price support. but how long would that level of support last? One week? One months? Is there any indication that the current price support you have identified will go up rather than down in the near future?

dzysheep 16 yrs ago

Well the high loan-to-deposit ratios has existed for quite a while, so where was the so called price support when prices fell 5%, 10%, 15% from their peak? What makes you think that the support won't fall away again this time round (just as it did when the prices fell 5%, 10% and 15%)?

bing2 16 yrs ago

i dont know what other news can be worse than lehman brother's bankruptcy? us gov has agreed to bail out the motor industry, hmm i wonder if there woul be worse news than what we heard the last 2 - 3 months. i think hk and china have held up quite well considering the recession actually started a year ago in the US. if you know the us market, there are still a lot of very healthy companies too, but i guess these days we dont hear much of them, right? i dont know if this supporting level will drive the prices up or down, but can there be worse news than the fall out of lehman? gov all over the world is trying to fix this current situation so it would take sometime before we feel the effect......window period may close soon.....who knows..........

Ed 16 yrs ago

I was on a flight this afternoon and read in the Financial Times that 67,000 factories have recently closed in china - and its getting worse...

Have a look at the home page of FT http://www.ft.com/home/asia Things are getting much worse very quickly.

Every economic prediction I have seen calls for a worsening situation in 2009.

There are indeed a few companies doing well - Walmart and McDonalds sales are up....

qpzmgh 16 yrs ago

Comments below slightly of track for this forum but anyway.....

Bing 2, I would argue to the contrary that the fall of Lehman was the best thing the US Govt has done in the recent months during this financial crisis. And they allowed it to fail to create short term panic and ensure that they could get the TARP through congress. But look what has happened to the market since the TARP was introduced.

Companies failing is how the free market is supposed to operate. Rewarding failure with all these so called 'bailouts' will be the death nail of the US economy.

Just wait, give it some time to play out, and you will see that a company failing is not the end of the world it has happened throughout history and does not destroy an economy.

Also i'm not suggesting a major company failing in HK will be a bad thing but for sure it will make people panic. Panic is short term !

These bailouts, however, will ensure the end of the biggest economy in the world for some time to come and the fallout of this will be dramatic.

Finally giving these automakers US$15 billion between them is not a bailout. It will allow them to keep the factory lights on for another month or so if that. They will be back for more and more and more.......

Ed 16 yrs ago

There is an extensive discussion on this topic here

http://hongkong.asiaxpat.com/forums/living-in-or-moving-to-hong-kong/threads/120744/coping-with-the-crisis/

punter 16 yrs ago

What's the explanation behind that statement LG?

punter 16 yrs ago

I think I missed all the good news today: China production has picked up, companies can't find workers, people are flocking to stores and buying stuff, property prices have gone up considerably, tenants are complaining of high rental rates, people are flying first class, the stock market are skyrocketing due to bullish investors!

qpzmgh 16 yrs ago

Lloyd, trust me there is no need to worry about rent rises any time soon. Mortgage rates however are likely to head higher. A rented property also keeps the rain out by the way and you don't need to rent out in Yuen Long you can rent in mid-levels.

Also buying a property now and watching the value continue to drop if you took out a 95% mortgage and you went into negative equity you are not really a property owner you are effectively renting the property from the bank. Why bother? especially with the additional costs and worries of home ownership.

Also what if you buy and can't rent it out because of the flood of rental property currently on the market and the flood of people leaving hong kong. Why bother with that extra stress and worry in the current climate.

qpzmgh 16 yrs ago

Sad Sack, I would suggest that we add and extra 10% onto those figures given out by Knight Frank we already know that average prices across the board from November 07 to November 08 are down 40% plus.

bing2 16 yrs ago

you cant really trust these agencies and banks for their predictions, really...all these so called experts last year they predicted that property in hong kong will go up another 40% by 2009 - 2010 and luxury by another 20%. that's why indonesian investment company de monsa bought the most expensive property per square foot in hong kong in the peak. after the financial crisis all these agencies changed their tune and adjust thier forecast.....they are telling people what people already know.....just like the consultants in your company.....telling you things that you already know.....if they are so good they should say in early 2007 that property will go down in late 2008, agree? when things are hot they predict property will keep rising, when things turn around, they change their prediction and say property will consolidate, cmon, this is just bunch of bs prediction. they keep telling people what people already know. the only difference is they come up with some fancy research numbers, etc confirming what we already know, agree?....for me their predictions/ forecasts are bunch of bs, sorry but this is my personal opinion...

during sars so many people said prices would go down further but of course that was the bottom and people who stayed on the sideline who thought prices would drop another 20 - 30% were banging their head to the wall......after sars prices went up so quickly. i remember landlords and developers were raising prices by 2 - 5% every week....

prices have stabilize for now after a big drop, i am not sure if we are going further down or up later because the situation in the us is still bad, who knows what's gonna happen in a few months time.....

i think the key in hong kong is the employment rate, just keep watching this.....if it's steady property will not go down anymore despite more bad news from all over the world.....for hong kong's joe the plumber it is against his religion to sell his property at a loss, so if cash flow is alive and kicking, joe wont sell at a loss.....

stock is up now, but fundamentally is still weak because of the situation in the us. as you know nothing has really changed there and credit card debt is going to surface soon.

all i am trying to say here is prices have dropped to a reasonable level....if prices continue to drop as predicted by many here by 40% it is not going to be good for hong kong at all. i think it is irrational to think prices in central, let's say centerstage, to drop to 4500/sqf or taikoo shing to 3300/sqf or city one in shatin to 1800/sqf? how about those old walk ups in soho, noho area? you think it would go down to 3000/ sqf? You may argue walk ups are unique but if property would go down another 40% we would most likely see the biggest expats exodus in the history of hong kong, so who's gonna buy them?

punter 16 yrs ago

The on again off again through train allowing mainlanders to invest in HK stock market might be a good way to boost the stock market, and in extension the property market.

It's surprising the central government hasn't done/allowed it yet. On the other side of the delta, Macau can also be aided by allowing more mainlanders to gamble instead of restricting the numbers to get into Macau.

In the meantime, only bad news is present. The most disconcerting is the jobs market. You may have a lot of cash but if staying in HK is non-sustainable if you don't have a steady source of income. No way somebody who's lost a job will buy new property. Somebody who's lost a job most probably will sell the property and live with relatives again (if local people), or move back to home country.

Brit 16 yrs ago

No more 95% Mortgages

The HK Mortgage Corp has announed that, while they will now insure 30% of the loan to compensate for some banks cutting the amount they will lend, the buyer has to now put down 10% (instead of 5%). This will hurt the luxury end because on a $20m flat you are now short $1m.

bing2 16 yrs ago

sad sack, not one single information? how about the unemployment rate which is stood steadily at 3.5%? how about gov effort of creating 60,000 or more jobs? gov back up for sme's loans? gov guarantees deposit? are these not positive information? also, low interest rate? so low that it is better to buy a property than to put it in the bank, no? if you can get a place which is 40% lower than earlier this year, the risk is very, very small.....

bing2 16 yrs ago

even if we fall to great depression (worst case scenario), people still need a place to live and i think with a big saving ratio in hong kong, property will hold its ground. unlike in the us where if they lose thier job they will run out of money in about a week time if not less. here in hong kong they can still survive for months or years before they have to throw in the towel. one example: cathay pacific is giving its staff unpaid leave and over 2000 staff is applying for it. this shows that they have enough saving to not work for months......i was told by a senior cathay staff that most of them applied for 2 months leave and some of them for 1 year......this is an evident that hong kong people are savers and they can weather this financial storm better than their american or european counterparts....

also, during the last great depression, asia/ hong kong was such a poor region/ city, it's a slump!....now we have worked so hard and saved money for the last 75 years, i think we have enough ammunition to weather this financial storm. we are in a much better shape now compared to the last great depression......

bing2 16 yrs ago

muttles - no need to say things like that. i have no agenda just expressing my opinion in this thread. telling people that there will be food riot is unfair and unkind!? i've never said this is not a serious crisis. some people think we are doomed, i am just more positive than they are as i think we can weather this storm. that's it dude........also, havent you noticed some companies are still doing really well and benefiting from this downturn?........

bing2 16 yrs ago

sad sack, i dont think a great depression is even possible for our life time, we are not the same as we were 75 years ago........

during the last great depression all major banks failed so there was no more line of credit. for a great depression to happen in hk we need hsbc, boc, sc and other banks to fail altogether. besides deposits and loans are backed by the gov now.......for us to go into a great depression is very, very slim.....it's almost as slim as my chances of beating roger federer in a tennis match....

if we go into a great depression a buyer can buy centerstage in soho for $1000/sqf or maybe $500/sqf....hmm, i hope i still have a job when that happens.....

agreed that hk property is not the big picture if we go into a great depression. by that time i would not even care if my property does not worh anything anymore because we all be on the street rioting for food.......

Ed 16 yrs ago

FYI...

Former Goldman Sachs Chairman sees slump worse than Depression

NEW YORK (Reuters) - The economy faces a slump deeper than the Great Depression and a growing deficit threatens the credit of the United States itself, former Goldman Sachs chairman John Whitehead, said at the Reuters Global Finance Summit on Wednesday.

Whitehead, 86, said the prospect of worsening consumer credit woes combined with an overtaxed federal government make him fear that the current slump is far from over.

"I think it would be worse than the depression," Whitehead said. "We're talking about reducing the credit of the United States of America, which is the backbone of the economic system." Whitehead encountered plenty of crises during his 38 years at the investment banking firm and was a young boy during the 1930s.

Whitehead warned the country's financial strength is at risk due to the sweeping demand for tax relief and a long list of major government spending plans.

"I see nothing but large increases in the deficit, all of which are serving to decrease the credit standing of America," said Whitehead, who served as chairman of the Lower Manhattan Development Corp after the World Trade Center was destroyed during the September 11, 2001 attacks.

Whitehead, who helped make Goldman a top-tier Wall Street firm and led its international expansion, left in 1984 to become a deputy secretary of state under Ronald Reagan.

He warned that the country's record deficit is poised to balloon as the public calls on government for more support.

"Before I go to sleep at night, I wonder if tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds," he said. "Eventually U.S. government bonds would no longer be the triple-A credit that they've always been."

There are at least ten "trillion dollar problems," facing the United States, he said, including social security, expanding health insurance, rebuilding infrastructure and increased spending on green energy. At the same time, the public does not want to pay for it.

"The public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs -- all very costly and all done by the government," he said.

Large deficits can weaken the country's credit and increase its borrowing costs, which already constitute a significant part of funding to cover expenses. Whitehead said it could take "several years" for the current problems to be resolved.

Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes.

"I just want to get people thinking about this, and to realize this is a road to disaster," said Whitehead. "I've always been a positive person and optimistic, but I don't see a solution here."

http://www.reuters.com/article/Finance08/idUSTRE4AB7HT20081112

punter 16 yrs ago

Do you think many Hong Kong people had exposure to Madoff? His operation is not miniscule, but it seems his downfall has no significant effect on the markets.

novaflux 16 yrs ago

A few banks are exposed to his ponzi scheme. This incident brings light to one glaring thing staring at us for a long time. Madoff ran a ponzi scheme which is finally exposed and that's of cause wrong. But it just goes to tell you just how much the regulators have turned pretty much a blind eye to everything over the past 5 - 8 years as the banking scene exploded and bankers paid themselves handsomely and then lined the presidential candidates with fat and grease.

On the economy. I think the first wave of sell offs and deleveraging is completed. What you see now are window dressings for the year end as funds rebalance and hold equities.

On HK property, agents are telling you this is the right time to buy. Well so is every other moment in the history of their pathetic lives which is why these people are standing on the streets with their snakeoil sales tactics. How can you trust a bunch of fools to tell you that the market is the right time every other time? If they could predict things so well they would be economists, analysts etc.

No disrespect to agents but one has to be philosophical about such things with an inherent agency problem where information is not transaprent.

With banks getting hit with margins squeeze, you are now seeing credit card financing charges go up. That is not a good sign. It is a vicious cycle where bankruptcies start to rise. Unemployment will rise past the CNY period and more people will be laid off. with an illiquid market for secondary properties, bank valuations will be down causing negative equity issues. the economy is far worse than what you read in SCMP.

The government if you have been reading their comments, have largely been clueless at best and their comments have gotten steadily sombre over the past 3 months. now they are finally acknowledging that HK is going to be in bad shape.

Well build your own conclusions. But the property market isn't going to be as rosy as you think it should be.Welcome to the age of deflation.

Well lastly on that note on Madoff. He's not alone. The regulators have largely turned a blind eye to executive compensation as these top dogs fattened their own pockets over the years. How could these pay be justified over so much leverage and no one questioned them. How different are they from Madoff?

onemorething 16 yrs ago

Madoff's fraude will further erode the already fragile faith in the financial system. Let's hope no renowned retail asset management company invested with this criminal. Ultimately you don't want people to start questioning the whole system, and specifically not the viability of fiat money.

punter 16 yrs ago

Madoff's loss is estimated at about 50Billion, just about 3 times the size of what the US government is going to give to the car makers. HSBC is said to be exposed by 1B US$.

punter 16 yrs ago

LG, what was the volume of transactions?

onemorething 16 yrs ago

LOL!

Ed 16 yrs ago

Lloyd - I deleted that because I am beginning to feel that you are attempting to wind people up (see your messages).

Surely you cannot seriously think the financial crisis is over and that all things are headed upwards?

Wind-ups = bans....

Brit 16 yrs ago

Hang on - last week you said it was over because the HK island prices rose wek on week. This week the HK island prices fell: http://www.centadata.com/cci/cci_e.htm

So explain your logic.

I know you dont want to hear it but we are on the edge of a precipice, HK property will fall. China may not make its 8% growth next year and if that happens then property prices will be the least of your worries, as this is pretty mcuh the agreed level of growth that China needs to sustain itself (and avoid social unrest).

The US and Chinese economies are linked at the hip - one manufactures and exports; one consumes. If you dont have your market to sell to then as you can imaigne you might be at risk.

In the face of such overwhelming evidence i can only assume that Ed is correct and you are jsut here for the wind up.

punter 16 yrs ago

You got to be more creative than that LG. Last time you said there were no fire sales because the number of transactions was low (while prices were going down). Now that the index shows an increase (albeit a small one) you're saying fire sales are over.

novaflux 16 yrs ago

just because the centa index is up slightly this month does not mark the end of crisis or fireselling or whatever assumption you may have. It just means that there is very little trading activity. The Bid and Offer spread between buyer and sellers are still very wide. That is volatility.

punter 16 yrs ago

You're a funny man LG. You got to be more consistent. If you don't want to use centadata, just don't use it. Don't pick on it when it just support your argument.

Besides, the weekly centadata index includes only transactions in Centaline Property Agency figures! It is the monthly data that includes all transactions from the land registry.

So you're just basing your conclusion in a subset of the property market.

sghkcn 16 yrs ago

LG, I'll bet you HK$10,000 that the property market will be worse next year.

sghkcn 16 yrs ago

To show that LG is a windup?

bing2 16 yrs ago

i thought this thread is filled with intelligent and smart people who are interested in hk property...........bet $10,000? this is hilarious......... would you pay if you lose? either one of you guys will disappear faster than lightning if you lose....

my sources told me that a lot of big companies in hk are already planning 5 - 50% cut on their work force. they will exercise this in the end of this month and also right before the chinese new year. right now people are still in holiday mood and some of them who lost their job already got compensated so they still have some money. let's just wait a few months when they run out of money and there is no job available.

top management has already know who's going to be cut, better find out (if you can) if your name is on the list.....i guess some of you are probably right, hk property is not the big picture....i was upbeat before, but i think prices will fall further after chinese new year and start recovering by the end of 2009. bottom has not been reached simply because the unemployment rate is still stable and people are still enjoying this holiday festive. just wait till the holiday festive is over.....if you got cash, i predict you can buy properties like centerstage (540sqf) for 3M - 3.3M (down from 5.5M) or queen's terrace for 2M - 2.2M (2 rooms). rents will be 10 - 20% cheaper than the current price. the old chinese walk ups around soho i predict will hold its value at around $4,000 - $6,000sqf because of its location and huge redevelopment potential. also because all of them are small units thus you can purchase it for 1.2M - 2M. if you want to look for a bargain look for big complexes such as the merton or bel air...where they are many supplies.....

sghkcn 16 yrs ago

LG, we have a deal. Now let's work out the mechanics.

I propose that each of us deposit HK$10,000 with an independent third party (e.g. Ed, although he may not strictly speaking be independent) who will hold the money as escrow agent. On Dec 17, 2009, the escrow agent will pay out HK$20,000 to whoever wins the bet, after checking the [Centa-City Leading Index] at http://www.centanet.com/cci_e.htm index (which is currently at 57.15) at midnight on Dec 16, 2009. If the index is higher, you win. If it is lower, I win. If it is the same, HK$10,000 will be returned to each party. If you or anyone else can think of a better way to do this, please suggest.

bing2, intelligent and serious people take bets all the time...

onemorething 16 yrs ago

I am going to spoil the party: only HKJC is allowed to take bets in HK. Pensioners have been arrested in HK for as little as $10 wagers.

onemorething 16 yrs ago

That's the one indeed! :-)

2004 it was I think.

cheeky 16 yrs ago

Changing the subject a little....

Has anyone considered investing in property in the UK/AU since the property prices have come down so much and the exchange rate from HK$ to GBP/AU$ is much more favourable now?

onemorething 16 yrs ago

Prices may look attractive to foreigner investors from HK, the US, Japan and the eurozone, but probably less so to the locals.

Do you intend to move to UK or OZ, if not, who is going to rent it from you?

qpzmgh 16 yrs ago

Just a point of correction on your UK domicile theory Lloyd.

The fact that you have no assets in the UK and have not lived there for 14 years does NOT mean that you are no longer UK domicile. In order to lose your domicility you need to apply and request for it to be removed. The fact that you have no assets there and don't live there will certainly help the process along but will not relieve you of your domicility.

Just to add that therefore your global assets would still be subject to UK Inheritance Tax at 40% above GBP355,000

Brit 16 yrs ago

"Domicile is a more permanent concept than residence. Basically, an individual is domiciled in the country that is their permanent home, with default to the domicile from which they originate if no permanent base is established elsewhere.

An individual domiciled in a UK jurisdiction is liable to UK IHT on worldwide assets. It does not matter that the individual may not live in the UK. To have any chance of avoiding this comprehensive liability, the individual must lose their UK domicile, but this is not easy.

Losing UK domicile involves not only leaving the UK with the intention never to return, but also the acquisition of a domicile of choice in another jurisdiction. This means the individual must live in the new country and also demonstrate their intention is to live there permanently.

Even if the individual does manage to change domicile, abandoning their UK domicile for a domicile of choice elsewhere, there is a further problem - IHT rules impose a UK tax burden on those deemed to be domiciled in the UK as well as on those actually domiciled elsewhere. Individuals will be deemed to be domiciled in the UK even if they have been resident elsewhere for 17 out of the 20 previous tax years.

They will also be deemed to be domiciled in the UK for three years after ceasing to be "officially domiciled" under general law. So even if someone's intention when leaving the UK is never to return, and they can show an intention to live in the new jurisdiction forever, deemed domicile will endure for another three years after taking on a new domicility.

Its worth bearing in mind also that the Inland Revenue will never confirm that your UK domicility has been revoked in case they decide to challenge your status after death."

Ed 16 yrs ago

Anyone have the story from SCMP property post today re: predictions for the HK property market?

punter 16 yrs ago

Wrong link....

Ed 16 yrs ago

Yes I noticed heheh... they really go the China market prediction wrong in that 2007 article!

janes addiction 16 yrs ago

http://www.scmp.com/portal/site/SCMP/menuitem.2af62ecb329d3d7733492d9253a0a0a0/?vgnextoid=3208acaf5ef3e110VgnVCM100000360a0a0aRCRD&ss=Property&s=Business

Decline in prices and rents to go on next year

Office, retail sectors will be among the worst hit, say analysts

Peggy Sito

Dec 17, 2008

Property prices and rentals in Hong Kong are plunging across the board as the year draws to a close - and the retreat is expected to continue in the new year, experts say.

But though there is consensus that the global financial crisis will ensure a continued decline in prices and rents in 2009, analysts are less certain how long the retreat will last and how low prices may go before they hit bottom.

punter 16 yrs ago

in addition to Jane's post...

"An analyst makes predictions based on previous history. But we have

not had such a crisis in the past 100 years," said Simon Lo Wing-fai,

director of Colliers' research and advisory division.

Given the difficulty of making reliable forecasts in the present

volatile climate the best bet from analysts is that the downturn in

the property market will last more than a year.

That outlook assumes Hong Kong's GDP could decline as much as 5 per

cent next year, taking the unemployment rate up to 5 per cent.

But the decline will vary in different sectors and retail and grade A

office segments are expected to be among the worst hit. Mass housing

will be less affected, analysts say, since capital values in this

sector had not surged as sharply during the boom as other sectors.

"Prices and rents in all segments have plunged more sharply than

expected in the past few months," said Mr Lo. "Developers, landlords

and speculators reacted aggressively, slashing prices immediately

after the collapse of Lehman Brothers in September."

That view was endorsed by property agents who said some owners seeking

a quick sale of luxury homes had slashed prices as much as 50 per cent

in the past two months. Jones Lang LaSalle said luxury home prices had

so far fallen 18.9 per cent on average in the fourth quarter.

There was a sales transaction of a grade A office unit in Admiralty

after Lehman Brothers collapsed and that showed a 45 per cent fall

from a previous transaction in the same area.

Hit by worsening sentiment, weakened demand and the closure of some

retailers, prices and rents of retail shops fell 13.4 per cent and

about 11 per cent, respectively, in the second half. They could fall

as much as 50 per cent next year.

"Office prices are likely to show a decline of 30 to 35 per cent once

fourth-quarter data is in and that will be a record fall since we

began keeping data in 1992," said Savills senior director Simon Smith.

Average capital values of grade A office space in Central were

expected to fall about 46 per cent this year and could even fall

another 15 per cent next year, he said.

The downturn in the office market was triggered by the downsizing and

closures that followed in the wake of the global financial crisis and

brought an end to a growth cycle that had seen rents rise for 20

consecutive quarters from the third quarter of 2003.

"In 2009, we will see more companies downsizing and surrendering

space, leaving new letting demand to be driven mainly by relocation

requirements as tenants seek cost-saving solutions in non-core

districts," said Gavin Morgan, international director of Jones Lang

LaSalle.

In Central, Mr Lo predicted rentals of grade A offices would

eventually settle about 50 per cent lower than they were at the last

peak in the third quarter of this year.

In the residential sector, analysts expected luxury home rents to fall

a further 20 to 25 per cent next year after a fall of 15 per cent in

the fourth quarter as investment banks laid off staff and cut housing

allowance budgets.

But buyers of small to medium-sized homes began returning to the

market last month, with developers such as Sun Hung Kai Properties

(SEHK: 0016) and Henderson Land Development (SEHK: 0012) generating

good sales from new launches.

Ricacorp Properties said there were 248 transactions in the secondary

market during the week from December 8 to 14, up 34 per cent from the

previous week. "But when buyers look back at their deals this time

next year, they will find they paid too much," said Patrick Chow

Moon-kit, Ricacorp research manager.

"When will we see the bottom? It could be one year or three years."

Nonetheless, he predicted a further decline of about 20 per cent.

Mr Smith said the real economy in Hong Kong would feel the pain of a

slowing US and Europe with a knock-on effect on employment. But new

supply levels were low and this would provide some support for values.

Ed 16 yrs ago

Loyd - do keep in mind that the market tanked 70% during the Asian Crisis. Would a 60% tanking be considered pleasant?

At the end of the day there are anecdotal reports and comments from pundits that will support just about any position therefore you have to use your head and make your own decisions.

This thread contains a huge amount of very useful information as to what is happening in the global economy and well worth reading through if you want to understand things from different perspectives and apply the knowledge to predicting the direction of HK property

http://hongkong.asiaxpat.com/forums/living-in-or-moving-to-hong-kong/threads/120744/coping-with-the-crisis/

punter 16 yrs ago

Have you offered to buy a flat lately LG? Was the offer you made according to market prices or 30 to 40 less than the asking price?

If the 2008 financial tsunami ended today, then yes, the downturn is not as bad as 1997. Let's wait and see what's going to happen sometime around April or May next year (or exactly a year from now - based on the preempted bet between LG and SGHKCN which is 16Dec2009).

I believe it's premature to claim anything at this time.

qpzmgh 16 yrs ago

"Loyd, you're comparing something that has ended with something that has barely started. Let's see how things look after the feel good time of the year passes"

thats a great line. !!!

Sad Sack! - Your right - BUT US Treasuries are a bubble. in 6 months to a year those prices will be toast.......their not a safe haven - its just perception.

punter 16 yrs ago

That's my point LG, you're not putting your money where your mouth is. If you believe that asking prices are reasonable now (already low) and they're not going down any longer, then you don't have to ask 30% lower, right?

Or maybe you're just being a shrewd property buyer, or testing your property theories?

sghkcn 16 yrs ago

walkup2, many thanks for the info. I will contact my broker tomorrow.

bing2 16 yrs ago

70% drop in 97 - 03 was not caused just because of the asian economic crisis but also because of sars in 2003. without sars we would be looking at around 50% drop.

before 97 everyone has 1 - 3 flats in hands. buy in the morning and sell in the afternoon. who does that now? less speculators these days as many of them got burned in 97 and still trying to recover.

prices will probably be lower a bit more in Q1 next year but will never go as low as sars - unless we have another sars....even so our home owners are now in a much better shape than in 97 as stated by hkma.

sghkcn 16 yrs ago

bing2, you are anchoring on one factor, the fact that people don't borrow that much. Earlier this year, some people anchored on LOW INTEREST RATES facilitating easy borrowing. Last year, people said that China would DECOUPLE from the US. Then an idea was circulated that the OLYMPICS would save us all, and people and property agents merely repeated what they heard.

But all of them were wrong. The truth is that the problems that the global financial system faces are systemic and severe and this is supported by the fact that governments in almost every country are taking desperate, unprecedented measures after central bank meetings and consultations at the highest level have and continue to take place.

The average investor depends on information received from the press and on the news. But the real problems are never disclosed until they have to be. The truth is that there are further problems down the pipeline. They have not been disclosed to the public yet (because there is no need to), but I am at least aware of some of them. See e.g. http://www.ft.com/cms/s/0/622acc9e-87f1-11dd-b114-0000779fd18c.html

3 rules:

1. What happens to the US will affect Europe and Asia (especially countries that heavily depend on trade and export to the US).

2. What happens to financial markets will happen to stock markets, only a matter of time.

3. What happens to stock markets will happen to property markets, only a matter of time.

When will the market turn around? When the US start to show that its economy and financial system have stabilised, and that it has the potential to turn around. That will not occur anytime soon as there are fundamental difficulties which have to be addressed and dealt with. At the moment the governments are treating the symptoms, not the cause, by printing money but they have no choice as the first task is to restore confidence to the markets. Confidence to the markets to people like you all over the world so that you will not sell all your assets and cause a global crash worse than what mankind has ever seen.

http://www.economist.com/finance/displaystory.cfm?story_id=12813430

So it is not accurate to anchor to simple factors like whether home owners are cash rich or whether they borrowed a lot or a little. The property market is not driven by home owners per se, because almost everyone has a mortgage, which may be recalled or disrupted if the bank is going to die. And when companies and financial institutions collapse, it will be sub-prime style.

http://en.wikipedia.org/wiki/Financial_contagion

http://en.wikipedia.org/wiki/Flight-to-Liquidity

Last but not least, it is not accurate to rely on the recent rise in the Hang Seng index because

(a) historically, markets always rise as we approach Christmas; and

(b) markets do not travel in a straight line.

sghkcn 16 yrs ago

walkup2, it appears that there is no option derivative available for the HS Property Sub Index. (My broker thinks HKEx did not create one for this Sub Index). In any case, the Sub Index does not reflect Property Prices (how much per square feet that a layman can buy or sell at), rather, it reflects the stock price of companies such as Cheung Kong, Sun Hung Kai, etc... Their stock price reflects how well the company operates as a property developer (or whatever investors or speculators think about this company), and is not correlated to the Centanet property index.

bing2 16 yrs ago

sghkcn, your comment is noted. however it is unlikely that banks in hk will go bust. all of them are so conservative in lending their money or when buying investments. they are very, very careful in mortgage lending after the last crisis in 97. and no bank in hk has over 70% mortgage.

i know i only factored in the holding power, but if you have the holding power, would you sell at lower price? people only sell at loss when they urgently need money or they can't pay their mortgage anymore. if banks in hk go bust, well, good luck to all of us....

sghkcn 16 yrs ago

walkup2, Mark Mobius made wrong predictions last year and continues to make wrong predictions. A friend of mine used to work for him but has since joined another fund. The problem here is that these "experts" get away with making careless statements or guessing, and when they are proven wrong they conveniently forget their past statements and the media allows them to get away. See e.g. http://www.cnbc.com/id/21248939/

http://www.rediff.com/money/2007/oct/18inter.htm

Since last year, Lee Shau Kee was wrong about the Hang Seng Index, Merrill was wrong about the HK property market, Jim Rogers was wrong about oil, Jim Sinclair was wrong about gold, Temasek was wrong about IBs, China was wrong about Blackstone, and LG was and continues to be wrong about HK property prices.

My respect goes to George Soros and Marc Faber who have been right, but that is not to say that we should blindly rely on experts. The best thing is to use common sense and logic. i.e. what is the business case and where is genuine growth (and not inflated money) going to come from?

sghkcn 16 yrs ago

bing2, you are anchoring on the fact that since banks are conservative with lending criteria on home mortgages, we will not see a repeat of 1997. But that depends on the definition of conservative, and pre-supposes that they got their criteria right. Think about how the sub-prime crisis occurred.

In addition, banks do not only dabble with mortgage lending. For example, HSBC in Hong Kong also relies on Commercial Banking, Global Financial Markets and Private Banking.

http://www.hsbc.com.hk/1/PA_1_3_S5/content/about/about-hsbc/pdf/gfactsheet_aug08.pdf

It's a domino effect, and at some point, the dominoes will have to fall.

http://en.wikipedia.org/wiki/Credit_default_swaps

http://en.wikipedia.org/wiki/Alt-A

bing2 16 yrs ago

sghkcn, of course banks do not just rely on mortgage lending. i however feel you cannot compare banks criteria for lending money in hong kong and in the us where the sub-prime occurred.

in the us, the past 5 years banks were trying to lend you money for mortgage. all you need to do is show up with your id card and it's done deal. your 14 years old nephew could have gotten a loan for USD 1M. this would never happen in hong kong. sub prime happened because of irresponsible lending by the banks because their staff were too greedy to earn their bonuses.

i feel the property prices have now stabilized the only way this will go down further is when unemployment rate goes higher in the next few months which many experts predict will reach 6%.

sghkcn 16 yrs ago

Point taken.

punter 16 yrs ago

We're officially on recession, right? During recessions, do property prices go up or down? All books, history, and first hand experience say prices go down.

Hopefully, the recession doesn't last long.

And if the recession ended today, LG will be right! ;-) as we've reached bottom!

I'm one with Bing that here in Hong Kong, the job market is one big worry. If it reaches 6%, there will be big trouble not just in the property market.

bing2 16 yrs ago

i think market has stabilized for now since this is a long holiday season thus not many people are selling and buying. also, in my personal opinion, market is already quite immune from bad news about credit crunch, financial crisis, or recession. it is already part of our daily life.........unless a bank in hk collapses....

hard to say if we have bottomed out or not. right now companies have not done their firing yet. they all are waiting until after CNY and in April after announcing their Q1 result, which most likely will not be as strong as last year's result. so this will give them a good excuese to let go some staff.

but put in mind, hk people buy sentiment. right now the sentiment is still bad, so there are still chances to get good deals. good deals in hong kong can only be found when sentiment and confidence is weak. right now you can make low offers because a lot of people are still uncertain and feel the market will go even lower. many landlords will probably reject your offers, but few may take your offer. if you are still not sure and afraid, wait until after april 09. in april we will know much more on how the global slowdown is affecting hk companies and unemployment rate.

whitepaul 16 yrs ago

I don't think it has bottomed out. The lack of activity is a sign that people are waiting for further falls:

http://www.scmp.com/portal/site/SCMP/menuitem.2af62ecb329d3d7733492d9253a0a0a0/?vgnextoid=deb4db726438e110VgnVCM100000360a0a0aRCRD&ss=Property&s=Business

Approvals for housing loans in Hong Kong fell to a 33-month low last month because of a slump in demand and tighter lending from banks amid the global economic crisis.

Mortgage approvals dropped 37.9 per cent from October to HK$8.48 billion, which was down 69.3 per cent from November last year and the lowest since February 2006, the Hong Kong Monetary Authority said.

"The decline reflects banks' conservative approach in approving home loans, as well as deteriorating market activity amid the financial meltdown," said Hendrick Leung Lee-chung, a director and general manager at Centaline Finance.

Rising unemployment and falling wages have kept away many home seekers, prompting property sales to drop 37.5 per cent to 3,786 units last month from 6,054 in October, according to figures announced earlier.

Of the total last month, approvals for refinancing loans dropped 49.1 per cent month on month to HK$1.31 billion, the HKMA said.

New loans approved for secondary-market transactions fell 37.4 per cent to HK$5.83 billion and those for primary market purchases slid 24.7 per cent to HK$1.33 billion, it said.

Property agencies are expected to see their commission income slump this year, while the outlook for next year remains challenging.

HKForGood 16 yrs ago

Had post-xmas house warming at friends place in Happy Valley. They managed to negotiate approx 50% reduction on their rent on a 2000+ sq ft apartment (from 90K to under 50K). The apartment was empty for over 6 months....

Walkup2 - the Dec 26th SCMP article says that people are mainly interested in buying cheap flats and transaction volumes are at all times low with experts predicting a bottom in 2010 (where on earth did you get a bullish/positive view with this article ?).

Ed 16 yrs ago

Just back from The Bank - since my last visit (6 weeks back?) I am told the average property sale price has now dropped another 5% Mortgage facilities are not a problem - valuations are extremely conservative.

bing2 16 yrs ago

banks are still lending and they are definitely still lending 70%. valuation is conservative but not so bad. you can still get mortgage quite easily if you have steady income and good credit rating.

the world economy is still quite bleak but the impact in hong kong and china is not that great, at least for now. i would stay away from major estates but if you find a bargain unit around soho/ noho area, why not?

onemorething 16 yrs ago

China is extremely hard hit already. Exports and imports completely collapsed in November. Hong Kong is officially in recession now as well (as measured by decline in GDP). And this is only the beginning.

Even if the banks approved every mortgage application, I don't see a recovery in the HK housing market any time soon. Who wants to buy in these times of economic contraction and uncertainty? It will have to come off a lot more to get potential buyers interested again.

bing2 16 yrs ago

thousand of factories were also closed when the economy was good. this is normal as there are so many factories in guangdong. hong kong is in recession but at the end of the day it is the unemployment rate that matters the most for hong kong. what recession if the unemployment rate is still stood below 4%? same goes for property, it wont go down any lower if unemployment rate is steady at below 4%. those factories owners may own a few flats in hong kong but they make a very tiny small percentage of home owners in hong kong. most of the home owners are regular joe's like us....as long as joe still can find job, market will be steady......

onemorething 16 yrs ago

Rent is catching up quickly with the drop in real estate prices. I reckon rental yields in Mid-levels are approximately 4.5%, which is in line with other risky assets, such as shares (HSI has projected dividend yield of 5%). However I expect all of this to decline further based on the economic environment.

talllatte 16 yrs ago

I am in manufacturing and went through 97 and 03 relatively unscathed. The situation at the moment is far worse, many suppliers over the border have disappeared and the most relaible ones are now giving us very long lead times, they won't commit on a date until after CNY.

It's a very surreal situation now, almost like we are in the eye of the typhoon, everything is very quiet as we wait for the next storm. I do hope it is not as bad as it seems like it is shaping up to be.

elsdon 16 yrs ago

I wonder how many times LGMV is going to mention the local market bottoming out before it actually does.. My tally is at 13 so far. Inevitably, if you keep saying it, you'll end up right LGMV. Great tactic!

Posted by Loyd Grossman is Miss Venezuela (52 days ago)

Oh... Looks like we're having a short squeeze in the stock market... Hang Seng up 500 points and other Asian stock markets rallying. Is this a flash in the pan or the beginning of decoupling? Could we see rent rises on the horizon?

Posted by Loyd Grossman is Miss Venezuela (46 days ago)

I see corporate borrowers (albeit very good names like Danone and Finmeccanica) are returning to the international bond markets. Is this credit crunch now coming to an end?

Posted by Loyd Grossman is Miss Venezuela (42 days ago)

Sun Hung Kai's new Yuen Long mass market property 'La Grove' seems to be clearing okay at the YOHO Town secondary market price of $2,500-4,500 per square foot... Are we bottoming out? Bond market is slowly coming back and we appear to be over 14,000 on the HSI.

Posted by Loyd Grossman is Miss Venezuela (40 days ago)

Mr Cynical, All HK properties are on the market. blah blah.. Deals are starting to flow again. Stock markets stabilising as off-loading comes to an end.

Posted by Loyd Grossman is Miss Venezuela (39 days ago)

The fact that last night's appalling ISM Non-Manufacturing figure of 37 did not sink the US stock market is quite a strong buying signal. It shows that the recession is becoming old news and that we may be bottoming out..

Posted by Loyd Grossman is Miss Venezuela (35 days ago)

Looks like the property market has bottomed out already.

Posted by Loyd Grossman is Miss Venezuela (32 days ago)

Sentiment has improved greatly over the week. Looks like we have found the bottom of the stock market. Expect landlords and sellers to be a bit tougher.

Posted by Loyd Grossman is Miss Venezuela (28 days ago)

The Centadata Property Index was up on Friday for the first time in several weeks suggesting to me that the worst for the HK property market may now be over. I put this fact up earlier but Ed (mistakenly I think) deleted it.

Posted by Loyd Grossman is Miss Venezuela (28 days ago)

No I'm serious. I think much of the stock market selling is now at end and the same goes for desperate HK property sellers (which is why I mentioned the Centadata as it is based on latest transactions). I'm not saying we are booming just that we appear to have bottomed out.

Posted by Loyd Grossman is Miss Venezuela (28 days ago)

Centa City Leading Index up 0.4% on the week, Mass Centa City Leading Index up 0.36% on the week. I'm saying we may have bottomed out. Fire sale selling may be coming to an end. Of course, the number of transactions is irrelevalent here as it only reflects a small number of fire sales.

Posted by Loyd Grossman is Miss Venezuela (28 days ago)

No, I said the sharply falling index reflected fire sales and was therefore not a good indicator of the overall because it wasn't backed up by a large number of transactions. Now that the Centadata Index appears to be bottoming out, it seems to be showing that fire sales have come to an end.

Posted by Loyd Grossman is Miss Venezuela (14 days ago)

Mass market holding up. I see Centadata appears to have bottomed out.

Posted by Loyd Grossman is Miss Venezuela (4 hrs ago)

I see the Centadata index was actually up last week. Local market appears to have bottomed out.

Future looks bleak but there is no safe spot for cash. Every investment right now will be a poor investment, and holding onto cash might burn you when inflation hits. Hopefully HKD will unpeg from USD by then.

Property market is still at near peak.. I think getting into it now would be suicide. Be prudent with your spending and work hard at your job, I'll see you all at the other side.

punter 16 yrs ago

During the SARS downturn, a lot of business closed right after the Chinese New Year celebrations. Businesses just took advantage as much as they can during the festive season and then let go of their staff and closed their business immediately. The same thing can happen this year. However if after the CNY and no such thing happens then employment numbers might not be as dire as expected by many.

bing2 16 yrs ago

not a good idea to say that obama's plan will not work. the fact is no one knows if us gov bail out will work or not.....no one knows......give it some time

market has definitety not reached the bottom yet. unless you have a very special unit, if you want to sell in today's market you have to price it 10 - 30% below bank valuation.

HKForGood 16 yrs ago

LGMV - do you really think that the property market will make a V shape recovery after 1-2 weeks of smallish gains ? Now than rents are falling along with vacancy rates, the true value (and strength) of HK property is now on display. Just look at the '97 bubble. A 7 year bear property market was the result of that even with a 50% recovery in the Hang Seng.

The Hang Seng got hammered by approx 1500-2000 points over the past few days... that bear market rally suckered in quite a few more investors....

The banks are giving low valuations and selective with who they will borrow to... this reduces the supply of buyers and any laymen knows what that will do to prices of anything in any market. Period.

Anonymous 16 yrs ago

We own a studio in Soho and we renting it for 14k per month. The tenant terminated the lease after 12 months and we put it back on the market at 12k per month over two months ago. We have shown it to many people but there have been no takers, not even counter offers.

We are considering reducing the asking rent to 10k per month but even then we are expecting to get no more than 8k per month.

The only saving grace is that we bought this flat in 2004 so even at 8k the return is acceptable. But we have probably lost all the gains we made in the last 4 years because if we tried to resell it we'd be lucky to get what we paid now.

onemorething 16 yrs ago

There are always people that need to sell and buy for whatever reason. Properties are just like any other asset class subject to supply and demand. Which in turn is driven by affordability and expectations of future returns. (rental yields and cost of mortgage). It is obvious that the current economic environment will force property prices down as it has already. It is not rocket science.

bing2 16 yrs ago

Market sentiment is very low now but it is still very difficult to find units for sale in soho area for under 2 million (400sqf, chinese walk-up). anyone knows any unit for sale below 2 million in soho?

HkJay 16 yrs ago

Beerboy, as someone who works in logistics/export I can say that we are in the middle of the worst period right now- it hasn't bottemed out yet but will do so in another few months. Li & Fung has only seen some bad press due to bankruptcy of two customers recently- KB and Mervyn's. I'd say it's a good buy at its current price but these days the macro environment overshadows any individual company's performance.

As for the property market, does anyone know of any good resources/websites that one can use to quickly judge average sale prices?

Ed 16 yrs ago

http://hongkong.asiaxpat.com/property/

novaflux 16 yrs ago

for those of you who believe what the mickey mouse government is telling you here in HK think again. RMB business will life HK's economy? I think this is the world's greatest joke on earth and just like all the useless and inaccurate comments of reassurances they may give you. You will know in 3 months that this are all just nonsense. Go read back all the comments over past 6 months what they say and you will know what I mean.

Sell your property, any property here now if you are unlucky enough to still hold on to it. Or hold on to it for the next 50 years. the age of economic armageddon is on us. Forget about what the banks tell you or analyst when they say over 5 year period things double. You only need to look at 12 mths history.

And lastly I often ask people this simple question (you will be surprised how even yourself would not realise it). If you owned an asset of HKD 1mm dollars and market plunges 50%, how many percent would it have to grow for you to break even? Many of you will intuitively answer 50%. This is why when a crisis hits, it takes twice as long to recover...

If you had lost 50% you will have 500k left and 50% of 500k is 750k not 1mm where you started.

novaflux 16 yrs ago

Hey don't get me wrong i agree with you LGMV totally

I am just telling you HK is the wrong place in my humble opinion.

The world order is changing, China will no doubt be a huge economy and eventually they will move into a free capital economy if they wish to remain a world power. HK is losing it's importance as a proxy to China , COupled with environmental distruction, poor infrastructure and it's crumbling healthcare services, new havens will emerge.

Well property is no doubt a good inflation hedge when an economy recovers as you enter the market and went long on property to ride the wave. If you are holding on to a property now and it crashes 50% you are better off selling now in an age of deflation and wait to ride the wave.

As markets open up, the economies that have solid fundamentals will rise faster.

novaflux 16 yrs ago

maybe you are right, but i personally feel properties elsewhere will have a higher growth potential when economy eventually recovers. i am of course talking about investment properties not buying one here and living in it type of people.

onemorething 16 yrs ago

If we go through high inflation, expect mortgage rates to be at 20% or higher! Hmmm... maybe property does not look so hot and affordable then after all!

punter 16 yrs ago

During hyperinflation, real estate is not a very good hedge. If it does happen, it's not just real estate prices that's going up: everything! Mortgage/rent up, eggs, bread, rice, noodles, etc.

I would say though that a home without a mortgage (100% paid) would be okay as you're not going to think of mortgage payments or rent.

But what if hyperinflation is not going to happen but deflation instead comes? Then those who bought real estate will be the losers, right?

punter 16 yrs ago

Loyd, with hyperinflation, salaries can't keep up with prices (basic necessities and services/utilities) including mortgage rates. Many homeowners then who has a mortgage may not be able to pay for it and may eventually lose their homes to the banks. This is the reason why I think that paying off your home (if you can afford it) is a good choice at the proper time. Timing is another difficult thing to do.

On the other hand, I think that there's no point in comparing real estate in HK and the US or in any other place in the world. If you got the dough, just get anything you like...

onemorething 16 yrs ago

IslandHopper> I have to correct you. Many of the Central / Eastern European countries that joined the EU in 2004 have very low flat tax regimes.

I have to agree with LGMV. Of course I can buy a cheap mansion in Romania, but I wouldn't be able to find a well-paid job that matches HK lifestyle.

Ted the Angry American 16 yrs ago

I hear the blood-donation industry is quite popular (though not all participation is voluntary)

Back on topic... how to you guys see impact to non-hot spots like mass residential in NT... Tung Chung, Tuen Muen, Gold Coast (apparently hanging on), etc. Also how do village houses and the like fare in HK during property booms/busts?

onemorething 16 yrs ago

Although I am inclined to believe that as well, do you have any facts to back that up? E.g. NT sqft price development during "1997-SARS-present" vs Central? Just out of interest, I am not questioning you! :-)

evildeeds 16 yrs ago

"NT properties will be bought for living or renting out, not that much for speculation."

IH, you'd be surprised Money from the mainland has made a huge difference in the past couple of years and will continue to do so as people get money out of China to avoid taxation. A lot of burned fingers on the Palazzo already. Higher end properties in Shatin are down 20 - 30% already so pretty much following the market. North of Tai Po there's less of an impact and places such as Fairview Park are holding well.

Village houses are usually less prone to ups and downs, however some of the asking prices especially in the SK/CWB area went up over 50% last year alone. They will be hit hard as changes to financing make it almost impossible to buy unless paid in cash.

bing2 16 yrs ago

fact is no one had any clue if the bailout is going to breathe live to world economy. maybe it wont work, maybe it will work, maybe they will inject more money, who knows?......for those people who compared this recession to the great depression should read more about the great depression. the world has changed since 1930's, you cant compare today's recession to 1930's great depression.

onemorething 16 yrs ago

All is relative! In the 30s the US economy contracted 30% over a five year period. Something similar may happen again in real terms. Perhaps not in nominal terms, because of the frantic money printing that is going on. Do I expect begging children on the American streets again? No, the developed world has progressed economically. But children going to school hungry is the modern day equivalent of the Great Depression.

A recession is when your neighbour loses his job. A depression is when you lose your job. Personally I still do not rule out a collapse of the monetary system in 2009 and if that happens (and I truly hope it won't) then we are immediately in a situation that will rival the Great Depression in severity. It will be equal on the scale of the collapse of the Sovjet Union.

bing2 16 yrs ago

"A recession is when your neighbour loses his job. A depression is when you lose your job." - Hahaha, this is so funny.......

During the great depression when the US economy contracted the Fed or gov worldwide did not take any bold move, such as lowering the interest rate, bail out banks, etc. Now every gov in the world is responding to the crisis and this issue is in the top of their agenda......

lots of people in this thread think the bailout will not work and it is only going to make things worse.......well, what makes you think you know better than the US gov and their economy advisors? during the great depression who got people out of it if it wasnt the gov? also, do you think they dont have a back up plan?

onemorething 16 yrs ago

Why put so much trust in the government, if it is the same people that lead us into this economic mess that are now trying to get us out of this mess? For example I know better because I have a combination of experience, education, common sense, brains and a huge dose of cynicism. AND I don't have any political agendas or corporate interests that I need to protect. In that sense I often like the analyses of Noble prize winning economist Joe Stiglitz, which are mostly devoid of any hidden agenda.

Edit: typo

onemorething 16 yrs ago

Negative equity is not the only thing that moves or supports house prices. The question is how indebted the property owners are. Hongkongers with money-losing factories in China need to raise liquidity and are forced to sell their speculative property portfolio.

mayafox 16 yrs ago

As unemployment increases and the global impact of a depression worse than the 1930s kicks in, property in HK is going to be in a far worse state than during SARS, which was just a local issue.

And that's not adding in the huge unspoken risk - potential social unrest in China as unemployment kicks in there and dissatisfaction with the government increases.

That sort of thing happens then flats in Hong Kong won't be worth the cement they are made from. Right now that catastrophic risk is most definitely not yet priced in for flats which remain per square foot amongst the most expensive on the planet.

bing2 16 yrs ago

this thread is funny. some predicted the prices will fall lower than sars (or cheaper than cement per square foot), some said this is the bottom......truth is no one knows how deep is this global recession, how long this going to last and how much it will effect the property market.....stop saying stuff you dont really know like prices will be lower than sars or cheaper than the cement they are made from.....

dont forget to factor in that hong kong's economy is in a much better shape than in 1997 and 2003.

we are already 30 - 50% below last year's peak, and basically prices have remain steady......

onemorething 16 yrs ago

I don't see too many people make specific claims about where the bottom is, although some certainly do. Definitely read some interesting views here about how different scenarios might play out.

I am of the opinion that if you throw out conventional thinking, which is essentially based on people's historic experience, you can make a reasonably fair assessment of where the global economy is heading, and it is not pretty. That does not bode well for the HK property market even at current "depressed" prices.

bing2 16 yrs ago

prices in some areas are still high. some landlords are still in denial, seriously, just look at what they posted in this website - owner's direct sale....4.5 million for 550 sqf in hunghom????

Ed 16 yrs ago

IMF Chief Says Nations in 'Depression'

International Monetary Fund chief Dominique Strauss-Kahn said the world's advanced economies -- the U.S., Western Europe and Japan -- are "already in depression," and that the IMF could slash its global growth forecasts further. The "worst cannot be ruled out," he said.

The IMF managing director's comments to reporters after a speech in Kuala Lumpur, Malaysia, represent the most dire estimate thus far of the state of the global economy by a major political figure, and were far more pessimistic than forecasts released by the IMF as recently Jan. 28.

Political figures generally avoid using the word depression because of the association with the Great Depression of the 1930s, when unemployment hit 25% in the U.S. and economic output fell even more steeply. Last week, when British Prime Minister Gordon Brown used the word "depression" to describe the global economy, his aides quickly said it was a slip of the tongue.

In the U.S., chief White House economic adviser Lawrence Summers said that while the economic situation was serious, it wasn't as bad as Mr. Strauss-Kahn seemed to suggest.

"We were really in a very different situation than" the Great Depression, he said on ABC television's "This Week with George Stephanopoulos."

Since the events of the 1930s, there hasn't been a widely accepted definition of economic depression.

Former IMF Chief Economist Simon Johnson, a professor at MIT's Sloan School of Management, said the term refers to a significant contraction that lasts around five years. Under that definition, he said, Japan during the 1990s could have been classified as having been trapped in a depression.

Whatever the definition, by using the word "depression," Mr. Strauss-Kahn, a 59-year-old former French finance minister who has worked for decades on economic issues, has achieved shock value.

That could increase political pressure on national leaders on at least two fronts, Mr. Johnson and several IMF officials said.

The IMF has been campaigning for months to get governments in many countries to boost fiscal spending by about two percentage points to fight the global downturn. It has recently pressed governments again to repair their banking systems, even at a steep cost.

But it has been frustrated by what it feels is an inadequate response, especially in Europe, where governments worry that additional spending will lead to unmanageable inflation. U.S. plans have brought more applause by IMF officials.

The IMF also has also begun to campaign to double its lending war chest to $500 billion, from $250 billion. The declaration of a depression could help Mr. Strauss-Kahn pressure reluctant IMF board members to pitch in and fund that plan. The IMF is close to finalizing a deal with Japan for a $100 billion loan that could be tapped in emergencies, and plans to call on other countries with large reserves, such as China and Saudi Arabia, to make emergency loans available too.

In addition, the IMF is considering issuing bonds for the first time in its history. It's likely that such bonds would be sold only to governments or central banks; in that way, they would become part of those nations' official reserves. The holders of the bonds could sell them to other nations, though probably not on the open market. That would make the bonds a more liquid version of loans to the IMF.

Issuing bonds is seen as a more controversial measure by some IMF members, especially the U.S., Germany and the Netherlands, which prefer to keep the IMF on a tighter leash by limiting its ability to lend.

http://online.wsj.com/article/SB123412011581660991.html?mod=googlenews_wsj

Neo Dog 16 yrs ago

Anybody think $15/sq ft rental is expensive for a low floor flat on King's Road in the current market? Fairly old building that was renovated in the last year or two but fairly noisy during working hours.

Ed 16 yrs ago

Do you not think the fact the IMF has called a Depression has extreme relevance to the discussion of property assets?

I am beginning to question whether you are winding people up....

onemorething 16 yrs ago

I have said it before on this thread, and I will repeat it again. How can price inflation possibly take hold in a recessionary economy? It does not make any sense. And even if inflation would happen after say 5+ years, what do you think will happen to mortgage rates? It will be the USA in the late 70s all over again: 20% interest rates. It will kill property prices!

mayafox 16 yrs ago

Well Loyd's argument does have some logic.

US/UK/Euro area all printing money - severe inflation probably coming soon.

Yes very high interest rates / high unemployment /high bankruptcy rates (like 1970s UK) but also rapid real depreciation of debt as anyone who bought property in the sixties for tuppence knows - look at house prices 1968-1982 in UK (....as long as you can sustain the payments).

Loyd's prediction is a particularly optimistic possibility. But given how high Hong Kong property prices (say compared to 1960s UK or 1960s HK) are already by any comparison I think it's highly unlikely. The income multiple to property price is incredibly high and will only get higher as salaries get slashed and unemployment increases.

But then the real risk (perhaps comparing economic conditions in HK over the last ten years is very unwise):

1930s economic depression led to increasing xenophobia, nationalism (frighteningly prevalent in China), trade protectionism, fascism, and ultimately, god-forbid, war. Unrest in China, possibly triggered by mass unemployment in the migrant worker population, would completely wipe out Hong Kong.

The analogy could very well be Shanghai property in the 1930s - ask Shanghai families in Hong Kong whether they got a single cent back of whatever their families invested in Shanghai property then after the unrelenting ravages of depression, World War II, then communism over the next three decades.... do you think many people in swinging and booming 1930s Shanghai saw that coming?

As they say, history repeats.

But for my children's sake I hope it doesn't and that Loyd is right and 1997/SARS was the be all and end all of economic difficulty.

onemorething 16 yrs ago

walkup2> You are right stagflation is (price) inflation in a recession. The US was in stagflation in the late 70s (and many other countries). I don't think this scenario can play out right now because of the overwhelming debt deflation on a global scale. In other words I do not see any demand push driving up prices, nor a monetary inflation (money printing) that allows for relative currency devaluation. Where is the consumer going to get the money from to drive prices up? It will take at least 5 years in my opinion, before inflation could pick up. Don't get me wrong, if there is a monetary collapse then property is a valuable asset, but it is risky strategy to take on debt to buy a deflating asset in the hope/expectation of a collapse. If the collapse stays out you are stuck with debt and a depreciated asset (and perhaps no job).

onemorething 16 yrs ago

Hang Lung Properties has HK$4 billion in bonds and loans maturing in 2009, so he may have to sell a couple of 1000 properties this year to free up some cash.

mayafox 16 yrs ago

Luxury property in particular is heading down fast and will never recover for at least a decade or longer. The price of property is at extreme heights because of Finance driving massive pay inequities in HK (your average senior finance professional earning 10 times as much as a brain surgeon, or 100 times as much as a nurse). The bonus culture of finance will never be the same again with public backlash against extreme greed in the Finance industry and salaries come down to earth. Trade/manufacturing/shipping (the other pillars supporting HK) are all dead in the water whilst the West has no money to spend.

Unlike the US/Europe, HK has no agriculture/mining/natural resources/defense industry/aerospace/pharmaceuticals etc. to fall back on either.

Property is going to drop off a cliff.

As for gold, maybe - but it is a risky asset as the price is so easily manipulated by the Central Banks. Gold is also looking like a bubble (though probably a while from popping yet) - it's not actually used for hardly anything except as jewellery and jewellery sales are also crashing worldwide. It's just a store of wealth for its own sake....which becomes highly risky when everyone eventually decides to sell at once.

mayafox 16 yrs ago

Ed will be delighted - Hong Kong Asiaxpat forums are clearly the hidden driver of the global multi-trillion dollar gold market.

Ed 16 yrs ago

In the AX HQ me and SG Ed were drunk with power (as opposed to Molson) when we realized that a simple comment on our forums could move the gold market.

But alas, the moment has passed as our bubble was burst by Sad Sack :(

DaHKGKid 16 yrs ago

Well it's been a while since I made predictions here. I believe 2 months ago, all is going south as predicted and well I may have been pessimistic at the time it appears that the future of the HK property sector looked to be optimistic by my views.

Take your pick between levels of decreases (Asian Crisis to SARS levels).

The good thing about HK is the Govn wont step in to do anything so the bottom will come quickly and we can all decide on investing again. Those who have purchased in the last 4 years good luck to you.

I just noted an odd transaction in my neighborhood that went 2 months ago on a low ball offer. It was unique so I was curious. Here's the Skinny, the owner purchased the Unit on Spec for $24M just before the Asian Crisis. They managed to stay in the property this whole time and sold it for a $17.9M low ball offer when asking was $22M and got out just in time. These houses at the peak were asking $26M (not takers).

Right now there are a flood of them on the market asking $17M no takers. I guess then didnt want history to repeat itself.

Sad Sack is right on track with 20% GOLD and HKD. Both of these are traveling upward and the GOLD is a good hedge against HKD and USD if all hell breaks loose.

Remember, WHEN the USD bubble bursts it might be fast paced, similar if Gold retreats so own both. As for the HKD, dont expect any depegging in time.

qpzmgh 16 yrs ago

Sads Sack are you holding physical gold, if so, what method are you choosing to hold your gold in?

I've been buying gold regularly for the last 18 months but only in the paper stuff which obviously has risks associated to it.

peterlam_hk 16 yrs ago

i don't understand is property going down .....my freind want to buy property in hunghom last 3month ..but before 3 month all bank reduce valuation by 20% ...today he go bank again increase by 20 % ...so property owner also want more price ....i don't think price going down ....bank again want to loan more money that same negative case will not come ...

onemorething 16 yrs ago

So this property was unsold for at least three months... that tells me that nobody wants to buy it except for your friend.

peterlam_hk 16 yrs ago

i means people are telling price will go down ..but hk bank increase value so price is high .....

onemorething 16 yrs ago

peter> I see what you mean. I do not know the specifics of this case, but it might be that the bank in question has loosened its loan standards a little bit. For the owner to raise his asking price accordingly is hope over expectation and will leave him chasing the facts in my opinion. It is sellers that allow emotion and sentiment guide their decisions that cause prices to move down.

Ed 16 yrs ago

Word of mouth is powerful - word of forum (with nearly 50,000 views) even more powerful.....

I wonder how much influence that a forum such as this has on the rental market as thousands follow the conversations - hear how others are getting better rents - and play hardball....

Hong Kong Tenants Play ‘Hardball,’ Pushing Rents to 2-Year Low

Feb. 26 (Bloomberg) -- Raif Cabbabe said his property agent thought he was crazy to offer only HK$20,000 ($2,600) a month for a two-room apartment in Hong Kong’s trendy Soho district. The flat went on the market two months earlier for HK$45,000.

Bargaining for the 900-square-foot (84-square-meter) home worked. Cabbabe said he sealed the deal in November at HK$25,000 for the 2-year-old pad, which has a 250-square-foot terrace. Since then, prices have fallen further, with January capping six straight months of declines, according to data from real estate agency Centaline Property Agency Ltd.

“The property market has fallen off a cliff, so people are playing hardball now,” said Cabbabe, 28, a steel trader who moved to Hong Kong from Australia. “My friends renegotiating their rents are telling their landlords, we’ll just walk away if you don’t give us a discount.”

Rents began falling in the city in August, a month before the collapse of Lehman Brothers Holdings Inc. sparked off a global banking crisis. Home leases may fall as much as 15 percent to 20 percent this year, said analysts including Simon Lo at Colliers International Ltd. Hong Kong slid into its first recession since 2003 in the third quarter, leading companies to rein in costs by firing workers.

Unemployment in Hong Kong jumped 0.5 percentage points to 4.6 percent in the three months through January, the largest increase in a decade, as companies such as Citigroup, HSBC and PCCW Ltd. cut staff. Gross domestic product may shrink 2 percent to 3 percent in 2009, Financial Secretary John Tsang said yesterday. He said the government will refund taxes, suspend property rates and boost spending on infrastructure to mitigate the slump.

More Choices

“If you have the same budget as last year, you can get a place that is at least 30 percent bigger and you definitely have more choices,” said Lo, director of research at Colliers.

Average domestic rents for the three months to January fell 16 percent to HK$13.3 a square foot, the lowest since December 2006, Centaline said this week.

Home leases in Hong Kong Island, where banks including HSBC Holdings Plc and Citigroup Inc. have their head offices, dropped 24 percent in January from a year earlier, the steepest decline of the four areas tracked by Centaline.

“Job cuts in the financial sector hit rents on Hong Kong Island particularly hard, as many foreigners living there worked at banks,” Wong Leung-sing, an associate director at Centaline, said in an interview.

Read the entire article here:

http://www.bloomberg.com/apps/news?pid=20601080&sid=asoZu0ThVUtc&refer=asia

onemorething 16 yrs ago

I have dealt with some very stubborn landlords lately. All too stubborn to lower their rent to market levels. No surprise their properties have been vacant for at least six months. They refurbished the place, bought brand new appliances and think that they can deman 20% higher rents than the neighbour next door. Good luck to them I would say.

Ed 16 yrs ago

We interrupt this thread for important a BREAKING NEWS BULLETIN!!!

AsiaXPAT Theee Number One Property Site in Hong Kong now has over 3400 up to date property listings + nearly 80 serviced apartment listings.

This is an unpaid message brought to you by Ed.

Please carry on....

propertyfruit 16 yrs ago

So er. 80 serviced apartments how are we judging the value on these? What should people be looking at? Screw looking for a bargain. Wait til the bottom hits by waiting it out in one of these? What is the best value here?

Ed 16 yrs ago

I am well into the ice cold Molson so forgive me if I misunderstand your question....

Ted the Angry American 16 yrs ago

Ed why don't you try charting the monthly # of new listings against the Centaline index... see if there is a correllation.

Ed 16 yrs ago

Once we re-launch the sites we will be looking at setting up some sort of index that goes beyond just tracking the fluctuations on listing totals.

punter 16 yrs ago

I have pointed it before that centadata's weekly report is only for Centaline's transactions. It does not include other Real Estate agencies.

The monthly number is the whole picture as it comes from the government.

Basing your analysis on the weekly report therefore is not right.

In addition, the volume of transactions is so low it can't possibly be used to measure the market sentiment.

I think that this is the stage where the buyers and selllers are just waiting each other out who's going to give in (capitulate) first. If the financial crisis lasts longer, it will be the sellers who will break, I believe.

qpzmgh 16 yrs ago

I would argue that the panick selling has not really started yet. I think this will begin to unfold over the next few weeks/months. That HSBC share price is an economic gauge in HK to the locals and it will make them twitchy as the share drops through HK$28.00 and then goes lower.

HKForGood 16 yrs ago

Agree with Sad Sack... more expats leaving in June when the school year is over. More empty apartments... lower rents, lower yields, lower apartment prices.

Basic economics folks.

If you look at property crash in '97, there was a short 'spike' approx 6 months after the first leg down (early '98) followed by another 20-25% downward slide within the next 6 months (2nd leg) and then 5 years of gradual downward prices.

Until volume returns, I believe we are far from the bottom in house prices.

evildeeds 16 yrs ago

"Rocky, 4.5m in NT sounds very expensive though if it's new, has a great view and is over 1,000 square feet then it's not too far off? Can you tell me which development it is in?"

See again Loyd, you really have no idea about the NT at all. 4.5m expensive, wow! Places at this price are a dime a dozen.

bing2 16 yrs ago

i think the price is reasonable for 1600 sqf. you have to also consider for a long term investment, especially if you like the place and you will live there. i will not back out from the deal if i were you. you bought the place at 2.25m each and it is a combined unit so it should be more expensive than regular units. it's not easy to find combined units. also in lantau they are building a bridge to macau and zhuhai. this is definitely a good news for property owners in lantau.

onemorething 16 yrs ago

rocky> You got it cheaper than the fellow who paid 5 to 6 million for it last year! Just don't lose your job! $2813 per sqft is below many luxury developments in NT.

bing2 16 yrs ago

property market does not lag stock market for 6 months and the downturn of the stock market definitely did not start last nov 08. it started dec 07, so it's been 15 monhts. this is hong kong everything moves extremely fast. when stock market collapses it takes less than 1 - 2 months for the property to follow.

onemorething 16 yrs ago

Property peaked in summer 2008, i.e. 6-8 months after the stock market peak in Q4 2007.

mayafox 16 yrs ago

Unemployment rate is also an important indicator of property prices:

http://www.indexmundi.com/hong_kong/unemployment_rate.html

The IMF data chart is interesting.

1997 unemployment rate was 2.2% raising to 7.9% at the lowest point of the property market in 2003.

Our unemployment is just starting to set off and is now at 4.9% on Feb figures - I would be surprised if our unemployment doesn't surpass 2003 levels before this time next year given the global nature of the economic crisis. Property prices will move in step with unemployment rates.

Prices have a long, long way to fall yet and the indicator for turn around will be a turn-around in the job market. I don't see any light at the end of that tunnel at present.

bing2 16 yrs ago

prices in soho is picking up as well by 10%. info from my agent.

Ted the Angry American 16 yrs ago

Bear market rally? Nothing goes straight up or down... though now I hope I'm wrong.

punter 16 yrs ago

HK banks are courting home buyers with attractive deals. They're lending again! Will buyers bite? There's still bad news on unemployment data (it was just announced that it's now at 5% from 4.6 and forecast to go up some more).

Personally, I'm still waiting until at least the 3rd quarter of the year.

FamilyHombre 16 yrs ago

The U.S. property market seemed to have rebounded somewhat in February. Do you think the HK property market has bottomed out, or are we are a few months away from that as the crisis seemed to have affected Hong Kong later than in the U.S. and Europe?

Or do you think we are nowhere near the bottom yet?

I remember the dotcom boom and bust, and the boom arrived here about at least a couple of years after the States, and we only experienced maybe a year of it before it all went bust. Could this happen in reverse with the economy, or do you think Hong Kong will continue to spiral months after the U.S. and Europe has began making its recovery?

onemorething 16 yrs ago

During the dotcom bust PCCW (0008) fell from the February 2000 peak at 131.75 to 103.5, recovered to 121.50 and fell back to 67.25 in a matter of 2,5 months time. It peaked at 88.50 in August that year, only to slide 28.75 in the following two months. It reached a 2.75 low in October 2008. All I want to say is, nothing comes down in a straight line. We can only call the bottom with the benefit of hindsight.

The economic crisis is still in its early stages, it only just spread from banks to the "real economy", now we will start to feel the pain in our daily life. Equity markets appear optimistic, but credit markets are at near-record stress levels. The latter signals that the brunt of misery is still ahead of us.

mayafox 16 yrs ago

Well if Chinese government are cutting down on buying bonds this is going to push up bond yields like we've been seeing recently. The bond market is the real dictator of interest rates. HSBC isn't going to lend you a mortgage at 4% any more when it can buy a GILT at 5%.

We're at the start of a massive run-up in interest rates. I wouldn't be surprised to see interest rates in Hong Kong to be over 15% or higher within a year. That's not outlandish, USD interest rates hit 19.7% in 1981 in far milder economic conditions than now.

Lets see on a $6m loan 15% interest would work out to a monthly payment of nearly $80k per month on a 20 year loan...There's no doubt about it property prices would crash catastrophically in this scenario.

That said so will most other things including holding cash which could well see its value drop even more than property. Which I believe is Lloyd's argument. If either you are able to buy in cash, or you are able to get a fixed rate for 10 yrs (do these exist in HK?) then I can see the logic of the argument, though I also would not touch property myself and you would need to resign yourself to losing more than half your money. Probably better off in commodities.

Whichever way you look at it - we're at the edge of the cliff.

onemorething 16 yrs ago

Money will not devalue quicker than property in the scenario as described by mayafox, because if that happened then there would be no incentive to lend money any longer. Who would lend money if it depreciates quicker than inflation? That's what is called hyper-inflation.

onemorething 16 yrs ago

The mortgage still needs to be repaid, just look in the fine print. HSBC is not going to extend your mortgage to one hundred years in case interest rates go to 20%! Leveraged investments almost always go down in a high interest rate environment.

Commodity prices are the prime cause of inflation! Think petrol, food, etceteras. Commodities almost always go up in an inflationary environment. High interest rates are a symptom of an inflationary environment (and therefore of rising commodity prices).

onemorething 16 yrs ago

Still does not stop house prices from dropping, because the affordability for new buyers will be lower in a high interest rate environment.

qpzmgh 16 yrs ago

Inflation is not an issue ? you need to go and re-read your economics books.

What is happening at the moment with global governments increasing the money supply is 100% pure inflation.

Debt deflation, asset bubbles collapsing and going out of business sales is the only reason we are not seeing this show up yet in some prices.

But make no mistake the inflation beast is alive and kicking.

sghkcn 16 yrs ago

Walkup2 is right. Inflation is not an issue, stagflation is.

shirleychiu 16 yrs ago

Inflation will be an issue but a far bigger problem is deflation - governments fear this like the plague because unlike inflation, govt policy does not generally solve deflation... I think they'd be more than happy to see inflation return to the economy given the alternative.

onemorething 16 yrs ago

$15,000+ per sqft segment according to that Bloomberg story. That probably covers 0.1% of the HK market.

qpzmgh 16 yrs ago

elmer,

Tust me you are getting ahead of yourself on this one. the summer from hell is coming followed by an inflation holocaust and with our link to the US$ your 10 million dollar property will buy you a couple of loafs of bread....believe me !

may i just add that the zimbabwe stockmarket gained 312,000% last year and look how rich they all are and as for their property investments well mmmmm.................

Get rid of your HK$

onemorething 16 yrs ago

Expectations don't matter much: that's all in the price already. People know the economy is terribly bad, so the buyers and the sellers knowingly are willing to transact at current prices. A change of expectations (not just on the economy) will move a market up or down. We are right now witnessing a wave of relative optimism in the equity markets and the property market. If that optimism is justified is yet another question. Property markets tend to be a little bit sticky and in general a few months behind the facts. Time will tell.

mayafox 16 yrs ago

Prices are nowhere near cheap yet. We all pay a fortune in HK for crap property to buy or rent.

Bull trap.

Ted the Angry American 16 yrs ago

They're based on actual transactions (on record with the government). I think the CCI is some kind of JV with one of the universities who compile the data (City U if I'm not mistaken)

Now if you're talking about market analysis... I wouldn't trust any of em

bing2 16 yrs ago

hahaha, so many advices here saying dont buy, wait, wait...........

truth is no one knows and all information and advices here are not reliable at all.....agree?

if you want to buy and you have job security and you can afford the down payment and mortgage, why not buy?

i would say if property crashes again for 20 - 30%, then God help us all as there will be chaos and social unrest all over the world!

for me, i think property is quite cheap now, especially if you are looking to buy around soho/ mid levels area. price is acceptable now and keep in mind that there is no more land arond those areas.

hk is a fast moving city, when prices go up, it will shoot up so quickly.

what you guys think of these prices (transaction prices):

Elgin St (5 seconds walk from the escalator): 320sqf (nett area, as stated on RV) sold for 1.7 million. HSBC valuation at 1.8 million.

Elgin St (about 30 sec from the escalator): 420sqf (nett area, as stated on RV plus 140 sqf terrace) sold for 2.6 million. HSBC valuation at 2.5 million.

fyi, all units have no decoration.

are those prices cheap? fire sell?

HONGKONGEXPAT 16 yrs ago

Bing2, I have just caught up on a lot of the messages and have to say buying property in Hong Kong is generally a good idea, purley because of limited supply and the fact that it is the gateway to China. However, I really find it difficult when people say, as long as you have a job, as long as you feel secure where you work, as long as you can pay a mortgage, nobody knows what is really going to happen so I guess one has to take a calculated guess and ask, what happens if I lose my job and what happens if I can't pay the mortgage, will I be able to sell and get part of the money back or what???

No idea if the above prices are acceptable, as I have been here 15 years and I am sure the above places are tiny and need to be fully renovated, so basically on a net ratio you are paying over 5,000/sqf plus you have renovation costs, I would say on a gross ratio you are paying over 6,000/sqf and I would say today it is still too high, considering nobody really knows what is going on. Plus I am sure these are really old buildings with terribly low bank valuations, hence always harder to sell as the bank will provide a far lower valuation even in a good market than for a new or say more modern building.

Hence everyone has to make their own judgement call, but they shouldn't be saying my company/job is fine and I am safe, they should look at worst case scenario in this market and then make a decision. Plus I guess you have to consider is this going to be owner occupied, hence you aren't paying rent, or is the going to be rented out and how long until one gets a suitable tenant that will stay for at least one year???? My friends have had people renting their properties out and within one month lost their tenant as their tenants have lost jobs. Also thinking that their tenant was secure! Whereas I am sure there are people out there that can't even find tenants for a fully renovated apartment.

Ed 16 yrs ago

52,000+ visits to this page... Fifty to the Two to the Thousand... Exciting

mayafox 16 yrs ago

The average HK household earns about $20k per month, lets say $240k per year.

A rough ballpark figure is that property prices average 3.5 times annual household earnings worldwide. Lets make it 4 times higher to account for lower tax rates generally in HK. Hell lets make it 5 times higher given how much public housing there is and low land supply. (though limited supply is something of a myth - there's plenty of land in HK the government can make available).

Even at a 5 fold multiple your average flat should be $1.25m....

Even if we say work with expat numbers, lets say a generous household income of $1m annually, there is still isn't much which would be internationally competitive (ie. international standards of property for professional family) at $4m for a family with kids to live in - and that's a 4 times annual income multiple of the very top percentile of high-earners.

Prices remain extremely high in HK and are set to drop a long, long way as the pillars of the HK economy - finance, trade, shipping - continue to collapse globally.

bing2 16 yrs ago

hkexpat, agree with you that no one knows what's going to happen in the future. but dont you think at 5000/ sqf and below bank valuation is a good steal in the heart of soho? soho has no more land to spare. last year in september soho 38 sold a 400sqf gross unit for over 8 million at over 20,000 sqf which is only two block from elgin st. i know it is a new building but when you are buying property the location is one of the most important factors.

i guess hard to say, no one knows what's going to happen tomorrow. we can all be optimistic but hey back to square one, no one knows. the property could bottom out now or could go down more.

but my personal opinion, if those units on elgin st go down another 20 - 30% i think it is probably going to hit the world economy really, really bad. and all of us too. i am hoping prices keep going up, it's good for the economy.

bing2 16 yrs ago

hey walkup, that's what i thought, not many available now for sale. that 2.6 mil was sold last week. it's big as i went in there and the terrace at the back although has no view but the size is good. also the windows are big and wide facing elgin st. you are right each unit has its merit. maybe we should share good deals on this thread too! does anyone know any unit for sale below 2 million around soho area and around 2.5 with terrace or rooftop? it seems impossible to find. if there is the size is so small, like 250sqf. i think at least it should be 300sqf nett.

bing2 16 yrs ago

elme, i agree that best deals were probably in dec. that 1.7 mil unit has a very small roof terrace on top of fat joe's on the first floor facing back. sold in the end of dec for 1.7 mil.

walkup, sheung wan is getting expensive these days and the area will never feel like soho. as you know, it's very difficult to find a unit in soho with good size and a terrace. for 2.5 mil i think probably sai ying pun or closer to kennedy town. the only good thing: mtr is coming.

bing2 16 yrs ago

hi walkup, just out of curiosity how much did the landlord ask for that unit on elgin st with terrace below the park level? is it sold already and if yes for how much? do you happen to know its nett area? overlooking public park on elgin st? i dont recall a park near elgin st?

britishguy42 16 yrs ago

HSBC has had its rights issue, but has increased valuations, with a view that it will be prepared to lend more money on the same property than 3 months ago. Like in SARS, once HK flats start rising, expect an increase of 25-30% rally in the next 2-3 months.

Its not looking so bad for local HK people, just the rich expats, but they made little difference to the real economy of mid priced flats (5-8mil) where HK chinese speculate the most with their family inheritance.

bing2 16 yrs ago

sadsack, thanks for your reality check. i think it's good that you shared those information.

but if you're wrong, people who listen to you will miss their chance. i feel there are so many people in hong kong are now waiting to snap properties and hoping prices will go down as low as sars. however i personally think hong kong has learned a lot since sars and property will most likely not going to go down to sars level, even if there is another sars. i spoke with my friends who are owners of big factories in china with thousands of workers and they all told me that orders are picking up and things are almost coming back to normal. not as good as 2007 but better than 2008.

yes putting 100g in your credit card will not solve your credit problem but what if you dont have to pay it back? hahaha........you had learned the lesson and now you have 100g, i am sure you will be much more careful with your money?

also, a shed of light, wells fargo announced a record profit in the first quarter. i think this is a sign that the financial industry is recovering due to tireless effort from the gov all around the world. or you think this profit report from wells fargo is too insignificant to say the financial industry and property are on their way to recovery?

about gm and chrysler, in my personal opinon, they are going into bankruptcy because they dont make good cars. people would rather buy toyota, honda, bmw and benz, correct? why would anyone buy gm or chrysler car? competition is so tough, even without financial crisis they could be bankrupt too. so i think this is actually a good thing.

hk is still a gate away to china and all my friends in china told me that life is as usual in china. a few people got affected but life is as normal as nothing happened. local demand is increasing and are stornger than ever. gov spending a huge amount of money to build infrastructure, etc.

chinese gov had made so much money the last few years, now they are looking to spend their money in china for their people and this can only be good for hong kong. china was not affected much by this financial crisis because they have a very closed financial system and very strictly and tightly controlled by the gov.

sure the export got hit but they are still making money, just not as much as before.

waiting game could be fatal, everyone is trying to time the bottom, but no one can and no one knows until we passed the bottom.

in 1930's there was no join effort and common goals to revive the world economy, that's why the great depression happened.

bing2 16 yrs ago

i agree that the 2002- 2007 wont be coming back anymore. it is indeed a finacial bubble created by cheap money from the us.

but what do you think of the rising of china? now china is already the third largest economy in the world. i think it's just a matter of time before china become the largest economy in the world. this can only do good for hk.

there are still a lot of poor people in china, and chances are more people will get wealthier in the next few years than the other way around.

i dont know the answer to your question, but why would the us goverment prepares 13.5 trillion if they think it's not going to turn around the economy? they have all the smartest financial people to come up with such a big numbers, right? if they think it would get worse why would they pump 13.5 trillion to the economy?

you think they do that to destroy american lives and the world economy?

if you are wrong, i feel this time if things are getting stable, prices will go up so quickly and you will need another 30% for down payment. there are still a lot of money in hong kong, just the confidence is not there yet.

bing2 16 yrs ago

i still dont undertand why would the us goverment is trying to spend 13.5 trillion if it is going to cause more troubles later? even though they are scared sh**less i see no reason for them to spend that big amount of money if they dont think it would help the world economy. before the us goverment decided this they must have consulted all the top economist in the world, right? unless a bunch of senior gov officials came up with this, i see no reason they dont see what you said. i am sure they think this 13.5 trillion will actually do more good than harm. go back to my first question, why would they do that if it's not going to help anyone and put all of us in deeper s**t?

you've been saying this since last year and things are still the same, i would say probably a bit better now?

onemorething 16 yrs ago

Things are much worse now than late last year. Every day that goes by is worse than the previous day from a macro-economic point of view. You just have to look at the governments' and central banks' actions to understand that there is no sign of economic recovery. At best a slowdown in the deterioration.

Wells Fargo is benefiting from the new FASB accounting rules. Their numbers obfuscate the real deterioration of their asset portfolio. Look no further than the US housing market to understand that any mortgage portfolio is one of the riskiest assets banks hold.

The Chinese economy is purely driven by public spending at the moment. The private sector has imploded. The Chinese do this in the hope that things will turn around, just like the US "spends" 13.5 trillion in the hope that things will turn around. The heart of the problem is not being addressed: excessive credit, overcapacity in the economy and huge global trade imbalances.

The FIRE economy is hit the hardest: Finance, Insurance, and Real Estate. These industries are based on wealth creation, i.e. creating something out of nothing. Sounds like the HK economy to me!

Now, one may argue that house prices in HK already reflect these bad facts, in which case one could argue house prices should stabilise. Supply and demand is driven by future expectations, so a shift in expectations will move prices up or down. Recently we have seen a positive shift in expecations. What will be the next move?

bing2 16 yrs ago

i hope nothing you predicted will come true, sack. if it did, hahaha, we'll be on the street fighting for food and......who cares about property when you dont have food?

let's hope for the best.

bing2 16 yrs ago

hi walkup,

sheung wan starts right before centre stage so before the temple. centre stage is actually in sheungwan, not in central as advertised or as many people think.

this unit at 2.3 million is quite cheap with 2 terraces but if it is so small as you said probably not worth it. who wants 2 terraces if inside is so small? haha...

Ted the Angry American 16 yrs ago

Yeah Sack may well be right (of course I hope not) but if that's the case, I think that no matter where you park your money you'll be in bad shape. If the USD plummets you may well be better off having some $ in a fixed asset in the long run (not saying all, and it helps to have it paid off asap in the event interest rates spike)

bing2 16 yrs ago

i wont be surprised if the US dollar goes down to 1.00 to 2.00 against EUR. treasury is buying their own bonds and printing money non stop.

hk dollar is pegged to us dollar. not good, not good.

buy rmb now?

bing2 16 yrs ago

sack, when do you think we will feel the full impact of this financial crisis and what are the indications out there that could tell you it is safe to buy?

decrease in job loss in the US ,China and HK?

transaction number? this already up a lot since january this year.

with the us gov printing money like there is no tomorrow, it just makes me nervous if one is holding cash in hk dollar.

onemorething 16 yrs ago

The full impact of this financial crisis will be reached when the market starts to bet that government intervention will fail. That most likely will involve sovereign defaults of Western countries.

You can only call a bottom on hindsight, but most bottoms have one thing in common: nobody believes things will ever be good again. So when even your real estate agent has given up... that most likely is the bottom.

bing2 16 yrs ago

a lot of agents have given up and quit their job. one of my agents quit a few months back and he probably has found a new career......so right now is the bottom?

if the gov intervention failed, there is no more hope.....we are already using our last resort. hope these stimulus packages would eventually work.

onemorething 16 yrs ago

The mediocre agents have been squeezed out, but there is still a lot of bullishness amongst the survivors. Besides it is the low transaction volumes that affect their business, but it does not alter their believe that the market will rise. I am waiting for an agent to say to me: wait, don't buy it is going to be a lot worse. That is my bottom.

bing2 16 yrs ago

onemorething, that's true, most of the property agents are still bullish and always saying property is going to rebound soon. however, i doubt any property agent in hong kong, especially the local ones would tell you wait, dont buy. they dont care where the market is heading, they just want to make you sign the s & p!

walkup, i would think it is quite safe to have savings in non US$ linked currencies. in my personal view, the USD dollar has only 1 way to go - down. how deep? i dont know but i wont be surprised if it's going to be 1:1 with AUD$.

in today's situation, if you dont lose money you are making money! hahaha....funny but it's true.

bing2 16 yrs ago

cheung kong's project in tin shuai wai sells like hot cakes @ 2100/ foot. over 600 units sold in just 6 hours.

SanjKash 16 yrs ago

man, this is the most confusing topic... some are very clear that the market correction is over, others, notably SadSack is saying that this is only the beginning of the rot... just don't know what to do. I sold my place in mid-levels at the beginning of this month and have seen prices for shoot up since - I luckily have a place to stay for a few months, but I want to buy a replacement (bigger) flat which I will need soon. Wait or go for it albeit at higher price?

bing2 16 yrs ago

sanj,

since mid of last year till now the correction is over. prices has gone up quite a bit and i still think the best deals/ bottoms were in dec/ jan. will there be another correction? i dont know and there is a good chance of another correction. but if there is no more correction, prices will shoot up again fast.

eric_frings 16 yrs ago

Hello all. Short question from my side. I am interested in in buying property in HK and I am wondering where I can get information when these (1st hand) will be sold. For instance the project Florient Rise and I-Home. How can I find out when these will be sold, because I understood that these have been on sale a few weeks ago and were all sold in a few days.

It might be a n00b question, but your input is highly appreciated. Thanks.

Ed 16 yrs ago

A note of caution here...

I spend upwards of an hour monitoring online news sources each morning looking for the best stories for our home page news. And what I have been seeing is an effort that I am certain is directed by the US government working hand in glove with the media to create a perception that this crisis has seen its worst days. They are attempting to build confidence by putting positive spin into headlines and latching onto anything that will help create a perception that things are if not returning to normal, at least stabilizing. Nothing sinister here - they have to try to jump start us out of this.

But if you read between the lines (or beyond the headlines) you will see that there are still enormous systemic problems that are unresolved. Chrysler and GM are bankrupt; AIG which is supposedly too big to fail remains in dire straits. Credit is still a big problem and with all the job losses unpaid debt continues to grow which hurts banks already on critical care.

I'll refer you to a story just posted on the Coping with the Crisis thread re: Bank Solvency

http://hongkong.asiaxpat.com/forums/living-in-or-moving-to-hong-kong/threads/120744/coping-with-the-crisis/#bottom

I am not about to call the HK property market but I'd suggest you do your research (i.e. read as much as you can and read between the lines) and in particular listen to what the bears, particularly economists have to say because they have tend to be more objective (unlike traders who will talk up the market no matter what).

Generally what they are saying is very sobering...

Ed 16 yrs ago

Loyd, all due respect but have you read that article on the bottom of Coping with Crisis this am?

If that is true then the banking system in the US is on the verge of collapse, as is AIG which has tentacles around the world. If they collapse there will be no more q's at Esprit because if the US banking system collapses the global banking system collapses. Bank of America is off 24% overnight...

And this after throwing over 12 trillion dollars trying to head off a collapse.

Again, I am not about to call a market rather I am dropping in relevant content to help people understand risks and make informed decisions.

Ed 16 yrs ago

BREAKING NEWS!!!!

I interrupt this thread for a breaking story... (ddeee dooo ddeee dddooo)... The administrative assistant at AsiaXPAT reports that so far today there have been in excess of 300 NEW Property Listings on Hong Kong's Number One Property Site. I am having a hard time keeping up, everytime I look there are dozens of more ads waiting for approval. It is very exciting.

I now return you to your regularly scheduled discussion...

SanjKash 16 yrs ago

So bottom line is to

1) if bullish: wait at least til next week to see the aftermath of the earnings reports (as mentioned above)

2) alternatively, keep looking and take the plunge if see a place that like?

OR

2) wait till at least the end of june before dipping one's toe into the property market again

Thanks everyone for all your advice above - range of views but all taken aboard. My inclination is to stop panicking by this sudden rise... and wait and see.

onemorething 16 yrs ago

@walkup2

Why would the HK property tycoons be in such a hurry to sell property at a discount? It tells you something... what do the insiders know that the general public does not know?

The SCMP is owned by a property developer and bound to be positive about the property market.

Indeed people are still rich and that will support the market for a while. That is exactly what deflation does: it sucks people in and destroys their wealth.

Here is Eric Wong's (UBS) track record. Taken from March 2008:

Prices of the cheaper properties, defined by local estate

agents as those smaller than 1,000 square feet, may rise as much

as 50 percent by the end of 2009, according to Eric Wong, a Hong

Kong-based analyst at UBS Securities Ltd., the most optimistic

among nine analysts surveyed by Bloomberg News.

ConnieD 16 yrs ago

Sad Sack and Onemorething

I agree on your views that there are still lots of trouble ahead and unsolved, and thanks for the information and views you share here.

I would like to ask what currencies you would recommend to protect against the danger of HK$ pegged to USD. Also regarding gold if everyone is buying gold (as recommended by bankers and other financial experts) will it drive the price up and will it still have the effect to hedge against the (expected) inflation which is coming?

When will the inflation hit?

Appreciate your input and thanks!

eric_frings 16 yrs ago

Anyone has an advice on query below? Thanks!!

=>

Hello all. Short question from my side. I am interested in in buying property in HK and I am wondering where I can get information when these (1st hand) will be sold. For instance the project Florient Rise and I-Home. How can I find out when these will be sold, because I understood that these have been on sale a few weeks ago and were all sold in a few days.

It might be a n00b question, but your input is highly appreciated. Thanks.

bing2 16 yrs ago

just ask your property agent to keep you updated of new projects, any property agent would be able to help you or check developers' website and call their sales hotline. you can call all developers and ask them to put your name, address on their mailing list. should not that be difficult as there are only a few reputable developers in hong kong: cheung kong, sung hung kai, henderson, kerry property, new world development, sino land, mtr, chinese estates, hong kong land.

bing2 16 yrs ago

hi dadda,

i dont think your place can sell at 2.6 mil. how big is it anyway and which floor? the market price is around 1.9 - 2.0 mil for 300sqf (nett area) walk up property in soho area. i know a transaction on elgin st for 2.6 mil and this place has a gross area of over 520sqf and nett/ saleable area as stated on its RV of 440sqf with a 140sqf sqf terrace. this unit has a big window facing elgin st and terrace facing the back.

onemorething 16 yrs ago

@ ConnieD

Your questions and concerns are valid, but I don't what to go OT on this thread. I am happy to share some thoughts on the COPING WITH THE CRISIS thread in the Living in or moving to Hong Kong forum. Would you mind reposting your questions there?

Ed 16 yrs ago

http://hongkong.asiaxpat.com/forums/living-in-or-moving-to-hong-kong/threads/120744/coping-with-the-crisis/

SanjKash 16 yrs ago

Sad Sack - if the stimulus does not work, do you envisage the levels to drop to SARS levels? there seems to be mixed news coming in everyday - I see today's HSI going up for no apparent reason, all the reports (except possibly Tesco) show poor results. In HK, esp with HSBC layoffs etc. It appears that HK investors are not driven by fundamentals but by confidence. Is that a fair point? If so, what would make them alter their warped perception?

Thanks

Ted the Angry American 16 yrs ago

SanjKash most global markets will move in tune w/ the US market, which was up yesterday. If the stimulus doesn't work (or specifically the bailouts) we'll likely have much worse problems than property values.

bing2 16 yrs ago

sadsack, maybe i am being stuborn but i really dont think prices will fall to sars because for the last few years hk people dont buy flats for speculation anymore. hk people are now buying for their own use, so in my opinion prices will remain stable if not going up. i know about the current financial situation but in 1997 to 2003 there was a property bubble. just think about this, a taxi driver had 3 flats and li kai shing's caddie also had 3 flats back in 1997 and everyone, i mean everyone was trying to cash out in property. buy in the morning and sell in the afternoon for quick 100 - 300k profit. how could this not create the biggest bubble in hk property market?

hk people have learned a lot from that bubble and no one is speculating in property like in 1997 unless one can afford it. this is my argument and this is also why the prices are holding up because now majority of the property owners are occupants of their flat, and everyone needs a place to live. they wont sell unless the price meet thier expectation, otherwise where are they going to live?

walkup, try asking property agents in soho area. i was there just last week and i have seen many places around 2.0 to 2.3 million that still on the market for months. and i am talking about properties on elgin st, staunton st, peel st. seen a few of them myself. in today's market i am quite confident that dadda's property can't sell for 2.6 million despite the renovation and rent income.

lgmv, i dont think old walk ups are difficult to sell. pricing is the key. i myself prefer old walk ups in soho because of the attractive rental yield. i know it is tricky for valuating the property, but ask a big bank to give you their valuation and you can be sure that it is accurate.

i myself bought 2 flats in soho under and in par of bank valuation of hsbc or hangseng. i personally will not pay more than bank valuation for an old walk up unit. this is not easy to find, but if you are patient and persistent in negotiating, you may get old walk ups below or in par of bank valuation.

onemorething 16 yrs ago

bing2> You are contradicting yourself:

"hk people dont buy flats for speculation anymore. hk people are now buying for their own use", and then you go on:

"i myself bought 2 flats in soho under and in par of bank valuation of hsbc or hangseng."

Do you live in two flats at the same time or are you a speculator? :-)

bing2 16 yrs ago

onemorething, i dont contradict myself. what i am doing is for long term investment for the rental yield and appreciation. i dont need to sell the units a few hours, days, months after i bought it. i also said unless you can afford it. you need to understand the difference between speculating and long term investment. back in 97 people bought flats for pure speculation (buy in the morning sell in the afternoon) and they couldn't afford it. they didnt have the money to get the mortgage, nonetheless to pay it in cash. all they have is the deposit money (up to 5%) and hoping before they sign the formal agreement in 2 weeks someone would buy it for higher price. this kind of practice does not happen or extremely rare after the bubble burst in 97.

on the other hand i bought it for long term investment as i think the prices are very reasonable in the last few months.

onemorething 16 yrs ago

It is still speculation, no matter how what you call it! And many of these "long term investors" will be flushed out of their 2nd, 3rd and Nth property when rents drop, mortgage rates rise and they lose their jobs.

And there are a lot of speculators; we already identified bing2, LGMV and dadda for example.

xpatwilier 16 yrs ago

onemorething... there is a big difference between speculation and long term investment. in your world, there seems to only be an end-user and a speculator... that's just too oversimplified.

onemorething 16 yrs ago

I can see the different mindset of the flipper and the investor, but the result will be the same.

bing2 16 yrs ago

result will not be the same. short term vs long term.

qpzmgh 16 yrs ago

short term investing can result in a gain or a loss in just the same way that long term investing can result in a gain or a loss.

qpzmgh 16 yrs ago

also if you are buying property on the hope of appreciation then that is speculation regardless of how long you hold the property for.

And anyway houses should not be viewed as investments they are essentailly depreciating assets just like a car or a boat.

onemorething 16 yrs ago

How is that? Most of these purchases are with borrowed money, i.e. mortgages. If the monthly repayment + interest cannot be paid back the property will have to be sold.

qpzmgh 16 yrs ago

sure buying a property and holding it for 30 years paying off the mortgage and living there mortgage free after 30 years is the correct way to think of property ownership. But there will be the ongoing maintance and up keep on the property even in retirement otherwise depreciation needs to be factored in.

onemorething 16 yrs ago

Hang Lung Properties chairman, Ronnie Chan, is calling the bottom for Hong Kong home prices:

“I don’t see another leg down” in prices, Chan said in an interview yesterday in Ho Chi Minh City, Vietnam, where he is attending a conference. “There are indications that the residential market in Hong Kong is doing O.K.; I don’t see it going down further.” [...] Still, in addition to depending on China, any rebound in Hong Kong’s housing market “does not necessarily mean that it can rise a little and then drop again. That is a possibility."

Until home prices recover “strongly,” Hang Lung isn’t keen to offer for sale more units in the Harbourside and Long Beach developments in West Kowloon, Chan said. “We’ll wait for a better market,” he said. (source: Bloomberg)

bing2 16 yrs ago

if it doesnt work, they will print more money??

tango28 16 yrs ago

Hmm, the local forums are rife with speculation on what's the impact on swine flu on property prices. What do people here think?

Ed 16 yrs ago

It's a bit too early to determine the impact no?

onemorething 16 yrs ago

Hmmm... my "oink" reply was deleted; I was just adding some perspective to the hype! This swine flu looks like a non-event to me. Possibly a nasty highly contagious flu that can be treated. Nothing like SARS that remained a mysterious infectious disease without a cure for a long time. Besides, investors remember the violent recovery of the property market after SARS, so no one piling in to dump their properties.

SanjKash 16 yrs ago

Does anyone think that this latest bear market rally (or whatever it can be termed) is going to last? Market pushed up 1000 points in past 2 days - any reason for this whilst Swine Flu and disappointing earning results continue to be announced?

bing2 16 yrs ago

i'll be so rich already if i know the answer to that.......

bull market is going to last for a while in my opinion. dissapointing results, yes but we expect bad results from most companies. i do think market will go down again and stay around 13000 - 14000.

if quarter 2 results are better or pretty much the same i think the economy is recovering. we'll see if the economy is turning after the second half.

onemorething 16 yrs ago

LGMV what do you mean by "all things being equal"? To me all things being equal is more recession, no? You know I am in the "property slump" camp, but what makes you so optimistic about rents two years from now?

There is still a lot of wealth and cash in HK. Coupled with China's loose monetary policy and low interest rates, it is not surprising that the market rallies, although it has been much more powerful than I imagined two months ago! I think 20,000 is too big of a hurdle, but never say never. I don't expect any new lows... for now.

onemorething 16 yrs ago

Green shoots of weed!

SanjKash 16 yrs ago

Man, I hope this is right... in any case, property has increased like crazy in the past month that I can't even get into the damn market... so no choice but to wait and hope there is some correction later this year!

bing2 16 yrs ago

sadsack, in my opinion you should not give advice to readers in the thread not to buy property and keep preaching that property will turn into negative equity in a few months. i think you can express your views, opinion and/ or experience but better not to say "dont buy". there are probably people who were thinking about buying a few months back when the prices were lower but didnt buy because of your comments, so i guess they missed their chances and now are sitting on the sideline again hoping for another big drop or as you would say the biggest drop in property history.

i personally hope there will be no more drop in property prices because it wont do any good to hk economy. i also believe if the stimulus packages by us and china government dont work, they will inject another round of stimulus package, especially here in china as the gov has so much money and surplus from the last 10 years or so.

GemmaW 16 yrs ago

I think as a reader, I am appreciative of the views that have been expressed here. Ultimately, at the end of the day, it is up to the readers themselves to form their own opinions as to where the property market is heading.

However, a month after reading this thread, we are still as confused as ever whether to buy now or wait. We are looking at buying a "home" property, not for investment purposes. We too believe that prices MAY fall but it is a gamble for us.

SanjKash 16 yrs ago

Speaking of Bel Air (see Lloyd Grossman post immediately above), quite the contrary is happening - Chinese companies/tycoons or whatever you term them are buying up all the decent sized flats pricing certainly me out of the market - i am not the one to panic and chase the estate agent's words "add another $400,000 to the revised offer" and although transactions have increased, I don't believe more than 20% are for end users...will the demise of hedge fund managers simply be replaced by nervous chinese investors needing simply "something" to put their money in? All i know is that unless the market drops again (and I really have no choice but to wait now) I cannot be comfortable getting back into the market

SanjKash 16 yrs ago

I understand the cash rich Mainland people are those who have been given bailout/stimulus money from the PRC authorities and instead of putting into their companies, are playing the stock and property markets in HK, hence the steep rise in HSI in the past few weeks...

punter 15 yrs ago

Hopefully the unemployment situation doesn't get worse, businesses don't close, expats don't lose jobs, mainlanders continue buing HK stocks and property, and companies start hiring again soon. That's a perfect fuel for stock and property boom.

cookie09 15 yrs ago

punter it should say 'that's the perfect fuel for a stock and property BUBBLE' because that would clearly not be sustainable.

you might know already but during the great depression in 1929+ there were 5 stock market rallies of more than 20% and everytime the market tested new lows afterwards.

don't count on it yet, i think we are going to see another testing of 12-14,000 soon before any real recovery is in sight

punter 15 yrs ago

The keyword is "hopefully". However, it looks like employment is the biggest worry.

punter 15 yrs ago

With regards to property, in the US, many cases of people giving up on home ownership and going back to their parents' homes are happening. It's video-documented too. This is a bit unusual in America as they value their privacy more.

Hong Kong people are quite used to shared homes. When the need arises, children are quite happy to go back to their parents' homes and save on mortgage or rent money. Is this going to be a factor? Maybe not that much if unemployment is kept to the minimum.

onemorething 15 yrs ago

It is the other way around. The artificially "weak" yuan causes excess money to pour into HK. A revaluation of the yuan would make HK property less attractive, because it will underperform in reminbi terms. A free float of the yuan will make Hong Kong as a gateway more obsolete, although there may be some spillover effect for HK.

onemorething 15 yrs ago

The UK property market is falling and the pound is falling. Still Europeans are not falling over each other to invest their euros into the UK property market. Why? Because UK assets are underperforming the euro! Replace UK with HK and Europe with China and you get the same story.

punter 15 yrs ago

Why do mainlanders buy Hong Kong property in the first place? It's for their own use (if they're migrating here, but there's not many of them) or for speculation that prices are going to the "roof" as LGMV says. Is it going to happen just because the Yuan is going to be floated? Not necessarily.

onemorething 15 yrs ago

LGMV, who knows, you might be right! I just believe that most Chinese money would simply be speculative money only looking for a good return on investment.

SanjKash 15 yrs ago

Dennyboy, this is happening more and more and needs to be nipped in the bud. My take is that unless this is an absolute cannot live without type of property (which is extremely rare), make your offer and if they are faffing around, just walk away... once these sellers hint desperation, they become like this. I am also not one to chase the market. But it is basically the Mainland company mentality - ie, who have bought up many flats in a given complex and are just playing the market. Those who are end users are different because they tend to want to upgrade and need the money quicker to do so...so basically give them two fingers if they keep raising the prices! There are literally thousands of properties that could fit your bill out there.

Ed 15 yrs ago

A good article endeavouring to explain the current upswing in markets:

Was It a Sucker's Rally?

The Dow Jones Industrial Average has bounced an astounding 30% from its March 9 low of 6547. Is this the dawn of a new era? Are we off to the races again?

I'm not so sure. Only a fool predicts the stock market, so here I go. This sure smells to me like a sucker's rally. That's because there aren't sustainable, fundamental reasons for the market's continued rise. Here are three explanations for the short-term upswing:

- Armageddon is off the table. It has been clear for some time that the funds available from the federal government's Troubled Asset Relief Program (TARP) were not going to be enough to shore up bank balance sheets laced with toxic assets.

On Feb. 10, Treasury Secretary Timothy Geithner rolled out another, much hyped bank rescue plan. It was judged incomplete -- and the market sold off 382 points in disgust.

Citigroup stock flirted with $1 on March 9. Nationalizations seemed inevitable as bears had their day.

Still, the Treasury bought time by announcing on the same day as Mr. Geithner's underwhelming rescue plan that it would conduct "stress tests" of 19 large U.S. banks. It also implied, over time, that no bank would fail the test (which was more a negotiation than an audit). And when White House Chief of Staff Rahm Emanuel clearly stated on April 19 that nationalization was "not the goal" of the administration, it became safe to own financial stocks again.

It doesn't matter if financial institution losses are $2 trillion or the pessimists' $3.6 trillion. "No more failures" is policy. While the U.S. government may end up owning maybe a third of the equity of Citi and Bank of America and a few others, none will be nationalized. And even though future bank profits will be held back by constant write downs of "legacy" assets (we don't call them toxic anymore), the bears have backed off and the market rallied -- Citi is now $4.

- Zero yields. The Federal Reserve, by driving short-term rates to almost zero, has messed up asset allocation formulas. Money always seeks its highest risk-adjusted return. Thus in normal markets if bond yields rise they become more attractive than risky stocks, so money shifts. And vice versa. Well, have you looked at your bank statement lately?

Savings accounts pay a whopping 0.2% interest rate -- 20 basis points. Even seven-day commercial paper money-market funds are paying under 50 basis points. So money has shifted to stocks, some of it automatically, as bond returns are puny compared to potential stock returns. Meanwhile, both mutual funds and hedge funds that missed the market pop are playing catch-up -- rushing to buy stocks.

- Bernanke's printing press. On March 18, the Federal Reserve announced it would purchase up to $300 billion of long-term bonds as well as $750 billion of mortgage-backed securities. Of all the Fed's moves, this "quantitative easing" gets money into the economy the fastest -- basically by cranking the handle of the printing press and flooding the market with dollars (in reality, with additional bank credit). Since these dollars are not going into home building, coal-fired electric plants or auto factories, they end up in the stock market.

A rising market means that banks are able to raise much-needed equity from private money funds instead of from the feds. And last Thursday, accompanying this flood of new money, came the reassuring results of the bank stress tests.

The next day Morgan Stanley raised $4 billion by selling stock at $24 in an oversubscribed deal. Wells Fargo also raised $8.6 billion that day by selling stock at $22 a share, up from $8 two months ago. And Bank of America registered 1.25 billion shares to sell this week. Citi is next. It's almost as if someone engineered a stock-market rally to entice private investors to fund the banks rather than taxpayers.

Can you see why I believe this is a sucker's rally?

The stock market still has big hurdles to clear. You can have a jobless recovery, but you can't have a profitless recovery. Consider: Earnings are subpar, Treasury's last auction was a bust because of weak demand, the dollar is suspect, the stimulus is pork, the latest budget projects a $1.84 trillion deficit, the administration is berating investment firms and hedge funds saying "I don't stand with them," California is dead broke, health care may be nationalized, cap and trade will bump electric bills by 30% . . . Shall I go on?

Until these issues are resolved, I don't see the stock market going much higher. I'm not disagreeing with the Fed's policies -- but I won't buy into a rising stock market based on them. I'm bullish when I see productivity driving wealth.

For now, the market appears dependent on a hand cranking out dollars to help fund banks. I'd rather see rising expectations for corporate profits.

http://online.wsj.com/article/SB124208415028908497.html

onemorething 15 yrs ago

Ed, I am not so sure it is a good idea to do this cross-posting, unless you want to have two similar discussions.

Ed 15 yrs ago

I think that story is relevant to the property forum as well so I posted there as many people who visit their dont visit this thread.

MJ1 15 yrs ago

Here is the last bit of the May 13, 2009 SCMP article posted by walkup2 above that is worth a read...

But analyst Nicole Wong urged caution about the present recovery.

The rebound in prices and deals was partly a reaction to the very sharp price declines within a short period in the fourth quarter of last year, which could be expected to trigger bargain hunting, said Ms Wong, who is head of Hong Kong and China property research for investment bank CLSA.

For the foreseeable future property prices would remain at current levels at best, she said.

"Without economic or job market expansion, residential rent - which is almost a pure proxy of income - will stagnate at best, fall at worst," Ms Wong wrote in a report.

Given the backdrop of a bottomed-out mortgage rate, she believes that investors' tolerance of falling rental yields may not last long should property prices continue to climb while rents remain stagnant or even fall. Therefore buying interest would eventually lose steam, ending the rally.

onemorething 15 yrs ago

Walkup2, I don't believe we have reached that point yet. Actually the fact that SK is feeling like he missed his chance, tells me that once these would-be-buyers have bought their property, we have cleared the demand side and are left with the greedy opportunistic supply side. The sellers will have to lower their price to find new demand. I find it really difficult to assign a timing to this turningpoint.

punter 15 yrs ago

Beerboy's "prediction" of layoffs in the footwear biz came true today. Nike is letting go of 5% of its staff worldwide.

And what about the announced 10B HK$ relief measures in Hong Kong? Why is it needed if the economy is already on the upswing?

onemorething 15 yrs ago

The layoffs are good news. Not for those involved, but for the economy as a whole. Nike cuts production, which lowers the price of oil and rubber, which allows Nike to sell the shoes cheaper, which will increase demand, which will allow Nike to hire new people, which will reduce joblessness, which makes people more confident to spend. It is a cirlce. Currently it is a vicious cirle, but once we reach the bottom it becomes a virtuous circle again. Question is where is the bottom?

Ed 15 yrs ago

I'm struggling with the rationalle... the economy is in a deep recession with unemployment rising. Most economists predict we will not recover until 2010 and even then growth is anticipated to be tepid - rents are dropping and will likely drop further as people head out this summer when the school year ends...

Rents are going to rise? Property prices are going to continue to rise? Where are the fundamentals in the economy that are driving this? Is this a real recovery or is it irrational exhuberance with no basis?

The last time I saw developers offer these sorts of mortgage incentives was after the 98 crash when they were desperate to create a market. It certainly encouraged sales but it did not ultimately drive the market which foundered for the better part of 4 years...

bing2 15 yrs ago

because hk people are upbeat about china's growth and stimulus packages. retail sale and tourism are one of the backbones of hk economy and gov of both sides have made travel to hk much easier.

last month 10 - 15% luxury properties were sold to buyers from china.

onemorething 15 yrs ago

Eric Wong completely missed the property correction in 2008. He has one bias, which is up. The SCMP is owned by Robert Kuok, the property tycoon and chairman of Kerry Properties. Only Peter Wong makes a very sensible observation: people are still rich. That explains it!

punter 15 yrs ago

The local property market remains difficult to read. Get in at your own peril, or don't get in and you'll miss the boat.

Those who absolutely has to buy for own use with a long term view (at least 5 years of stay) should be safe, but for those who are buying and betting for a fairly quick return might be in for a surprise. After all, unlike equities, property takes longer to dispose.

elsdon 15 yrs ago

It's interesting to me.. This rise in the market is totally baseless. In spite of exports being at all time lows, unemployment rising, recessions and depressions.. there's no way markets can move before inflation hits? I can't think of any other reason why people think this rise is sustainable and/or real.

I'm going to sit and wait, as I have planned, until probably the end of Q3 start of Q4 of this year.. Hopefully I'll have a clearer picture then, it's tough to say right now what will happen, but I do feel that current prices aren't sustainable or real. Only time will tell though.

punter 15 yrs ago

Elsdon, Hong Kong people didn't lose a lot of money (there was no destruction of wealth). There is pent-up demand. There are some good news (right or wrong) like the worst is over or that the worst that people expected wasn't too bad after all. Governments worldwide put in stimulus measures (flood of liquidity). These things or combination of these things is the reason for this surge.

Is it sustainable? Who knows (I'm betting it is not). And just like you, I'm still sitting on the background waiting.

onemorething 15 yrs ago

No destruction of wealth?

dannyboy77 15 yrs ago

I’ve a feeling all these armchair property tycoons will once again find themselves missing the boat waiting for a nonexistent crash in the Hong Kong property market. All the expats I know have cash sitting in the bank (earning no interest) waiting for doomsday to arrive.

If you really want to earn money out of property it requires a lot of leg work searching the vast reams of overpriced rubbish on the market until you find a bargain. Predicting the bottom of the market is for mugs. Regardless of the market situation if you find a property at the right price and add some value, you can make money.

onemorething 15 yrs ago

dannyboy77, sounds like you are retired already despite your young age of 32!

dannyboy77 15 yrs ago

The situation now is nothing like post 97. In 1997 people were very reluctant to get back into the market because China was still seen as a possible threat to Hong Kong’s stability and then we had SARs.

While the current recession is fairly bad and wide spread, massive government injections of cash will soon start having an effect. These vast injections of cash coupled with huge pent up demand from the property loving Hong Kong people will lead to massive inflation.

punter 15 yrs ago

No massive destruction of wealth. As noted by many, people still have a lot of cash and just waiting for the right time to buy may it be equities or property.

SanjKash 15 yrs ago

I think the problem with HK is that even if the economy in HK suffers and local people are losing jobs, there is PLENTY of money from China, Middle East etc to fill the demand side. As I mentioned earlier, for eg, Residence Bel Air, there are numerous China tycoons who purchased properties when it was built in 2004 and literally some have remained untouched (ie. the wrapping is still on the doors etc). These people are willing to just sit tight and have bought up quite a few new ones since the dip in the market at the end of last year... they can wait for as long as it is necessary for them to turn a profit. So, as long as there is some possible money to be made, they are waiting for it.... so although I think the property market may further dip, the demand will not allow it to drop 30% like it did last year especially in the low end luxury to luxury markets...

onemorething 15 yrs ago

Observing this thread there are clearly two camps: the pessimists (or realists as they claim) and the optimists. Recently I noticed a shift from the majority of the posts being in the pessimist camp moving into the optimist camp. Assuming that the posters represent the general sentiment in HK, I expect property prices to rise further in the months ahead. By the time that Sad Sack starts to question his believes I expect a massive correction. (Nothing personal Sad Sack, I am in your camp).

elsdon 15 yrs ago

Well, in regards to the 'destruction of wealth', I don't think the real repercussions of this 'crisis' have even hit yet. All we've seen up until now was a bit of a heavy appetizer. The US managed to mobilize these TARP programs fast enough to retain some confidence after the initial banks were publicly being raked over the coals..

Anyway. Do I think we'll have a huge, apocalyptic crash? Hrm, perhaps. Do I think we've seen bottom and are on our way to recovery? No way in hell.

Scepisle 15 yrs ago

a little off topic... but does anyone of you informed folks know the best, safest and easiest place in HK to buy with cash, gold bullion bars and coins..... thanks !

punter 15 yrs ago

Dennyboy, it was not Joseph Yam who said that. It was Li Ka Shing, the owner of Cheung Kong which sells some real estate in Hong Kong as a hobby.

dannyboy77 15 yrs ago

Cruz, the current situation is nothing like the crash in 97. In 1997 there was wide spread worry about Hong Kong’s long term future which doesn't exist now.

People are desperate to jump into the property market and I think we'll see rapid inflation over the summer months. Two facts:

- The HSBC bank valuation of my flat has gone up 17% in the last month.

- I put another flat on the market at the bank valuation and received and offer for the full asking price within 48 hours

These are not the signs of a property market on the verge of collapse.

punter 15 yrs ago

Is there anybody who has looked at the effects of inflation to interest rates on real estate compared to rents?

My point is, if you buy a flat today at say 4M with P - 2.9 and 30% down for max of 30 years, your monthly amortization is about 10,500/month. However, if rates go to 15%, amortization will be 29,000/month. How much could a landlord charge for this kind of flat in such a high interest environment?

This is the reason why I said before that property will be a good hedge against hyper inflation if you paid your flat in full.

punter 15 yrs ago

Check the fineprint LGMV, you might be counting on something that might not be there when you need it. Hopefully that really is the case because there will be too many homeowners not going to be able to afford their mortgages once salaries do not match inflation.

qpzmgh 15 yrs ago

Patrick Yiu, you were also one of the first contributors to this thread 429 days ago and said:

'Due to shortage of land supply, high inflation and low interest rate, not likely to drop, only stop increasing for a while. Property market has been up for over 4 years, need to take a break now'

qpzmgh 15 yrs ago

thanks but think that was meant for Punter.

dannyboy77 15 yrs ago

The maximum time they will extend the mortgage for is 30 years. So if interest rates really rocket you may find yourself paying more

punter 15 yrs ago

All land in Hong Kong is owned by Hong Kong leased to to "homeowners" or incorporated homeowners. No bank will extend mortgage to anybody who doesn't have lease contract on the land where the property stands. If your property is 30 years old and the lease on the land where it stands has 20 years remaining, Hong Kong banks will only give you maximum 20 years mortgage plan. Once the lease is renewed, you can extend your loan again to maximum of 30 years.

Can anyone confirm this?

punter 15 yrs ago

So is the financial crisis over?

punter 15 yrs ago

No Eddie, congratulations to you on your buy. It's a big investment I'm sure.

As an aside, the Financial Secreatry spoke a few minutes ago regarding deflation. It might come to Hong Kong he said. I wonder if that too will effect property prices? If it will, then your newly bought property will lose some value.

punter 15 yrs ago

There's no question that the property market is peaking up, even property stocks soared today.

How many out there feels that they've missed the bottom? And homw many feels/thinks that it's going to tank again (and how much)?

qpzmgh 15 yrs ago

yes property stocks soared today as did most stocks on the HSI. anyway this next leg down in property is just around the corner for sure. this move in the stockmarket is understandable bearing in mind all the money sloshing around in the system.

this move is temporary in nominal terms but even if rise continues there will be falls in real terms.

once sell off commences property will move in a similar manner.

bing2 15 yrs ago

nothing is for sure in today's environment. anything can happen. you may have missed the train. the train left in december and january.....

qpzmgh 15 yrs ago

are you sure ?

HONGKONGEXPAT 15 yrs ago

Following the current market, I agree nobody knows where this is going but can say that people seem to have accepted the current low growth rates, high unemployment rates and general market volatility. As such, it seems that sentiment and psychological factors are even more important than the reality of the situation this is driving the property market up. In addition having done research the past few months I have come across the fact that the luxury property market is being substantially upheld by the mainland Chinese wanting to own properties here over HKD6.5 million to get visas to live here. I am not an owner of any property in Hong Kong, but have been here for 15 years and always wanted to buy, so now even though the price is perhaps a little more than what owners wanted about 2 months ago they are still realistic compared to that of 2007-Dec 2008. Now for everyone it has to be a decision based on worst case scenario, meaning will I still have my job, can I pay the mortgage rather than thinking if I wait I might get a better deal in 6 months. Or can the rent cover the mortgage if I am buying for investment purposes rather than owner/occupier. In the event it is for investment and you can't rent it out, can you cover the mortgage and for how long? Basis you can answer those questions to an acceptable level, (naturally nobody knows if their job is guaranteed) think no need to constantly worry what might or might not happen in 6 months with the global markets.

bing2 15 yrs ago

sure, those low prices seen in dec and jan will not come back anytime soon.

rere 15 yrs ago

I have been planning to buy a property for own use from around a year ago. I thought the crisis happened at the right time to match my plan but the window for low price was too short. I've just renewed my rental agreement a month ago, as I thought the "hot" market was only temporary, now I'm starting to get more and more confused and hesitated to decide if I should buy or wait, it seems both sides have its own reasons. On the other hand, I still don't understand why the prices are going up as unemployment is going up?!

onemorething 15 yrs ago

The low price window was six years ago, not six months ago.

bing2 15 yrs ago

make an offer when hang seng drops by 500 - 800 points. it has a big phsychology impact on hk people. i am predecting hang seng will drop 2000 points in the next 2 - 3 weeks. make an offer 10% below bank valuation and take it for 5% below bank valuation. this is what i would do. not much risk if you can buy 5 - 10% below bank valuation. i personally feel the situation can only get better from now despite the rising unemployment. this time around actually is not as bad as the asian crisis for hong kong in general. it's bad for people in finance.

HONGKONGEXPAT 15 yrs ago

Hi rere, just speaking from personal experience that really is all I can go by as the whole thing isn't following any economic parameters. I was set on one particular apartment (luxury market) for about 6 months now. It came on the market just recently on a good floor about 10% below bank valuation but vendor needed 30 day settlement so I got it immediately. No haggling etc. There were about 2 more identical aprtments on lower floors but wanted the same price as the market last year during the market high, they never even budged as they didn't need to sell. I would say find a few buildings you are keen on and just keep checking you never know if one particular owner has some urgent financial need and say needs 30 day settlement perhapos you can do this or it could be something else that is required. I agree that now it is harder to find any sellers in distress but it is still possible, you need to be active about this all the time. I wouldn't worry too much about the stock market as everyone and their granny is gambling on that, so how that will go is anyones guess. Basis you wait for it to go down 500 points then next day it will go back up the same. Basis you wait for it to go down 2000 points then by that time perhaps the property market has edged up a little again. You are back to square one. The best thing is to do some research on the buildings what each owner is asking and have your agent work hard for you, as soon as a new apartment comes on the market. Every vendor has different needs and different requirements for the sale. The best is to get a vendor that bought during SARS and needs urgent cash, you can still get a good deal and they are out there. Good luck!

For "one more thing" "the best time to buy was 6 years ago not 6 months ago" yes you are right but it's a little too late for that now. For example I was travelling then someone else had some other issue and the list goes on. It doesn't mean you never buy because you can't get the same deal as during SARS. You just lower your expectations of capital appreciation and think if you are comfortable with the price, you buy and enjoy your own premises. I think that people get too caught up in how much can I make out of this rather than thinking they own their own dwelling and just having an asset in a city like Hong Kong.

elsdon 15 yrs ago

I'm not so sure Hong Kong is as financially strong and resilient as the general consensus at the moment. Having met a number of 'landlords' in past months, they may have many assets but they don't have much liquidity and that causes an issue if their cashflow is getting hurt. (ie. unemployment, lack of renters etc.)

This is pretty much a game of chicken, more so than Hong Kong landlords having the bankroll to just chill back and ride this out. They don't want to show weakness, and buyers are just waiting to swoop in on vulnerable prey.. Inevitably, it's just about who buckles first.

punter 15 yrs ago

Volatility is the only constant nowadays. So get in at your own peril, or gain.

punter 15 yrs ago

I'm betting on volatility to continue, today's Hang Seng index swings is proof of that.

elsdon 15 yrs ago

Sorry, I'm sort of new to the whole housing thing (first time buyer).. But Loyd, what do you do if say.. prime slides up back to rates that existed during the 90s or something? P+3 where P would be like 10% or something. Would it simply extend your mortgage period? (Fixed-rate/payment mortgage?) Are you on a fixed-term mortgage (this is equivalent to variable rate?) How willing are banks to re-negotiate terms of a mortgage?

Is there a risk of bankruptcy at all? Let's say Slumlord A owns 10 properties in HK, has 10 mortgages out on them, payment on each is $10k a month at current P rates.. P goes up substantially, now his payment is $20k on each, he can't afford to pay the mortgages anymore since his renters are only paying $12k let's say.. what then?

I'm trying to weigh out some factors as to buying now. I'm fearful of inflation due to being pegged to the USD, I'm afraid interest rates might slide up for a few years to stave off another bubble.. Looking at fixed-rate (locking into a higher rate ie. P-2 or something atm) for 2-3 years and then shifting to a variable rate or whatever.

punter 15 yrs ago

Loyd, did you check with HSBC whether they're going to extend beyond 30 years? Dennyboy seems to indicate they can extend but "30" is the max number of years. Your answer will be of help to all those thinking of getting a mortgage with HSBC.

SanjKash 15 yrs ago

Actually a number of banks offer this service. I have a mortgage with Wing Lung Bank on this basis - fixed payment every month. If rates increase, the period is lengthened. Not sure about the 30 year max since I did not borrow more than 50%

housed 15 yrs ago

Personally I find the recent pricing strategies of local property developers (surely a savvy if unscrupulous lot) as extremely suspect. Haven't everyone noticed how almost all of the new developments are being sold (at least in the initial stages) at practically secondhand prices? Used to be, first-hand homes were always priced well above the secondhand ones in the same area but all of the recent new developments have been grabbing headlines for being priced close to the secondary prices that secondary sales in the area have virtually ground to a halt. (Of course the fact that the agents have been lured away from secondary market because of the higher commissions offered in the primary sales could also be a contributing factor.) Anyway I'm only a casual observer but to me, this smacks of a lack of confidence in the developers' outlook on property for the near future. Does it not seem like they are riding on current sentiment and selling off their stocks as fast as they can before everything burns and fizzles?

kneworld 15 yrs ago

That article mentioned here the other day "China's Real Estate Riddle" could also pose a real blow to the HK real estate market in the near future, imagine property prices plunging to half their worth in a couples years time.

HONGKONGEXPAT 15 yrs ago

Beerboy- actually this is the business I am in, the quality/grade of construction steel in Hong Kong is BS4449, which is a British grade/standard. It is the same as Australia, UK, Singapore and equivalent to JIS grade which is Japanese, or ASTM grade which is US standard or DIN grade which is German standard. Actually it is illegal to import any other grade than that of BS4449 into Hong Kong.

This means the mechanical properties such as yield and tensile strength allows skyscrappers to be built and resist extreme levels of typhoons/wind etc. Basically it doesn't get any better than this.

In China yes they have different grades which are acceptable and unfortunately not monitored by their govt., as say Hong Kong is monitored hence they use basic ps/ps grades quite often to build skyscrappers which can't resist anything too extreme.

I wouldn't worry about the grade of steel which is used here, perhaps one can complain about paying a great premium for say luxury finish in new apartemtns but as for safety no need to worry.

housed 15 yrs ago

LGMV, what's wrong with Cherry Crest?

housed 15 yrs ago

Thanks LGMV, that's interesting to know. I have a friend living in Cherry Crest right now and whenever I visit them, I'm always struck by the fact that their flat (esp the finishings - kitchen, bathrooms etc) feels somewhat dated/worn despite it being a relatively new dvpt. Also the location is awkward to get to, and seems to be quite overpriced for where it's situated.

bing2 15 yrs ago

shk, cheung kong, sino and henderson are good developers, dont worry about their quality. what i dont like is how they measure the gross area. sino even include the base of a/c into the gross area! if sino was selling you a 1000sqf unit, in reality your net area could be only 650sqf. the gross area should be determined by an independent company, not by the developer.

bing2 15 yrs ago

hi loyd, yes but dont you think we should not be paying those square footage that we dont even own? paying for a/c base is a joke.

Neo Dog 15 yrs ago

Veering off-topic here, but paying for a/c base is fine because you do have your a/c unit there. I am guessing that it is ok to remove said a/c unit and make use of that area for other purposes, subject to legal restrictions, ... in theory anyway.

What annoys me more is that some of the major developers include in the unit's gross floor area a pro-rated area of the lift lobby in front of flat. This is definitely not an area that is for sole personal use, and should be excluded from the floor area in the sales literature. False advertising? Misrepresentation? Seems this is not regulated at the moment.

Definitely off topic.

maxis 15 yrs ago

a little of topic, but just a comment on floor area:

You probably know this, but there are two initial "floor" calculations:

1. % of plot area

2. GFA (gross floor area)

There are govt. regulated and different to developer's fake figures/numbers.

1. Simply put, this is the maximum a building may cover of a plot area. There are all sorts of considerations and requirements such as % of sq.ft of open area etc, but this is essentially the footprint limitation.

2. Again, simply, GFA is the most the "building" may have, which can be considered to be, more or less, the total of all the surfaces of all the levels of the building in the construction stage. So, think of all balconies, the footprint of all walls etc. It is a bit more complicated but this is in general the deal. The developer CANNOT exceed the properly calculated GFA and it is the same no matter who calculates it if done correctly - ASD do a lot of this during development approval. The GFA is the maximum that the plot is let for, so any illegal structures, as well as being uninsured from a personal and public libility standpoint, contravene the lease agreement with the govt.

So, developers have a max GFA approved and a max no. of levels, but they have to squeezemore juice out of it.

So, they need to be able to sell more sq.ft somehow. Easy! count in all the GFA you can't use (portions of common area, wall thickness) but also "create" sq.ft which IS NOT PART OF GFA. Hence excessive use of useless baywindows (not at floor height, so aren't counted in GFA calc!, so don't exceed the property lease and include the sq. ft of these). And, of course, any air cond shelves or plant ledges can be included in developers' figures.

Funny how if you add up all the sq.ft (Developer's sq.ft that is) of ALL apartments in a development and compare that with lands lease agreement THE TOTAL EXCEEDS THE APPROVED GFA! In fact, of course, it doesn;t and can't.

Quite clever if a developer can sell more sq.ft than the GFA of the lease! Quite a marvel actually!

So, it would appear a much more honest way of expressing area of an apartment would be as follows:

1. total area (floor area, inside and out, and bay windows)

2. total internal usable area (excludes balconies, bay windows etc)

3. total wet area (bathrooms, laundries and kitchen)

And then any other fake figures or inducements about the common areas etc.

The old "efficiency" meter used in HK is total B.S.

The "high efficiency" low facilities/open areas.

Notice developers never say "low efficiency" for the new developments where you do have more facilities.

Them the HK $/sq.ft quotes for areas, such as mid level Central, are a complete misnomer because you aren't comparing apples and apples, you aren't even comparing apples and fish!

Also, if you are a foreigner/expat and have no experience/knowledge of property in HK, you will always be a sucker and subsidising locals and more savy foreigners. A lot of people have made a lot of money relatively quickly in HK from property (takers), meaning a lot of people have been givers. Problem is, property in HK feeds of local hysteria and gossip and if you want in then you have to buy in to all the rubbish that comes with it.

fp10s 15 yrs ago

And the majority of us live like sardines in a tin can here in HK.

Thanks Maxis for the insight and explanation. I found it helpful. The stranglehold that property developers have on the consumer is suffocating but that defines one key aspect of the capitalistic system that has made HK what it is today. For the consumer, there isn't one thing you can do about it except maybe to buy equity into the developers. The end point - the majority of us live like sardines in a tin can.

MJ1 15 yrs ago

If the USD continues to depreciate against many of the major currencies going forward (as it is predicted), HK property is going to be worth a lot less once you sell out and convert the HKD back to your home country currency.

SanjKash 15 yrs ago

Rebound in sight for HK economy - does this automatically suggest that the property market will follow suit? What happened to the predicted decline over the summer?

punter 15 yrs ago

The prediction was wrong, or blindsided by the stimulus packages/actions of governments, or the drop has not come yet. Who knows?

bing2 15 yrs ago

sadsack, so far your predictions are always off. those people who listened to you back in dec, jan have missed their chance. everyone who listened to you thought property would drop below sars level, but who would ever guess property rebounded so quikcly.

as i said before in the 30's there was no global effort to tackle the recession. now the world is hand in hand in tackling the finacial ciris. people in hk and china are now snapping property because they think this is the safest investment. after the lehman saga everyone would rather park their cash into property. at least they got bricks that they can see, even if the value drops.

onemorething 15 yrs ago

"sadsack, so far your predictions are always off."

That is a bit harsh and not quite true. I still think Sad Sack will be proven right, but timing is close to impossible. SS has often advised people, which I think is not a smart thing to do: if you are wrong you bear the blame and critique, if you are right you have nothing to gain. There is no upside in advice. As I have said in other threads it is close to impossible to predict what is going to happen next, because it is all in the hands of the politicians and central bankers, who are clueless. Still the economic prospects are very bleak in my opinion.

The fact that SS is attracting criticism and victory is being claimed by the "opposition" tells me that sentiment has gone from overly-pessimistic to overly-optimistic. Time for a serious correction in the next couple of months! Change in expectations is what causes volatility and moves.

punter 15 yrs ago

If the financial crisis ends now, LGMV's victory and score will remain. However it's not yet over and it is going to affect the local property market whether we like it or not.

muttles 15 yrs ago

Timing is everything - Uncle Loyd was correct!!! Sad Sack was wrong!!!

Well done LGMV you were right and we bears were not.

I bought in May after prices had already risen but still cheaper than last year! Hurrah!

HONGKONGEXPAT 15 yrs ago

Hi just catching up on the interesting reading. I actually think that even though we are a so called global economic community, I think nowdays there are substantial borders which certainly attribute to different regions having different levels of say growth, stability etc and not so much to do with say the US govt., pouring trillions into the stimulus packages. As an example what I think is happening with Hong Kong property is mainly driven by both the local Hong Kong Chinese mentality of buying for short term (to flip) investments, buying for long term investments and buying because Hong Kong Chinese people always always want to own their own dwellings, it has to do with their history. It is just their culture. The other reason is the whole matter oif the mainland Chinese that want the right of abode here and purchase all these luxury properties in Kowloon. It is considered prestigious for a successful mainland Chinese to own his/her investment property in Hong Kong. Some type of status symbol. This will never change, their appetite will only increase as it has with everything else. That is why I would say Hong Kong is quite unique, it doesn't follow the rest of the world when it comes to property values. It doesn't even follow interest rate patterns, because when interest rates were going up in 2006-2008 so were property prices. I think you have to spend time in any city/country and understand what drives people to invest, where they invest and why. You can't just put one universal stamp on everyone.

The other issue that nobody has touched and I find very interesting is this whole growth forecast by the World bank, they are announcing a greater reduction of growth by 2.9% globally but their initial reading was 1.7% earlier in the year. I wouldn't place much stock in any statistic now, but what is interesting is that all entities, world bank, IMF, various govt agencies, private institutions are all setting slow growth to commence for next year at around 2%. Even if they are all wrong and we are only at 1% next year, growth is growth and for Hong Kong it is all bound by psychology and what is happening with the mainland Chinese. To me all this means is that by second half next year we will see higher confidence and greater purchasing power throughout all regions. It will not be a bed of roses but it will be the beginning.

My point with all of this is, not to get causght up in how much money the US has put into the stimulus or are property prices in Hong Kong going to go up a little or down a little, what exactly is happening with the stock market, but everyone has to make their own decision as to what is right for them and it has to be a conservative decision, basis if I can't pay or don't have a job, can I keep the place/can I rent it out? How long can I manage etc.

By the way Muttles well done, I also got a place a month ago and very happy with price and have seen worse apartments/no view/much smaller in the same building selling about 5-10% higher per square foot the past month than what I paid. I however did buy for myself to use and as such no interest in selling, this is both my own dwelling and my very long term investment/asset.

bing2 15 yrs ago

if obama's 12 trillion stimulus package does not work, china will come up with 20 trillion. hk property market remains strong because of china's wealth, not because of obama's 12 trillion. chinese like to own properties, the more the better, and china is now richer than ever. despite the global downturn, china is still very, very rich and this would only mean good things for hong kong property.

will there be another downturn in the coming months? possible but will be very limited drop.

personally, i feel the world economy has already taken a lot of beating and we have learned a very hard lesson. economy bubble has burst all over the world, so we are now recovering, no?

bing2 15 yrs ago

are you sure china does not have 20 trillion? china is richer than the us....

what changed since nov? banks still have a lot of toxic assets, yes but those banks are in the US. china's banks dont have much toxic assests, in fact the last few months chinese goverment ordered the banks to start lending. credits are definitely much easier to obtain here in hong kong, especially for mortgage lending.

evildeeds 15 yrs ago

"banks still have a lot of toxic assets, yes but those banks are in the US. china's banks dont have much toxic assests, in fact the last few months chinese goverment ordered the banks to start lending."

And therein lies another timebomb waiting to explode. Toxic assets are enjoyed by every bank in the world, not just the US. The US was the most exposed however. The Chinese government has been ordering banks to lend to stimulate the economy - what will happen when these loans turn toxic, which a high percentage will going by normal lending issues in China?

cookie09 15 yrs ago

"are you sure china does not have 20 trillion? china is richer than the us...."

huh?

bing2 15 yrs ago

china's economy is a fraction of the US? china can buy california and nevada with its massive reserve.

evildeeds, you under estimate china's economy and its banking system which is tightly controlled. china banks will not lend if they think the loan will turn toxic. we all know how this financial crisis started. because of those irresponsible US bankers lending money to anyone without checking thoroughly if borrowers can pay back the loan. US bankers were just chasing bonus. the more they lend the bigger bonus they get. so why not loan the money?? even to a 14 year old boy!

in china and hong kong this would NEVER happen. the banks are so careful that almost all of their loans will not turn toxic. i assure you that you will not see in china or hong kong that a person without job and income can buy a property for 0% down. a few years back, in the US anyone could buy a house and borrow money from a bank, even a homeless person with 0% down!

evildeeds 15 yrs ago

"in china and hong kong this would NEVER happen. the banks are so careful that almost all of their loans will not turn toxic. i assure you that you will not see in china or hong kong that a person without job and income can buy a property for 0% down"

bing, banks in China are being forced to loan to companies that are literally bankrupt. This has been happening in China for years and their defaults on loans are some of the highest in the world. Always have been and always will be. The banks are trying to be careful but because of government control they are being forced into a situation they do not want to be in. Even the top China economists are predicting a disaster with this policy. I'm seeing it all around me in China at the moment - a large factory near to ours has just received a huge financial loan pretty much just so that wages can be paid and there is no unrest. This will never get paid back as the company isn't making money at all. This scenario is being repeated 100's of thousands of times all over China. Do not underestimate how many financial institutions and companies in China have in reality been bankrupt for years - they remain as they are a face of the party and are being bankrolled as such.

88888 15 yrs ago

Very interesting and informative - what's your thoughts anyone on refinancing a Home Loan on a property purchased 1 year ago due to the current interest rate market ??

punter 15 yrs ago

This is an interesting post:

http://economistsview.typepad.com/economistsview/2009/07/a-bubble-mystery.html

Anonymous 15 yrs ago

We did exactly that last month. We bought an apartment in Happy Valley about two years ago then realized what a mistake that was and we resold it closing in June. Lost a bit on it still but we are very happy because we think this is going back down.

HONGKONGEXPAT 15 yrs ago

Innocence- If you don't mind me asking, I assume if you purchased the property last year, you must of bought it during the first 8-9 months of 2008, hence you purchased it at the market boom. As you sold it in June this year and claim you made a small loss thus it shows that the market is really on track as per 2008. Everyone has to do what is right for them, but were you simply buying at the time to flip and make a quick profit or to live in long term? Problem is if it was to be used as your own home, unless you are worried about your job or really believe the market will tank it doesn't make sense. You have stamp duty/agency fees etc, can you advise your thinking on this?

Anonymous 15 yrs ago

We lost a little over 10% Keeping in mind we did not buy at the peak of the market (it was in fact last quarter 2007) so the damage was not so bad. We also of course lost on fees.

We bought for the same reason I think many others bought namely we thought the market would keep going up. That's what we read everywhere.

We sold because we thought this was an opportunity to get out before the market collapses. We really do think that is what is going to happen because we think the world economy hence the HK and China economies are going into a multi year slide.

We feel we are got a second chance to get out relatively unscathed and we took it

bing2 15 yrs ago

that's why property prices wont come down in hk. hk people hang on to their properties because chinese people love to put thier money where they can see. if they really need to sell very cheap, they usually call their relatives so those cheap ones will never be on the market. demand and supply, there are 7 million people in this tiny island. if you have a property in core areas, i dont think prices will come down that hard. there are always buyers for core areas.

Anonymous 15 yrs ago

Prices wont come down in Hong Kong? You need to look at historical trends because property has indeed fallen drastically many times in Hong Kong including 1998 and during Sars.

Your mentality is the same one that got the people in America into trouble. They thought property would never go down and now they are bankrupt.

The economy during the Asian financial crisis was terrible and I know so many friends who over-extended and lost everything and had to start over again.

If this economy worsens, and I have seen a number of people saying that there is a good chance that it will go to Depression-like conditions, 1998 will be nothing in comparison, do you know what a Depression means? It will be the end of the world as we know it for years. It probably means unrest across the border.

There are many risks right now and to dismiss them with a statement that property won't drop in price is absurd.

My advice is not to get over-extended on property or any other investments in this environment. If things you bad you will regret it

bing2 15 yrs ago

i have heard you guys said about depression many times, worse than 97, worse than great depression, etc. yet the market is going against your prediction. as i said many times, it is all about supply and demand in hong kong and prices are still 30 - 40% off from 1997 peak.

i know exactly what depression mean, do you know if it's going to happen?? all you guys did was predicting that the world economy is going to crash and we are all doomed. if i told you the market is going to go back up a few months back you would say i am crazy, but the market went back up. you could say it's because of the stimulus money and it's going to crash even harder after this. well, i am waiting for that moment because at least i know my investments wont crash because of its location. having said that i still believe, even if depression happens prices of hk property market will not crash because the supply is very limited and bank interest rates are so low. on the other hand, hk gov has learned a great lesson that they cannot let property prices to collapse because they are the biggest landlord in hk.

most of you guys are too american eccentric and you think the world economy revolves around america. well, china and the rest of asia can survive as their economy is relatively strong and can survive without america's consumption.

if you spend sometime in china you will notice that nothing changed since the crisis, everything is the same, maybe there are factories being closed down but life goes on as usual in china; restaurants are still full, people still going out, spending, etc. in indonesia, the economy is actually even better now and if you were there the country's economy is going strong.

onemorething 15 yrs ago

Hong Kong property market's history is littered with bubbles and subsequent collapses (-50% or worse). So saying that a property crash cannot happen in HK is historically incorrect. Question now is from what level the next collapse will come.

punter 15 yrs ago

Remember the subprime and CDO mess? It has caused some problems with small companies like AIG, Lehman, Wamu, Wachovia, Citi, etc. It's gone, right?

It may make a comeback though. Look at this link http://www.bloomberg.com/apps/news?pid=20601087&sid=aeTzfvEedKpQ

spaceren 15 yrs ago

Thanks everyone for posting and Sad Sack for setting out specifically what you have done and are doing.

With respect though, not one person reading this is objective. There are two parties to each trade, sale, whatever. We typically think we know more than we do, esp people who write it, as I just did. And typically we know so little.

I sold my property pretty close to top of market, except for home (got to live somewhere and got to love cheap interest) and another (again for good reasons, not speculating). (Bought during and around SARS) Then bought shares, and got to say what a ride. To have missed this must strain every "objective" bone in one's body.

That said, it is not all pure luck, just 90% is. The other 10% is I think based on a long term earnings view, and not short term speculating (see Buffett, Graham, Grantham, Bogle etc). In SARS cheaper to buy than to rent, no brainer if you did the numbers, fortunately I did. 2007/2008, better to sell than to rent out. Buying shares from Oct 08 to now, good earnings potential.

If you think the world is coming an end financially, I personally can't think of anything better than owning shares in companies that have the potential to survive. Sure they can have rights issues to dilute your ownership, but otherwise you still own the same share in the company (Buffett wrote a bit about this).

To own significant amounts of physical gold you must really think the world is coming to an end financially and our fundamental safety is at real risk (ie wartime). If I truly suspected this, I would be on a plane, bus, boat out of here, as much as I love HK, don't think it would be a great safe place in a full on depression (meat cleaver scenes in movies come to mind).

I don't know what is going to happen. But I think this too will pass, otherwise I wouldn't buy. It might get much worse, so am holding as much cash as I can without the regret of not buying (read Jeremy Grantham's buying when fearful tract of Mar 09 for insights).

Be intrigued as to what others are doing overall.

I suspect it is fine to delever if you are prepared for where you end up. If your property drops 30% and you are leveraged to 90% there will be issues, similarly for shares etc. But if limited debt, as everyone is going down, almost everyone, so strap yourself in and should be fine (Buffett has written about this as well, think he says never has more than 20% debt).

Finally, remember a while back everyone saying the AUD is going to par with the USD. The true issue was after a dozen years of halcyon days it hadn't (and wasn't it turned out). Is there something similar with gold, with the end of the world was in sight it is still merely toying with US$1k. But if wartime looks like it is coming, I too will be buying it and diamonds etc, just need a backyard to bury it in.

gazzafoot 15 yrs ago

A lot of logic in your thoughts Sad Sack, and the most worrying driver in the market at present are the developer's who are desperate to dump their inventory as quickly as possible, so they do what they do extremely well, market them to death. Price them low, make a market, threaten to raise prices, the HK punter think's buy now or lose out . . . and a bull property market is born. Interest rates may be low for the next 12 month's and then . . . !!!!! Perhaps buying now, but well within means is still positive, but look to bale as soon as there is a sign of interest rate rises. Another mantra from long ago is ' When expat's start to buy it's time to get out of the market!!!' Usually not far wrong.

Anonymous 15 yrs ago

I would add that one reason we sold a property recently is because we looked at the employment situation in Hong Kong with expatriates and we think that it will be difficult to get a return when renting a luxury property because so many expats are being forced out by the crisis. Finance seems to be affected most and we didn't think it would recover soon so rather than have an expensive flat sit empty or accept a rent rate than meant a terrible return on an investment that would probably continue to reduce in value for who knows how many years, we sold it and we have no regrets.

bing2 15 yrs ago

sadsack you also predicted that property in hong kong will worth less than the cost of building it. are you still sticking your neck for that? there will be no economy armageddon as you predicted. the us and china will do anything they can to prevent any crash to their economy. how could you compare the 30's to today's market and technology? the economy everywhere in the world has stabilized as well as in the us. wonder why all big financial institutions in the us are rushing to pay the stimulus money back. worst case scenario for the us is to have a stagnant economy like japan in the 90's. property in hong kong will not tank, it may go down but i will stick my neck out that it will not tank as you think it may be. chinese people like to invest and save money, and they feel property is one of the safest investment, especially after the mini bonds saga. chinese people feel more secure with cement and bricks, at least they can live in it.

onemorething 15 yrs ago

"wonder why all big financial institutions in the us are rushing to pay the stimulus money back"

So that they are free to pay unrestricted bonuses while they can. The banks are still on a lifeline with the Fed and the FDIC. The financial sector is still insolvent, make no mistake!

liebster 15 yrs ago

A few facts ive observed. property transactions hit record levels in June, above 15,000. the proportion to primary sales was maintained, so there was no large influx of new apartment stock out of the ordinary. property prices have risen aprox 20% since the year started, and the bank valuations on properties across hk island have also matched that statistic.

Rents are on a downward trend, but its difficult to get a sense exactly how much and in what areas. interest rates remain very low, making property purchases more attractive.

bing2 15 yrs ago

you need to scroll up to see what you wrote in the past. i dont think you predicted collapse either and i personally dont see it as a collapse. it was more like price correction. collapse would be like in the US where people are defaulting their property. in hk it was merely 20% correction in average. of course some places dropped more but some places also held up. there was no collapse sadsack.

bing2 15 yrs ago

hangseng close to 20,000 and housing in the US is stabilizing. when hangseng passes 20,000 property prices will go up another 10%. many people have made a lot of money from stocks in the past 4 months. it is always the cycle in hk, stocks up, property up.

punter 15 yrs ago

You didn't mention the lag Bing, it can be construed as intellectual dishonesty. When Stock Market goes up, property goes up after "n" number of months. If the stock market goes down, property prices go down after "n" number of months. Unless you really mean that there's no lag.

It appears that the stimulus actions of world governments have been effective, if not, the markets surely have gone so low and home prices must have tanked already. As it is right now, we're back to pre-crisis levels.

However, can we really say that the reason/s for the 2008-2009 downturn have already been solved, or even if they're not solved, they can be disregarded? Is it possible that the effects of the stimulus packages will be short lived and another downturn will come in the near future?

cookie09 15 yrs ago

anyone has some data what happened to rental prices in the last two months? my sense is that they have not moved much (up or down) from their low'ish levels

stock and property markets (buy/sell) are more liquidity driven at the moment so i do not think they reflect 'true' asset values

punter 15 yrs ago

Landlords' asking prices have gone up. I've been on the lookout for a flat to move to in December. Asking price for flats in West Kowloon/Lai Chi Kok area have gone up 10%.

cookie09 15 yrs ago

punter, in which timeframe? +10% since december or since last two months?

onemorething 15 yrs ago

bing2 has a point, the property market is moving in tandem with the Hang Seng without a lag. And that is exactly what should alert any cautious investor... hot money is blindly chasing any asset class. Sounds eerily familiar to 1997 housing bubble!

punter 15 yrs ago

cookie09, compared to the lows of around March-April

HONGKONGEXPAT 15 yrs ago

onemore thing and loyd-the issue with the 1997 bubble was to do with the mainland Chinese using govt., funds to buy property in Hong Kong. They would use govt., money and only say put 10% down in the prospect of flipping the property at a certain profit very quickly. When the mainland govt., no longer allowed the use of their funds for these purchases in Hong Kong and the Chinese had to use their own funds the whole thing came crashing down. They were the ones that really drove these crazy prices at the time. This is all very different now as any mainland buyer is using his/her own cash to purchase and generally hold long term. Funny thing is that certain buildings in top locations, luxury market has just achieved higher prices than during the boom of last year. Estorial court is one example, they are beating market highs of last year with recent sales. Bowen and MacDonnell Road are matching market highs on the way to edging out last year highs. A Peak house sold yesterday for HKD280 million which is also higher than last year. Both Hong Kong Chinese and mainland Chinese are driving up the market and especially premium areas/buildings in part because of the above points from Loyd but more to do with demand and supply conditions, we just have no more prime real estate left and the wealthy all want more of it!

Ed 15 yrs ago

Interesting article - relevant to the property market:

HONG KONG (Reuters) - For most financial market professionals in this city and other hubs across Asia, the days of extravagant expatriate life have ended. For now at least.

The standard HK$200,000 per month (15,548 pound) housing allowance for top bankers is gone or going in most cases.

http://uk.reuters.com/article/idUKTRE56M1DH20090723

HONGKONGEXPAT 15 yrs ago

Catching up on all the reading today and enjoying everything. As I have said everyone has to make a decision on what is best for them. Basis their job/financial security etc...I don't think anyone should say in 3 months or in 6 months this will happen or what will the stock market do??? This is all guess work, however, "sadsack" reading your current feedback I am in hysterics, nobody knows what will happen in a few months time, but seriously you would take the advice of a "hedge fund manager." This is the last group I would consult!

bing2 15 yrs ago

things are getting better. i am now in the US for the summer and i spoke with a lot of people here and they all told me the worse has passed. housing is steady and unemployment rate is steady too. dow jones just broke 9000 and hangseng will follow today by breaking 20000. the hedge fund managers are those people who got us here, and of course things are still bad for them but not so bad for other industry.

tpol 15 yrs ago

Yeah but if the Govt keeps on adding stimulus after stimulus, wouldn't the rally continue?

cookie09 15 yrs ago

sure, in this case it's just a question of WHEN the govt will be bankrupt - AND THEN you will see the crash of your life

bing2 15 yrs ago

any chance they could be wrong this time? us housing bubble was quite easy to predict. just think about it, lenders are borrowing money 120% of the property value and they didnt check the credit of the buyer. americans took money from their house for buying new houses, go for holiday, new cars, cmon it doesnt take the world's top economist to figure housing in the US will crash.

the fact is property in hong kong is going up and it is going up by the minute now as hangseng just breached 20000. you'll see. now it's seller's market, not buyer's anymore. for those people who listened to you in dec, jan, feb, they have lost their chances and probably shooting themselves on their foot now, and this is fact, not opinion - that their chance has passed. it would take some time to get those low prices again and we dont even know when, and it may be the prices wont go down anymore.

we all know china export is down by 20% but things have stabilized and americans are now wiser in spending and this is a good sign. i personally dont think it would get any worse. americans and the whole world have learned a great lesson and lucky for everyone the government worldwide bailed us out.

of course without the stimulus money the world economy would have collapsed by now, but our governments are much smarter, faster and much better informed compare to 1930's.

punter 15 yrs ago

The stimulus packages/plans worked. It has propped up the markets. That's not questionable. It has made happy those who've put in money into the markets (who wouldn't?). The question is, is it sustainable? Maybe not.

The moneys circulating today needs to be cleaned up, if not, inflation certainly will come in a bad way. If the withdrawal is timed wrongly, the green shoots we see today will certainly disappear.

This is supposed to be the "lessons learned" from the great deppression. In and at this point, the response to the meltdown has had good results. Same question though: is it sustainable?

punter 15 yrs ago

4 years is too long I guess.

punter 15 yrs ago

You might be right Loyd, but who knows exactly what and when things are going to happen?

muttles 15 yrs ago

Don't listen to the tired rants of the doommonger - If I had listened to him I would not have ridden this amazing stock market surge and not have got back in the property market when it was still cheap - Stop being such a drama queen! This rally could last another few years - meanwhile your broken record player will still be whining on & on...snore...etc..

muttles 15 yrs ago

At least let us be happy just for today - 20,000!!! Rejoice - oh joy!!! $$$ hurrah hurrah!!!

bing2 15 yrs ago

how about you sadsack? you will stand behind your words, sell everything and buy gold? i assume you are not buying stocks, properties, trusts so you will put your money into one shiny metal basket? i doubt gold will go over 1000. it's way too high, way way too high now. bubble?

punter 15 yrs ago

What's fueling the "bubble"? It's the enormous amount of government money going around, plus the moneys people have stowed away, plus the low interest rates for loans, plus the very low/nonexistent interest rates on deposits, plus the "bet" on a continuos recovery.

All of these factors are non-sustainable.

bing2 15 yrs ago

investing in stock market a few months back definitely is not like gambling in macau, brotha. with all the gov money being pumped, dont you think it will boost the market? both stocks and property? this is not gambling but a calculated investment. the market was 10,000 and 700 billions being pumped to the market, how could you say it's gambling? can you see the market will go up? doesnt matter for a short term or long term but with that much money being pumped when hangseng was at 10,000 it's not gambling but a wise investment decision. maybe now you can sell and take a huge profit. just imagine brotha if you would have invested your money when hangseng was 10000 instead of buying gold and holding cash? you could double your money by now!

of course it is not easy to go in and out in property market but one of the main reasons that property in hong kong is holding up and rising is because most of the owners are end users or long term investors. no one is flipping property like in 97 so you cannot always compare today's situation to 97 when a taxi driver had 3 property in his hand. how could the market not tanked?? these days have you heard any taxi driver or a waiter in a restaurant own 3 properties that they want to flip within days? property in hong kong will remain stable and strong because of most of the owners are end users and long term investors. also in most cases rent can pay for the mortgage and rental market is still strong (there are always people who want to rent). why would anyone sell their property if they can rent it out for 70 - 100 percent of their monthly mortgage? and for the end users, if they dont get their asking/ market price they wont sell because it is their home. this reason coupled with such a low interest rate and buyers from across the border, dont think property will go lower than in dec, jan, feb.

liebster 15 yrs ago

sad sack,

you are overlooking some basic fundamentals of markets. you act like its ridiculous to assume markets will never go down, yet it is equally ridiculous to assume they will never go up. if you look at the long term trend of any property, equity, or commodity market, prices go up over time. this is true over the last 100 years. even the crash of 1929, which is the only recession comparable to what we are now in, registers as a small blip on this upward trend.

of course there is a cyclical rhythm to these markets, but investors consider this within the context of the historic movements of markets.

i think the comparisons to the 97 crash arent really valid at this point. not only is the property environment behaving nothing like it was then, the prices simply dont reflect much of a bubble. if you consider the price trend since then, properties prices have behaved fairly predictably and normally. we are now at around 3/4ths recovered from the 97 bubble; even it property prices matched inflation alone they would be around where they are now.

to say hk properties overall are grossly overpriced isnt realistic. however, that is not to say they are going to grow much in the immediate future.

back in october/nov, when prices experienced a 20-25% dip, it was without doubt a very nice time to buy. as far as the stock market, it was also an incredible opportunity to buy when 2800 was at 11, and 2823 at 8.5. even if you were already invested heavily, it still makes sense to invest more when markets drop 70%. history has proven this strategy time and time again. like the saying goes, buy when there is blood in the street, even if that blood is your own.

now given the present situation where markets raise back up 60-70% and someone misses the rally, psychologically for those who missed the rally its a huge blow to have to buy back into that market, knowing they missed the rise.

bing2 15 yrs ago

housing data in the US has stabilized. some big cities recorded increase in prices by almost 2%. first growth after 18 consecutive months of price decrease. US housing bubble, the epic center of financial crisis, in my opinion has reached or almost at the bottom.

when export rebounds and if china is showing good sign of economic growth, hk property will take off another 10 - 15%. hangseng is at a very healthy level now, hope will stay between 20,000 - 23,000 for the coming months.

punter 15 yrs ago

When the stimulus/pump priming moneys get used up, stock markets and property prices has to come down too.

A Chinese official's announcement that Hong Kong will play second fiddle to Shanghai (as financial center) won't help either.

bing2 15 yrs ago

you will lose nothing when you wait? every investos try to time the market and you said you'll lose nothing when you wait? people who waited a few months back already lost 20-30%. will it go down again? no one knows. if you knew about this coming crash that you always talked about, you would have guessed the stock and property market rally a few months back too because of the gov stimulus - which was easier to predict. but you kept saying wait, wait, wait, crash, crash, crash and now?? wait again? dont you get it? the fundamental of hk property is based on end users and long term investors, not speculators anymore. everyone knows export is still teribble and economy hasnt improved yet, everyone knows that, not only you. but yet the property is going up? why is that?

Scepisle 15 yrs ago

Sadsack... I just want to tell you I appreciate all your posts on this board.... you speak sense.... a lot of it... thanks. Keep up the good work.

Scepisle 15 yrs ago

Sadsack.. one question... I am sitting on about US$400,00 cash in US$ and HK$ and not sure what to do with it... I am very wary of the value of the US dollar and inflation.. I fear for it's value... where would you put this money now. Hold in gold ? I sincerely value your advice.. give it to me as though it was yours.. thanks!

punter 15 yrs ago

Is it time to cash in property gains or after a few months appreciation?

punter 15 yrs ago

If buyers didn't buy in Feb-April this year because they thought prices were still going down, these same buyers most probably are not going to jump in a heating up property market. Owners with multiple properties may be the ones who would want to offload some of their flats (just like profit taking in the stock market). Maybe some mainland investors (who have multiple properties) will do the same. If it's difficult to time "buying" at the lowest level perfectly, it's the same at the selling side too. It's not helping that asking prices usually are at the high higher-end.

onemorething 15 yrs ago

LGMV in your experience is that a sign of higher prices to come or the end of the recovery in property?

evildeeds 15 yrs ago

Please be very careful in assessments. A few high prices on the Island and South Kowloon and sales figures skewed by new property releases onto the market at below secondary market prices. Elsewhere the signs of growth are more sluggish. There are some issues with the rebound, a lot of it has been driven by money from the mainland - this is both in money laundering and in unsecured (possibly toxic) loans. With luck prices will rise but those predicting the end of any problems are a little naive.

If prices keep rising the next issue will be when to get out of what has previously been desirable areas into the next desirable areas. These are moving north as money from the mainland increases. Let's see who is able to follow the trend.

onemorething 15 yrs ago

Want to trade one of your properties for a can of peas and carton of fags against one of your flats in 2 years in that case? Or perhaps one gold coin...

Ed 15 yrs ago

Good article this am

Asia's Easy-Money Policies: Fueling New Bubbles?

http://www.time.com/time/world/article/0,8599,1912301,00.html

Is the jump in the HK property market related to massive liquidity across the border meant to stimulate the consumer economy but instead is being directed to property purchases in the PRC and HK?

Ed 15 yrs ago

No idea if this is a bubble or not, and note, I did not write that article.

However the article does perhaps explain why property prices are going up when rents are going down and unemployment is increasing, and exports are decreasing and China is shoveling major cash into the economy through their banks, and by all reports much of it is ending up in the China and HK stock and property markets.

Seems HK property bubbles over every 3 or 4 years so what's new eh....

elsdon 15 yrs ago

I don't know about you but is the thought of a 'bubble' really that surprising? I mean, we've had crashes here in Hong Kong in 97, 03, and now in 07-08.. that's PRETTY volatile.

One indicator I've been looking at recently is the ratio of average fiscal salary : cost of home.. Hong Kong is insane, eh? I mean, maybe I'm just making no money here compared to everyone else but I'm kind of surprised anyone can afford to buy ANY property here unless you're already fairly rich coming here.

Mainlanders have contributed to 5-10% of the influx of property buyers I had read. So, still most of the money is being supplied by us HKers.. With HK businesses not doing too well, as well as their mainland counterparts, I just don't see what Loyd is basing this rise in prices to. I wonder if the Chinese Government will continue to hemorrhage money to it's people to come to Hong Kong to spend. I wonder when the lag from fallen exports, rising unemployment, and unsustainable domestic demand for housing will hit. I wonder if it ever will. I wonder if China is really able to replace global demand for it's products with internal domestic demand. Will the Chinese people really be able to replace the buying power of the entire western world?

I'm calling for reality come this year in Q409. If more tarps and bailouts, it will prolong my view, but the longest I see them stalling it until is next year Q410. It sucks because I've been shopping for real estate for a little while now and it just seems like a dumb time to move into the market now that the property owners have confidence (fake or real?). Regardless, I'm just waiting for answers. Whether my perspective is right or not, I don't care anymore, I just want to know.

punter 15 yrs ago

Can China replace the demand from the western world by local demand? Not likely, per capita income in China is still at 6,000US$. Even if there are a lot of wealthy Chinese, their consumption can't really make up for the rest of the country. If China produces the same volume of goods as before, which goods are the local people going to buy? After all, chinese taste (generally) differ greatly from the west.

There is much disconnect with what's happening in the world and what's happening in the stock and property markets.

bing2 15 yrs ago

gambling? are you upset because the property market has gone up a lot and not crashed? last year you said dont buy or else your property would turn into negative equity. now property is up you said it's gambling, you guys are lucky, etc, etc. you upset that you missed the boat? you listened to cnbc? those people are jokers.

onemorething 15 yrs ago

I don't find property affordable for first-time homebuyers in HK and in most of Western Europe. By that measure alone it is a bubble in my opinion. Variable rate mortgages may be cheap-ish with rates at 2-point-odd percent, but how about in two, three, five years? Interest rates may or may not stay this low but low interest rates are historically an anomaly, and not the norm. And we better hope that Asia will really decouple from the rest of the world, or we will have 10% unemployent in HK as well. With China exports still down 27% yoy as published today, I don't see how China will experience a sustainable economic recovery.

onemorething 15 yrs ago

LGMV, I mostly understand why prices are so high, but if one has to live frugally in good times to afford a property, there is something wrong with the market. It eventually will correct, but it is very hard to time this, particularly if governments will do anything within their power to keep up the illusion of locked-up wealth in real estate. We are reaching the limits of what governments can do though, particularly in the West.

punter 15 yrs ago

Tung Chee Hwa's housing program worked to lower home prices, maybe someday somebody can have a more effective and lasting program.

elsdon 15 yrs ago

I don't think everyone is eligible for public housing either. When you are talking about 30% down payment, it's a sizable amount of savings, seeing as an 'entry level' apartment for TWO people is roughly, let's say $2M. By the time it takes an average couple to save up say, $600K HKD, at say.. on average maybe let's say it's a prudent saver.. so 25% savings on average income of $25K HKD monthly, $5K HKD saved per month.. that is 10 years and change. So, the average family will be well into the autumn of their lives before they can even begin to think about buying a place.

It's really not a sustainable model I don't think. Not until salaries in HK rise up to meet the current property pricing, or the model is somewhat changed. Given, the 'rough' numbers I've given are there just as an example, your experience will vary depending on how much you're making.. Regardless, I'm certain that this is an experience only HK can provide.. Living with your mom and dad until you are at the tender age of 35 and ready to move out..

Anyway, getting into the market now is SORT of late I think. The market has already recovered to some degree due to the confidence that the property owners have. Will it continue to rise? All the housing agents I've spoken to are telling me that. In spite of it all, maybe it's just my own ignorance or lack of knowledge in advanced economics.. But I just don't see what driving factors would cause ANYTHING to go up in value besides inflation.

If inflation does hit, I imagine it'll hit quite hard if the HKD is still pegged to the USD. Property IS pretty much the only hedge against inflation, but how do world banks deal with inflation? In my mind, as opposed to having all their currencies devalue due to the mass influx of dollars, they'll have to increase interest rates to counterbalance and try and stave off inflation, no? That, in turn, will cause rising mortgage rates.. etc etc. So, theoretically, property owners caught in this window might have some pretty glorious mortgage payments to make if P moves to something like 12% or 15% or 20%, something seen during the 90s?

In any case, I am holding cold hard cash at the moment and still waiting to buy a property. I'm not a greedy person, so I would suggest if you are looking to buy and can get in at a decent price (stop looking for the bottom), just do it. I'm buying to live in though, so my situation is different than those trying to generate passive income.

onemorething 15 yrs ago

You got to love the cheerleader Eric Wong!

liebster 15 yrs ago

sad sack,

you are mixing property warnings with articles quoting stock reports. property and stock markets are not one and the same, they sometimes but not always move together. in fact, one could construe your argument as positive for property. when investors are afraid of volatility, sometimes they buy property for safety.

we all get that you are doom and gloom and think property is a risky investment now. but it seems like you think every investment is risky now, unless its gold.

every time the HSI takes a 500 point dip are you going to post it in this thread and throw peanuts from the gallery while desperately clutching your gold bricks?

mayafox 15 yrs ago

From October 29, 1929 until November 13, 1929, the stock market collapsed 48% (the 2008 Crash was 52%). Then from November 1929 to April 1930 the market staged a 155-day rally of 50%. The recent rally has lasted ~150 days and the market is up an average of 50% (average of Nasdaq, DJIA, and S&P 500).

Unfortunately for the bulls today, the 1929 market then rolled over and collapsed another 70%. “Bottom callers” INCLUDING legends like Jesse Livermore, Benjamin Graham and others bought ALL THE WAY DOWN, losing entire fortunes.

Stocks and properties in Hong Kong seem to be following an extremely familiar dead cat bounce pattern. How long the bounce will continue is anyone's guess...but it would be unwise on historical precedent to assume all is "back to normal" without the usual "despair" phase coming.

punter 15 yrs ago

Hong Kong/China/Asia is not the US argument may be taken into consideration. If true, only the US economy will fall again.

If the US falls, will HK/China/Asia remain unaffected? Very interesting times we have here.

HONGKONGEXPAT 15 yrs ago

I think it is great to have a logical/rational discussion about all aspects of the economy/property market/stock markets etc, but the exact point is nobody knows what the govt., of the US will do in the future, what EU govts will do etc, so nobody should give advice to buy or not to buy, they should just state real facts. In hindsight we are all brillant, but people like sadsack should not be telling people I am not a financial advisor and I didn't expect this govt to do that or this govt to do this, but just don't buy, you will regret it. The truth is nobody knows anything, if they did nobody would need to work, they could just play all day! Sharing info., is great and very productive but everyone has their own agenda, for those that own property they want it to appreciate, for those that want to buy they want it to go down. As I have always said I have been here for 15 years, the best time to have bought is gone, that was SARS, everyone should just do a case by case analysis with all the info., they have, which is avaliable to everyone, then include their own personal situation and make a decision, best and worst case scenario. Most importantly don't get too caught up in the stock market in Hong Kong going up and down 500 points per day, it is one of the most volatile markets in the world and if you base your decision on the Hong Kong stock market, you will find it close to impossible to make a final call. Look more at company results globally, company hiring requirements globally, exports, local infrastructure projects, interest rates, Hong Kong land availability, meaning supply/demand conditions in Hong Kong, etc, but most importantly look at your own personal situation and why it is that you want to buy or sell a property. At the end of the day this isn't 1929 and we have all the info., at our fingertips, plus govts., worldwide that are doing everything to fight this, so even though we must look at history to help judge the future, don't get stuck in history to predict the future!

punter 15 yrs ago

The actions made by world governments were lessons learned from the great depression. If they didn't learn from that, where are we now? Granted that the actions have been "effective" so far, there's no history yet on what effects these actions are going to have in the long term. So, Sad Sack may yet be proven right.

For all of you who got "lucky" and bought at the lows of Jan-Mar of 2009, you can count of one thing: interest rates are not going up soon. Why? Because history tells us that it was one reason why the great depression happened. Interests rates were increased when they saw "recovery". That's history known to the feds of the world, they're not going to repeat that. (So knowing history has its advantages after all, right?)

onemorething 15 yrs ago

At the other hand, the lesson of the late 70s and early 80s in the US was that not raising interest rates in time caused MASSIVE inflation. Interest rates had to be jacked up to 20+% to tame inflation. Let's assume you have to pay $8,000 per month on interest on your $10 million mortgage today, that amount would have to go up to $160,000+ per month under the 70/80s scenario. I wonder what would happen to property prices in such a situation...!

liebster 15 yrs ago

A lot of people are talking about a dead cat bounce and a w shaped recovery, but it actually happens very seldom. the great depression is a notable exception, and this being the closet thing to that recession is relevant, but it takes a huge force to reverse the momentum of a market direction. my bet would be on an L or V shaped recovery rather than a W. the recent market rally would suggest a V though.

the obvious elephant in the room is whether or not the stimulus will do enough, and what effects the shut off valve will have.

in china, its not so much the shut off as of yet, but rather the statements by government officials that the stimulus wouldnt completely offset less global demand for exports. there is wide consensus that the economy is on the way to recovery, there are 4 straight months of upward growth in exports, and china is NOT in recession.

the stock market has massively rallied yes, but is also way off its highs. so its debatable whether or not stocks/real estate are overpriced. a lot of the money of the stimulus (around 25% i think) went into the market and real estate, so it definitely had an effect on demand. but the purpose was to boost confidence, which it accomplished to a degree. one of the goals of stimulus is to make a percetion of positive behavoiur a reality.

one thing i will agree with sad sack is that this is a time of great volatility. its good or bad depending on how you look at it.

the thing to note about the stimulus is that it has had a massive effect on confidence levels and behaviour. thats key to jump starting recovery. its less a question of fundamentals, because recessions are similar to booms in that fundamentals dont govern either of them. its the normal cycle of fear(recession) and greed (boom) run amok.

some other facts:

goldman sachs has stated that the economy is recovering, and that china needs to wind down its stimulus package.

warren buffet today said that the economy is recovering.

jp morgan has said the same thing.

the US gdp is set to shrink at -.1% this quarter, however 3rd quarter is already at 2.4% expected growth.

U.S. housing starts are up 3 months in a row

U.S. housing prices are normalizing

U.S. mortgage applications are rising persistently

as for unemployment, its the only major recession indicator not showing growth yet, however historically unemployment lags 2 years behind recoveries, so look to late 2010 early 2011 for that number to normalize.

what gives me confidence is that the fear elements are so often countered quickly by the greed elements. there is a strong pent up of demand when prices drop, making a very tough floor for the recession.

about inflation:

the huge debt being accrued is going to be a problem down the line, but the Fed has an arsenal of tools to combat inflation that are time proven. when the recovery is truly underway, i would expect the fed to implement a much more strict monetary policy in anticipation of managing those problems.

onemorething 15 yrs ago

walkup2, the gold bugs are the only ones that made money the last two years (+30%). Why would they be in a panic? They smile bemusedly at the equity market punters who excitedly celebrate that they finally recouped 50% of their investment losses, still being down 35% over the last two years. No equity rally will make the true gold bug lose faith in his conviction.

liebster 15 yrs ago

im not an expert on economics, but my understanding of a recovery from recession looks like this:

1 financial system will stabilize by public capital (we are seeing this)

2. large government stimulus to pad the bottom/restore confidence

3. a monetary policy conducive to recessed market conditions (zero interest rates)

eventually credit concern will lessen and markets become more liquid (lending acceleration).

these three forces exert an upward momentum on economic conditions, specifically housing starts, housing prices, housing related businesses (home depot) regeneration of auto sales, consumer spending/confidence, and industrial production (to name a few).

eventually, growth will ensue (the 3Q is estimated to see positive growth), and there you have a recession ending.

V shaped Vs. L shaped

the current justification for V shaped i have heard is that the extent and speed of the response to the recession are largely responsible. the large stimulus and quick reduction of rates allowed the bottom to be reached early (theoretically) and the effect on the markets/confidence allowed businesses to tap public capital. unlike the great depression, in which not enough action was taken quickly enough, and not enough money spent, the argument is that the mistakes learned there were not repeated. Fyi, the great depression was a W shape with the last downswing lasting until WW2.

once again, im not an economics expert, this is mostly regurgitated by what I have heard from other people or read in articles.

liebster 15 yrs ago

sad sack,

you are indeed a gambler if you took your money out of the market and bought gold. you gambled because you were betting on the markets dropping.

the psychology of gold is that of a doomsday scenario. nobody invests in gold in the longterm as it pays no dividends (indeed you actually need to PAY to store it) and only serves as a hedge against inflation. its an absolutely terrible long term investment unless you are speculating (i.e. gambling).

onemorething 15 yrs ago

liebster, respectfully there are a few flaws in your economic theories, but by your own admission you are not an expert. I would like to take this opportunity to address some general misunderstandings about gold.

#1 rule: Gold = Money. It always has been, and it is most likely to stay so for many centuries.

The reason gold does not pay dividend is because there is no central bank in the world that can print gold. The reason that fiat money has to pay interest is, because there is constant inflation (money printing and credit creation). The purchasing power of the USD has been eroded by 96% the last 100 years. Arguably gold has retained its full purchasing power; one troy ounce of gold still buys you the same basket of goods and services as it did 100 years ago. Over time higher interest rates are offset by currency depreciation, so one would expect gold not to pay interest. Not to say that gold may perform badly for a prolonged period of time.

Therefore holding fiat currency (e.g. USD or EUR) may turn out a bigger gamble than holding physical gold.

liebster 15 yrs ago

onemorething,

i agree with your definition of gold, but its still not a good long term investment.

heres why:

the last 150 years has seen the rise of the stock market as an investment vehicle. the average returns over that time have outpaced inflation, meaning as time marches on, your investment grows beyond what inflation detracts.

gold however, does not. an ounce of gold will buy the same amount of goods 500 years ago as it does today. thus, the relative purchasing power is merely preserved, not enhanced. In reality, there are fees associated with gold that do detract slightly from the value, meaning purchasing power is not preserved exactly.

any long term investment instrument that outpaces inflation will be a better investment than gold.

you will never become rich investing in gold long term.

HONGKONGEXPAT 15 yrs ago

Sadsack, agree the unemployment siutaion in the US is still a disaster, but like any recession unemployment is and always will be the hardest hit for the longest period. We will see lags in the unemployment situation that goes without saying. I think and I am not an economist, we will only see the unemployment tip around 10% in the States by first half next year, as more companies will cut costs and thus labour. However, just like any recession, companies need to get back to positive returns and then they start contributing to the economy. Case and point as the banks have shown by cutting costs they have shown profit which is now being spent globally on new staff hiring, is this enough, absolutely no way, but the point is this is how you kick start a global economy. Companies must make money to re-invest, it takes time, it is painful and more households suffer but it is a start.

I doubt we will see unemployment in the US anywhere around 5-6% for along time but what will happen is that unemployment slowly marginally goes down in the second half of next year it sends a multiple wave through the globally economy on positive psychological levels and carries higher consumer confidence/retail sales and thus more hiring of labour. This all takes time but as soon as we see the unemployment peak by mid next year, you will notice very slow movements in improvements.

The more profitable results we see from companies throughout the year, the higher commodity levels get, the more this will be pumped into the US labour market but it takes time, however, we are at least heading in that direction.

On the iusse of China relying on US for their exports, otherwise they can't have growth, I don't think that at all. China is a country with the third largest economy and over 1 billion people, they have never concentrated too much on local demand/consumption/living standards domestically/infrastructure and now they are forced to, be it by default of the US not buying, be it by govt.., stimulus measures, but also I believe because the Chinese consumer is being just that, a consumer finally with their own demands and needs wanting to be satisfied. Yes, the majority have little money for disposable income but with such a population all they need to do is spend a fraction of their income and this will generate their own domestic market place. I am not even mentioning the 10% of the wealthy mainland Chinese!

The Chinese market is seeing a shift of focus, more away from reliance on exports but having the same businesses/factories etc produce for the local consumer. Will this impact the returns the businesses in China make, can they get higher prices for their exports, yes they can, but they are also turning profits for their local sales, plus getting very easy access to loans and various govt., assistant to support the domestic economy. Regardless when the US comes back into play, the Chinese consumer is now a completely different one and their needs will have to be met. I don't see the Chinese govt., pulling back on these loans or stimulus any time soon. Sure talk to cool down the crazy run on stocks and property, should lead to a slow gradual pulling back but it certainly can't be deemed to be a sudden massive pullback/slowdown.

At the end of the day, the US is no longer the powerhouse it was and it no longer will be, the global community is recognising this. We are based in Asia and as for emerging markets, we are next to the biggest player that will come out of this the fastest!

liebster 15 yrs ago

property prices have risen 10 to 15% in the last 30 days. i would risk saying that property IN GENERAL is not underpriced at this time.

however, i wouldnt go so far as to say its foolish to look for deals. doesnt matter the economic conditions, if you find an amazing deal, its an amazing deal.

in hong kong, apartments are fairly commoditized compared to the rest of the world. the significance is that when one apartment's price differs greatly from similar units, it stands out. if the price is far less, it attracts great attention since its relative value is implied. typically, habitual property investors will have an army of real estate agents calling them as soon as a distressed owner is pressured to sell. in this case, the illiquid nature of property works in favour of the investor.

most of the great deals happen when a distressed owner is involved and under the gun to unload the unit. so a unit that typically sells for 13 million might be discounted to 12 or even 11 million. the property can be flipped immediately for a profit if the buyer so chooses. only in distressed cases does this happen, otherwise the owner would just wait until they are offered market value.

of course, all relative prices are speculative to begin with in hong kong. its the balance between the relative pricing method and the illiquid nature of property that is constantly promoting the boom/bust cycle of the hong kong property market.

bla_k 15 yrs ago

Sad Sack,

I've skimmed through the last 100 days or so and want to say that I agree with your sentiments. You pointed out a many key performance drivers and have been able to explain your position well. I have been along the same wavelength (albeit with less insight and conviction). I hope you aren't losing any sleep or getting any indigestion from reading some of the replies cuz I'd say it isn't worth it. Let them buy if they want. As for some of the "bulls"(hitters) they are hoping to heat up the market to make a buck. Natural selection will play it's role in cooking all the ducks. I don't see why you have to be Paul Revere or Noah.

Que Sera Sera.

bla_k 15 yrs ago

walkup2,

that quote is meant to ruin the credibility of sad sack, and surely its not an even tempered comment, however some of the other data that he has presented seems solid and i have come to a similar perspective that there are few fundamentals that would justify a positive outlook for the near term.

cookie09 15 yrs ago

somone post andy xie's comment in the scmp today. knowing his background, always quite interesting to hear what he has to say

onemorething 15 yrs ago

Andy regularly writes opinions in Caijing:

http://english.caijing.com.cn/2009-08-20/110227359.html

punter 15 yrs ago

If there was no massive panic selling during the downturn, no panic buying will happen too. Only those with money to burn will buy property whatever price levels the market is in.

But with prices going up and rental prices staying down, renters will remain renters until they save enough money to buy a property, or wait for another downturn 5 or 10 years from now if not next year.

onemorething 15 yrs ago

In my view interest rates will not go up any time soon, and certainly not to 5%, but if they did, it would be disastrous to the property market in HK. Mortgage rates at 6 to 8% will make property highly unaffordable at current prices. It is very difficult to look beyond the six month horizon at the moment; there are too many variables at play, including government intervention.

cookie09 15 yrs ago

i have a lot of respect for andy xie. anyone who knows what he has been publishing about the china and hong kong markets will do the same.

so if he says that 5% interest rates are a possibility, we better take this serious. and IF that happens, you bet that property prices will come down crashing.

bing2 15 yrs ago

even when the interest rate was 12% people in hong kong were still buying them like hotcakes. suddenly 5% property in hong kong will collapse by 50%? does he know how precious a space in hong kong?

cookie09 15 yrs ago

bing do you know how much andy xie used to be paid for his opinions when he worked at morgan stanley? i sure think he knows the hk property market :)

bing2 15 yrs ago

cookie, how much those wall street jokers got paid to put us in one of the biggest financial mess?

cookie09 15 yrs ago

bing, it all depends on course, but there was this government minister 2-3 years back who switched from a senior position in a bank into the government. he took a pay cut from HKD 15m to 3m a year...

punter 15 yrs ago

Will there come a time that half of the luxury homes in Hong Kong are owned by wealthy mainlanders? The recent luxury transactions reported that around 15 to 20 percent of the buyers were from the mainland.

I'm interested to see how long the bullish trend on property will last. Maybe until the HK government starts building mass residential homes again? In the current environment, the government is failing its citizens in finding/providing them alternative/reasonably priced homes.

HONGKONGEXPAT 15 yrs ago

Cruz, completely agree with you, one should at least own their home and that is what I have here, but no additional investment property here a part from that. Shame but it is just too pricey here to own more than one place. It was cheaper for me to a buy a house in Sydney years ago than to buy a second place here in the luxury market. I am shocked by the info., about Henderson property on Caine road, it is the most horrific street in the mid levels, between the buses/noise/constant road works/repairs/one way for most of the week and basically looking like a ghetto in the middle of the mid levels. The new building on 31 Robinson rd, at about HKD25,000 per sq ft also squeezed between other buildings and with buses up and down that street, is looking cheap! Only in Hong Kong....

onemorething 15 yrs ago

Cruz said:

"Everyone should own their own home at least."

Why? I quite happily rent to be honest.

liebster 15 yrs ago

depending on how long you live after paying off your mortgage, it can be financially smarter to buy rather than rent. if you have your mortgage paid by 50 or 55, you are probably going to live another 30ish years. living that period rent free is a significant savings.

if you move a lot then the savings go down, and it can be better to rent.

also, if you are an invesment whiz and manage to do incredibly well with the amount that could have been used for a downpayment on a house, then you can come out ahead renting. but generally, owning a home is a safer more controlled way to save.

on the subject of mainland property buyers,

they have been buying 15-20% of luxury units for the last 5 years. I dont really have a problem with it, as it drives property prices up. As the chinese become more wealthy, demand for hk property will rise. the only problem is we will all have to deal with more people squatting, hacking, head to toe gucci while screaming on their cell phone and smoking some horrid brand of cigarettes!

onemorething 15 yrs ago

liebster said:

"also, if you are an invesment whiz and manage to do incredibly well with the amount that could have been used for a downpayment on a house, then you can come out ahead renting. but generally, owning a home is a safer more controlled way to save."

I am glad you added this nuance. I fully agree that government policy since WWII has been in favour of the home-owners and wealth creation through property. I think the last two to four years have shown us that this policy may have been flawed (I believe it is). It really could end here, as it did in the 70s and 80s: home prices stay stagnant in real terms.

Getting rich by owning property is a strange concept if you think of it... how can one get rich by doing nothing?

onemorething 15 yrs ago

If that is your view, I agree that buying now does not seem reckless. It certainly is not my view.

Two corrections to your story: interest rates on average are higher than the prevailing price inflation rate. And mortgage rates are even higher than that, so it is not true that price inflation keeps up with your mortgage loan. Property price inflation has outpaced interest rates and price inflation massively globally, so that is where people made their wealth.

Secondly, rents are not on the rise at the moment, which also makes sense with so many vacancies and low mortgage rates. It is renters like myself that make properties as an investment so attractive, as LVMG will agree with me. If there was no rental market, there would be no income from property.

Demographics are so terrible in Europe, Japan and China (and to a lesser extent the US), that the ageing problem will make the "credit crisis" look like a walk through the park. People do not have enough pension savings to retire at 60-65, and the governments do not have money to plug that hole, because they just gave it all to the banks and spent it on "economic stimulus programmes". People, particularly in the UK and the US, are waking up to this fact. Baby boomers have started saving to make up for the shortfall. Savers don't spend; the consumption driven economic growth is over. People see that taxes will have to rise globally to finance the budget deficits. There will be a lot of financial angst in the years ahead. This does not bode well for the economy and for the property market. Asia really is not any different. Japan and China's demographics are horrific. China has no social security, so it is up to the shrinking young population to feed and finance the growing group of elderly. China will in the long run not be able to save HK either. Japan is the first ageing nation in the world, and already we are seeing it has suffered most from the "credit crisis", and has the highest national debt as percentage of GDP in the world. Look at what is unfolding in Japan; the same will happen in most other developed countries ten years later or so.

liebster 15 yrs ago

onemorething,

you previously said:

"Getting rich by owning property is a strange concept if you think of it... how can one get rich by doing nothing?"

I think you are looking at this the wrong way. the salient point of investment property is not "owning" but "buying". They are distinctly different. Most of the profit made is generated at the time of purchase, not of sale or during ownership, in fact quite the opposite (fees, repairs etc). This means that in order to make money investing in property you need to "get a good deal". there are plenty of people who make money in property who make bad choices, but the reasons are typically beyond their control or unforeseen i.e. a new mall opened across the street, or a newly announced grade A office building skyrockets prices in the area, creating regional changes in the investor's favour.

For those who invest in property, they spend quite a lot of time hunting, comparing and researching. at its heart, property investing is just speculation, like any other asset. they certainly are not "doing nothing".

you are right in that in general people do not make money by owning property. its a fairly flat asset class when you compare prices to inflation. with the exception of the recent housing bubble, over the last 100 years the after inflation value of homes has not really risen.

regarding your other points:

you touched on a lot of issues, many of which are not specific to property. your view doesnt bode well for most asset classes, so im not sure the point of the comments, are you saying its unwise to invest in property, or invest in anything at this point?

punter 15 yrs ago

Rents are not going up. I just re-signed another year lease at the same rate.

onemorething 15 yrs ago

liebster> My point is that owning property is regarded as the smartest thing to do, because it protects and actually increases your wealth. Although that may have been true for most of the post-WWII period, and particularly the last ten to fifteen years, I believe that people who rely on their property as a nest-egg will be in for big trouble in the decade(s) ahead. Easy come-easy gone! So I disagree with the notion that owning your own property is a "must" as was previously stated by a few people.

I have some idea about where asset prices might go, but in the end I have no crystal ball. I definitely missed the first four months of the equity rally. And I completely failed to foresee the property recovery in Hong Kong. As I have said almost a year ago, it is hard to predict what will happen short-term, since it depends on what the politicians will do next.

Cruz> Check the population pyramid of China, it is not what you claim it to be: http://upload.wikimedia.org/wikipedia/commons/3/34/China_population_pyramid_2005.png

China's problem may surface a bit later, but it is undeniably there.

Just follow Japan's ageing problem the coming decade. It will give us a taste of what awaits Europe five to ten years later.

onemorething 15 yrs ago

It does not matter if Andy Xie is right or wrong. He adds some original thought into the debate. Nothing worse than being right for the wrong reasons! And the former definitely applies to Wall Street from late 90s until 2007.

I don't need someone to predict the future, based on extrapolating the past and making unsubstanciated assumptions. My monkey can do that for me!

onemorething 15 yrs ago

You take Alexander Pope's quote out of context. Besides Andy Xie has more than a little bit of knowledge in my opinion. It is not up to me to tell you what you should think of Andy Xie of course.

As I said, I do not have crystal ball, and have been wrong more than once. The regulars here know I am an über-bear, and believe that fiat money will ultimately fail, but we will have monetary and asset price deflation first.

I am staying away from the property market, although I do observe the emergency of a 1997 speculative mentality in the HK property market. It could go up a lot very fast very soon. Shares might follow a similar pattern.

Ed 15 yrs ago

FT's an awesome news source. This is a good macro-picture article

The risk of a double-dip recession is rising

By Nouriel Roubini

Published: August 23 2009 18:55 | Last updated: August 23 2009 18:55

T he global economy is starting to bottom out from the worst recession and financial crisis since the Great Depression. In the fourth quarter of 2008 and first quarter of 2009 the rate at which most advanced economies were contracting was similar to the gross domestic product free-fall in the early stage of the Depression. Then, late last year, policymakers who had been behind the curve finally started to use most of the weapons in their arsenal.

That effort worked and the free-fall of economic activity eased. There are three open questions now on the outlook. When will the global recession be over? What will be the shape of the economic recovery? Are there risks of a relapse?

On the first question it looks like the global economy will bottom out in the second half of 2009. In many advanced economies (the US, UK, Spain, Italy and other eurozone members) and some emerging market economies (mostly in Europe) the recession will not be formally over before the end of the year, as green shoots are still mixed with weeds. In some other advanced economies (Australia, Germany, France and Japan) and most emerging markets (China, India, Brazil and other parts of Asia and Latin America) the recovery has already started.

On the second issue the debate is between those – most of the economic consensus – who expect a V-shaped recovery with a rapid return to growth and those – like myself – who believe it will be U-shaped, anaemic and below trend for at least a couple of years, after a couple of quarters of rapid growth driven by the restocking of inventories and a recovery of production from near Depression levels.

There are several arguments for a weak U-shaped recovery. Employment is still falling sharply in the US and elsewhere – in advanced economies, unemployment will be above 10 per cent by 2010. This is bad news for demand and bank losses, but also for workers’ skills, a key factor behind long-term labour productivity growth.

Second, this is a crisis of solvency, not just liquidity, but true deleveraging has not begun yet because the losses of financial institutions have been socialised and put on government balance sheets. This limits the ability of banks to lend, households to spend and companies to invest.

Third, in countries running current account deficits, consumers need to cut spending and save much more, yet debt-burdened consumers face a wealth shock from falling home prices and stock markets and shrinking incomes and employment.

Fourth, the financial system – despite the policy support – is still severely damaged. Most of the shadow banking system has disappeared, and traditional banks are saddled with trillions of dollars in expected losses on loans and securities while still being seriously undercapitalised.

Fifth, weak profitability – owing to high debts and default risks, low growth and persistent deflationary pressures on corporate margins – will constrain companies’ willingness to produce, hire workers and invest.

Sixth, the releveraging of the public sector through its build-up of large fiscal deficits risks crowding out a recovery in private sector spending. The effects of the policy stimulus, moreover, will fizzle out by early next year, requiring greater private demand to support continued growth.

Seventh, the reduction of global imbalances implies that the current account deficits of profligate economies, such as the US, will narrow the surpluses of countries that over-save (China and other emerging markets, Germany and Japan). But if domestic demand does not grow fast enough in surplus countries, this will lead to a weaker recovery in global growth.

There are also now two reasons why there is a rising risk of a double-dip W-shaped recession. For a start, there are risks associated with exit strategies from the massive monetary and fiscal easing: policymakers are damned if they do and damned if they don’t. If they take large fiscal deficits seriously and raise taxes, cut spending and mop up excess liquidity soon, they would undermine recovery and tip the economy back into stag-deflation (recession and deflation).

But if they maintain large budget deficits, bond market vigilantes will punish policymakers. Then, inflationary expectations will increase, long-term government bond yields would rise and borrowing rates will go up sharply, leading to stagflation.

Another reason to fear a double-dip recession is that oil, energy and food prices are now rising faster than economic fundamentals warrant, and could be driven higher by excessive liquidity chasing assets and by speculative demand. Last year, oil at $145 a barrel was a tipping point for the global economy, as it created negative terms of trade and a disposable income shock for oil importing economies. The global economy could not withstand another contractionary shock if similar speculation drives oil rapidly towards $100 a barrel.

In summary, the recovery is likely to be anaemic and below trend in advanced economies and there is a big risk of a double-dip recession.

The writer is professor of economics at the Stern School of Business, NYU

http://www.ft.com/cms/s/0/90227fdc-900d-11de-bc59-00144feabdc0.html?nclick_check=1

Ted the Angry American 15 yrs ago

Unless people have no jobs and less disposable and then they might as well buy something to eat. If things go south and stay there the impact may be less for Asia but there's no way to escape a global slowdown.

Ed 15 yrs ago

LGV - If there is a double dip recession I wouldnt think that would be very good for property... if I recall, property was on its way down when this recession started to really hit after November and only picked up when China unleashed huge amounts of money into the economy.

If, as Roubini says is a possibility, the economy doesn't recover after all this stimulus spending, and we go back down, how can that be good for the price of property? Wouldn't it drop dramatically?

One other thing, there are those who believe that China's ability to keep pouring money into US debt is endless. It actually is not because money made from exports is tumbling and if it doesn't recover, China doesnt have surplus money to invest in US debt. Their extra cash will go to their own economy (including HK) will it not for as long as they have cash.

Doesn't sound like a very promising long term outlook. We need for the American economy to recover and exports to pick up I reckon.

onemorething 15 yrs ago

The Yuan is under pressure to rise further against the US dollar. Hot money is pouring into China the last couple of days. China needs to sell the Yuan and buy more dollars to keep the exchange rate at 6.83. If China was to revalue the Yuan again, let's say to 6.20 to pick a random number, then the hot money inflow might stop. However Hong Kong properties will appear "cheaper" in Yuan terms and Mainlanders would buy even more property in HK, pushing property prices higher. At the same time the resulting cooling of the Chinese economy may dampen the property investment appetite a bit. One of HK's headaches is the USD-peg, and as long as it stays in place it fuels property speculation for a while. Dollar strengthening is desired for the good of the HK economy.

Already we see that the declining USD is leading to a reflation of commodity prices, such as oil and copper, and share prices. If this will extend to US property needs to be seen, because the oversupply is huge, amongst others.

Anonymous 15 yrs ago

News tonight reported record foreclosures in the States and millions more to come. Then I saw analyst meredith whitney on CNBC and she said she expects housing prices to drop 25% more!!!! How can the banks absorb the losses if housing drops that much and millions dont pay their mortgages? And how does China rebuild its exports the key to the economy if the United States is in such a mess?

None of this sounds like a recovery to me, it sounds like everything is just getting worse and worse. I'm glad we sold our flat when we did.

Ted the Angry American 15 yrs ago

I always have to take anyone who seems gleeful about the collapse of society with a grain of salt. Whether uber-bear analysts or self-aggrandizing forum posters who claim to speak for me.

onemorething 15 yrs ago

That's right. Long term is called investing, short term is called trading.

I don't think that the "naysayers" deny that the world will recover one day. Even Buffett thinks that the economy is facing very serious headwinds. He hasn't really bought many shares to be honest. He mostly bought preferred shares and debt, at fantastic bargain prices.

Anyway difference of opinion is what makes the markets! For every buyer there is a seller and for every seller there is a buyer.

I don't know what Obama knows, I haven't spoken to him recently. His plans of reducing the deficit is based on a 10 year plan with an average GDP growth of 3%. Good luck with that! In the meantime his administration is making false projections on the true cost of the healthcare reform. Let's see in the years ahead if "deficits don't matter".

Funny that China has been long term long the US and is now the fool who owns 2.2 trillion of foreign reserves most of them dollar denominated. It certainly makes the US look smart.

Anonymous 15 yrs ago

The USA is printing billions and billions of dollars and many say this will result in the dollar weakening. HK dollar is pegged to the USD. If the USD keeps dropping maybe the HK government will drop the peg.

If we don't drop the peg what happens to the HK property market?

If we do drop the peg and lets say they peg to a basket of currencies what will that mean?

tpol 15 yrs ago

If they de-peg. Wouldn't it push interest rates up?

onemorething 15 yrs ago

Sorry to be very unhelpful in my answer: it depends.

Interest rates beyond 3yr fixed term are not that low for HKD.

Ted the Angry American 15 yrs ago

http://seekingalpha.com/article/161780-floating-rate-mortgage-in-hong-kong-is-setting-up-a-u-s-style-housing-market-crash

An interesting blog article but not because of it's content (the concept is nothing new)... more that the author doesn't seem to know HK all that well despite saying he's worked and lived here. For example he acts surprised that floating rates are the norm in HK... that has always been the case. Also I was here for SARS and while I do recall being concerned, I don't recall the mortality rate being quite as bad as described...

My take... as with all things, if you buy on the bleeding edge of your means, you're not doing it right.

onemorething 15 yrs ago

The SARS remarks make the author look like an alarmist looney; he should have omitted that. He is not surprised about the floating rate mortgages, he is merely informing the (mostly US) readers how the vulnerable system works in HK. He touches upon one valid point: how affordable will mortgages be with interest rates at 5, 8, 10 or even 20%? A $5 million mortgage at 10% will cost you $42,000 a month in interest only, let alone repayment.

Ted the Angry American 15 yrs ago

Onemorething you're right and I realized I omitted a comment that I meant to put in which was that maybe he is taking the stance that his core audience (US) would be surprised at that fact.

LGMV Hibor based loans do indeed have a cap, which is fine in times of spikes, but the problem here w/ either H or P based loans is a slow climb to higher levels.. they really have no other way to go. The fact that SHK is able to raise prices is just testament to the current sentiment and in fact almost supports what the blogger is saying... would 37mil seem like a bargain at 5% interest vs. 1%?

The one saving grace is that during the 97 bubble, interest rates were much higher than now, and people were still buying. I guess you can argue it was driven by pure speculation at the time vs end-users but then again it can be counter-argued that the end user is more vulnerable to the scenario painted by the article.

onemorething 15 yrs ago

HIBOR-plus mortgages are capped at Prime-minus. Prime is floating too, so it is not an absolute cap. Even then, it does not protect the greater property market from collapse if interest rates go to 10%. The new home-buyers won't be able to afford a $5 million mortgage, and with the demand-side moving down, so will property prices.

HK'sUndesirables 15 yrs ago

LGMV on the IGbonds and I feel the same about those from the USA, but what about the RMB bonds coming on line latter this month, are they worth the investment?

onemorething 15 yrs ago

RMB property-linked bonds / CDOs / MBSs?

Ted the Angry American 15 yrs ago

"No one who has done 30 minutes of research into this would even consider HIBOR unless they intended to flip a property within the next 12 months, 18 months tops."

Pizzaace I have done far more than 30 minutes of research and chose a HIBOR plan as for me it was the best choice at the time. I preferred to pay a low rate put cash toward something with a higher return. Most banks will let you flip to a Prime based plan at some point... and eventually it will be worth it. The historical average spread between HIBOR and Prime is 3 points and now it's about 4. If the gap narrows and it makes sense then by all means I'll switch. Also choose a plan with flexible prepayment to give you more tools to keep your payments in check.

onemorething 15 yrs ago

The danger is not in the converging of Prime and HIBOR, but in the absolute level of both. Sure, based on mean-reversion your risk interest rate risk is 1 percentage point. The risk on interest rates moving up, based on mean reversion, is 5 percentage points (depending on your historic timeframe). HIBOR is not going to move much until the central banks aggressively start to hike interest rates. Which by my reckoning is not anytime soon, despite all the hawkish talk.

onemorething 15 yrs ago

Of course low mortgage rates are a real boon to home owners and new home buyers. However I have a question for all the new buyers and wanna-be buyers: do you prefer buying a property cheaply with a high mortgage rate or buy a property expensively with a low mortgage rate?

Hint: there is not just one correct answer!

liebster 15 yrs ago

the very low rates and the competition for market share is contributing to an asset bubble in property. there is also mounting anecdotal evidence I am seeing that a bubble may be forming. bank valuations on my properties are rising up to 30% in the last few months alone. transaction values also correlate to this. granted, they dropped 25% or so during the downturn, but there is no fundamental reason for such a sudden increase so quickly. i can only explain it by hot money, low interest rates, and fierce competition amongst banks for market share.

given that the hang seng has rebounded 50%, the stock market isnt looking as appealing as it was 6 months, or even 3 months ago. i would wager a guess at most it can rise to 24k and defend it. this could conceivably lead investors to turn to property as an alternative, and i know hong kongers have a tendency to do this. the real estate market does track the stock market, but i cant recall it tracking so quickly.

punter 15 yrs ago

Homeowners in the US believed the same thing during the RE bubble! They thought prices were going up or going to remain high forever. But the point that PizzaAce is made just proves that property prices in Hong Kong goes up and down. To make money, you have to time your purchase/sell properly and hope that you won't lose your shirt just like what happened to speculators in the late 90s.

punter 15 yrs ago

Was 1997 a bubble? Where are prices now compared to prices then? 25-30% discount, right? If you factor in inflation, how much should properties cost?

1997 was a bubble, and it burst. Some people don't care really, many people buy property because they have the money to pay (in cash or downpayment) and they "need" to. However, as pointed a few comments above, some would rather get a flat at lower price even with higher rate than get one at a higher price with lower rates. As I have said before, if you have the money, buy a flat in cash and it'll be a good hedge to inflation.

punter 15 yrs ago

Australia just hiked its prime interest rate by a meager quarter of a percent, but is it the beginning of inevitable bigger increases?

onemorething 15 yrs ago

A rate hike was expected at the next RBA meeting, so it came two months early. More rate hikes have been priced in for a long time already. For the US the earliest for a possible rate hike is priced in for April 2010.

Anonymous 15 yrs ago

Friends of ours own a home in Sai Kung and is moving out of Hong Kong. They were trying to decide if they should rent it or sell it so spoke to some agents, they prefer to rent it.

They were told that its no problem to get a buyer because there is a big demand from mainland china buyers.

But if they try to rent it they were told the best they could get would be 55k per month down from 85k per month before the economic downturn.

Seems to me that this confirms the market has no soundness to it. Yields if you are putting a new tenant into your apartment must be horribly low.

Is this market all about people from HK and china having nothing else to put their money into with interest rates at 0.0000001 so they put it into property even if the yield is also very low?

onemorething 15 yrs ago

@Innocence

Yes

@PizzaAce

Rate hikes may also indicate out of control monetary inflation. Think late 70s and early 80s. US interest rates at 20% and no economic growth at all, just stagflation.

onemorething 15 yrs ago

gold = money

What happens if property prices go down? You just have a huge mortgage debt against a flat you do not need.

anomander 15 yrs ago

Wow.

LGMV - You just have a lump of shiny metal.

I've just lost all respect for you! Sorry!

onemorething 15 yrs ago

Yes you can rent out gold. There is a very active gold leasing market. If you want gearing on gold, you can buy futures on gold. A highly liquid and commoditised market that does not need the bank's mortgage pre-approval, unlike the property market. Gold has quadrupled in the last nine years, unlike the property market in Hong Kong, for the punters among us.

Of course you can live in your primary property, but you don't need two or three properties. A second property is less useful than "a lump of shiny metal" in your words. Once again, if the property market does come down, you still need to live in your primary property, no big deal. But your second or third property will drag you into being a debt slave for the rest of your life.

Unless people understand what money really is, particularly fiat money, it is not possible to understand the value of gold.

You are right that I cannot have sex in gold. I should have thought about that earlier... darn! ;-)

punter 15 yrs ago

30% gain is not bad, but as LGMV has noted, when "real" recovery comes its value will go down and you're bound to lose more than the gain you made. However, gold never had "0" or negative value either.

As to property, if interest rates shoots up and your principal is big amount, you're going to lose your shirt if rents don't cope with the increase.

I thought that we've settled it that even at HSBC, you can only extend your loan to maximum of 30 years length. When that limit is reached, you need to make huge interest payments. So you need to take your pick as to investment and only time will tell who made the right call.

punter 15 yrs ago

Think 5 or 10 years, even 15 years. Are the conditions today to remain the same? I guess not, but who knows what's going to happen?

onemorething 15 yrs ago

My point is that gold is going to make its mainstream come-back as real money. And it will be here to stay for a long time as the universal currency. I have said this at many other forums, so forgive me if I repeat myself:

oil = energy

land = food

weapons = power

paper with green ink = money (NOT!)

Obviously only gold can fulfill the role of money, although I am open to alternative suggestions. Control all four (oil, land, weapons and gold) and you control the world. The US has known it since WWII, and China has just reawakened to this fact and is catching up fast, I mean really really FAST!

Gold is honest money and it punishes the reckless speculator ruthlessly. The days of wealth creation through property are over very soon. The alternative does not have to be so bad if we are prepared to shift our priorities in life a little bit (without trying to sound pedantic).

HONGKONGEXPAT 15 yrs ago

I don't really undersatnd this whole gold discussion. I know zero about gold, but do know quite a a lot about metals trading, for ferrous steel as this is my industry. Basically all commodities, incuding ferrous, non ferrous, soft commodities such as corn, wheat, sugar, precious metals, oil, coal, iron ore etc....is all linked to the USD. Naturally this includes gold, silver and platinum.

I am not of the opinion that the world is coming to an end and we need to stock up on gold and silver to buy bread. I am also not of the opinion that on the very near term we will have super inflation and thus need to have gold as a hedge for inflation. Inflation isn't just about printing money and increase the money supply, this is a part of it and the other part is consumer spending. We are seeing the consumer ever so slowly return to the market but this will take a while and hence we will see growth rates but not enough to warrant massive inflation and tightening of monetary policy any time soon. I see we are at least 2-3 years away from that.

Anyway,I think the main reason for all this gold talk is because investors purely think the USD will tank and as such as buying gold as a hedge against the USD.

Well on that basis all commodities, everything I mentioned above will go up, whatever you hold sugar, cement, rice, construction steel etc. Thus, if prices go up for all commodties basis the USD tanks, it will be much harder to buy that car, to buy that house to buy food etc. regardless if you have gold or silver, because everything will go up pro rata. We see this every day in our industry, USD goes down construction steel goes up once you convert your costs into USD for trading terms.

Naturally it will get to a level where commodities such as oil, coal, iron ore, all food produce etc will become unreasonably expensive and a global effort will need to be made to have a new universal currency. I just don't see that as being gold, because how does one trade, rice, steel, alumina, coal, nickel, copper, zinc and the list goes on for gold.

I am not saying this new universal currency is around the corner, but I am saying that the main reason people are so bullish on gold is because of the USD. In the event the USD really tanks we will see a basket of currencies and most likely it will be Asian (RMB led) take over as the global exchange currency. This could be 10-20 years away or even longer and depends what really happens to the USD, but this is really what is keeping the gold rally. People having a general fear of the USD tanking as opposed to thinking we have an imminent threat of inflation.

Ted the Angry American 15 yrs ago

onemorething why does one have money in the first place? To exchange for the things you need. The only things people REALLY need are food, water, and a reasonable level of shelter. If I had all the food, water, weapons, and didn't need to move about, I wouldn't care about the gold or the oil. Oversimplistic (and apocalyptic) for sure, but sometimes I think that gold bugs are overly simple in their bullishness. There could well be a gold standard again but I don't think we'll be buying our instant noodles with krugerands in our lifetimes. If gold in and of itself was really that valuable why does the value of a gold coin plummet when you take it out of it's case and scratch it all up. Fiat currency is worth the same thing no matter how crappy it looks. Oil is valuable as long as it works to specification. A piece of copper is worth pretty much the same smashed up as it is minted. Gold only holds it's value when it's pretty which leads me to believe a lot of it's value is illusory. On the other hand I don't pretend to know what I'm talking about.

liebster 15 yrs ago

i feel like im back in my college econ course...

sad sack,

when interests rates climb, rents climb to match it. the only burden is on the primary residence, not the rentals properties which are investments.

I dont think LGMV is saying there is never any point in investing in gold, its purposes are clearly documented to match inflation and retain value.

However, its also clear that over the long term, gold has not been as good an investment as other vehicles, such as stocks.

so if you held gold for the last 100 years, and stocks for the last 100 years, the person with stock would be a far richer person.

gold therefore is always an alarmist or doomsday vehicle to measure risk aversion. those who invest in gold more than say 5% of the portfolio always think a crash or collapse is coming.

onemorething,

gold is no more honest money than pieces of paper, or strings of beads like wampum, or shiny seashells.

gold is only valuable because we "agree" its valuable. if we all decided gold was worth nothing tomorrow, then it would be worth nothing.

onemorething 15 yrs ago

@Ted

I am not suggesting that gold will be used as a physical currency. Our money will be partially or fully backed by gold. Gold backing stops central banks from printing money. The scarcity of money will discipline banks into being careful lenders. It will also contain price inflation. Actually governments have always loved inflation, because it has allowed them to increase their budgets every year, and it has given the voters the illusion of greater wealth through asset price inflation. Unfortunately we have now experienced the negatives of monetary inflation: governments are running huge fiscal deficits, banks are insolvent, and the people have lost great wealth directly (house prices) or indirectly (pension guarantees cannot be met in the future). It is destined to collapse by design, albeit unintended I think.

Of course the more down-to-earth amongst us can live with less wealth and luxury, but that is not in human nature. And it certainly is not in the nature of the ruling elite. History has shown over the last centuries and millenniums a constant desire for great power, wealth and Lebensraum, to solidify the power of the ruling elite and its people.

@liebster

"so if you held gold for the last 100 years, and stocks for the last 100 years, the person with stock would be a far richer person."

I can produce any set of data to support or invalidate that claim. It certainly was not true if you invested in Germany. It certainly was not true the last ten years. It certainly was not true if you had never switched your shares. You cannot extrapolate the last 100 years into the future, where we have moved from immature local economies into mature saturated global economies.

Gold is more honest because there is limited supply. The cost of mining an ounce of gold closely matches the price of gold. All your other suggestions have an infinite supply, just like paper money and are therefore not suitable as a currency.

liebster 15 yrs ago

well of course its not true the last 10 years, as this is not long term. and its quite a stretch to claim "you can produce any set of data to support of invalidate that claim". Nearly every study comparing global stock performance to gold performance consistently indicates that stocks value has outperformed gold value for hundreds of years. Yes, there are pockets and exceptions to this generalization, but for the most part it holds true.

Its also true that the last 10 years have seen high gold price growth due to deficit spending and quantitative easing. Its not such a clear cut answer if a gold standard would have helped prevent the recent crisis, as it did nothing to help the great depression. Indeed, the quantitative easing that has occured recently has helped prevent an even larger collapse and loss of wealth. In the great depression, those countries that temporarily abandoned the gold standard were the first ones to recover economically.

I would also like to say that fiat currency is quite rare and difficult to reproduce, outside of central governments. It serves very well as a currency, provided central banks do not abuse monetary control policy.

Ed 15 yrs ago

More Gold! More Gold! said the Rhino (Spiderman cartoons circa 1970's).

Seriously stock guys will tell you stocks are your best bet, I know a property agent who says property is your best bet who backed it up by saying that there are more property millionaires than any other category... that kinda goes without saying because most people's goal is to have a home to live in and that ends up being their biggest store of capital.

Then you have the gold bugs...

What it all comes down to in imho is the price you bought in at and how much the asset went up over the shortest period of time... dont matter if its gold, a house or an IBM stock... I dont think one is necessarily better than another... although if all goes to hell over this mortgage crisis I think you'll be better holding a bag of gold over a fist full of dollars eh...

onemorething 15 yrs ago

@liebster

"and its quite a stretch to claim "you can produce any set of data to support of invalidate that claim". Nearly every study comparing global stock performance to gold performance consistently indicates that stocks value has outperformed gold value for hundreds of years. Yes, there are pockets and exceptions to this generalization, but for the most part it holds true."

I have never seen any such scientific study. I can produce any evidence because there are too many parameters that I can manipulate:

* which country

* which currency

* which shares

* which starting date

* what gold price to use, considering it was not free floating

* etceteras

My data does not go back far enough, but the Dow Jones measured in ounces of gold currently stands at 9.3 ounces. In 1929 it stood at 18.4 ounces. Of the original 12 stocks making up the Dow Jones (Industrial) Index only GE still exists in its current form.

There are too many myths about investing in property and shares based on a very short period of time, because the collective memory of humanity tends to be one generation only. It distorts the bigger picture and understanding of economics.

I am not making a case for investing in gold. My original point is that gold is money and not just a shiny lump of metal, and in the long term will act as a store of value. More money can be made (or lost) in other assets.

Ed 15 yrs ago

Picked this up from the WSJ this am...

Hong Kong Looks at Expanding Land Supply

Scarcity of Property for Development Is Pushing Up Prices

Hong Kong's leader said the government is looking at ways to boost land supply for residential development in this space-strapped city, fearing an emerging property bubble amid a run-up in home values of about 30% this year and record-high luxury prices.

In an annual policy speech before lawmakers on Wednesday, Chief Executive Donald Tsang said officials would closely monitor the property market and fine-tune land-supply arrangements "with a view to quickening the pace of bringing readily available residential sites to the market."

More: http://online.wsj.com/article/SB125550253485384363.html

Ed 15 yrs ago

I didn't read the story... thought the headline might lead to something of interest for this discussion

punter 15 yrs ago

Ed, this thread is now too long. Perhaps you could use navigation arrows like << < > >>?

Ed 15 yrs ago

You can click Go to Bottom at the top of the topic

liebster 15 yrs ago

ed, those buttons only appear while using IE or Chrome, but not firefox. there is only the advertisement at the top, im assuming the menu bar is either hidden underneath it or not represented on the page.

Ed 15 yrs ago

I'm on FF and I am seeing this...

Back to Main | Reply | Rules | Go to Bottom

Ed 15 yrs ago

Does this policy make any sense? First, I think many PRC buyers pay 100% cash for HK property... and if they dont pay all up front and are forced to pay a bigger deposit they'll just target a slightly lower priced property...

Hong Kong Acts to Prevent Bubble

HONG KONG -- Concerns about a growing bubble in Hong Kong's high-end property market pushed central bankers here to increase the required down payment on luxury homes to 40%, from the current 30%.

The new measure, which goes into effect immediately, applies to properties valued at HK$20 million (US$2.6 million) or more, part of an attempt to tamp down an overheated sector that has alarmed regulators and set off a wave of populist anger.

http://online.wsj.com/article/SB125630193678603725.html

frozenturkey 15 yrs ago

Can we trust you PizzaAce?

onemorething 15 yrs ago

How can you make 4% trading the USD? The USD chart is flat: it is one. Click on the link if you don't believe me: http://finance.yahoo.com/q?s=usdusd=x

All other currencies are close to being back to where they were three days ago. Please enlighten us which currency moved 4% since three days ago?

hongkongoldie 15 yrs ago

So how long can this go on for?

liebster 15 yrs ago

sad sack, the index is only trading at 16 times earnings....thats quite healthy imo when compared to historic numbers. certainly not a bubble.

As for property, when you compare to 97 levels you are using a political charged term. everyone associates 97 with an emotional crash, but that was ten years ago. hong kong property generally keeps up with inflation, and 97 prices are not entirely unjustified now. whats got people alarmed is the speed in the appreciation in the last few months.

whats funny is you think investing in gold is not a crapshoot. gold is completely speculative. its impossible to predict the performance of the stock market, commodities, or economies. fundamentals only give you information to react to at a given point in time, you can only use it to form an opinion of what might happen in the future. saying those opinions are logical is a fallacy, because you never have a complete picture of what is going on. ultimately its all a gamble, you have a 50% chance of it going up, and 50% of it going down.

Ed 15 yrs ago

Article in the AWJ:

Hong Kong Asset Prices Draw Concern

HONG KONG -- The International Monetary Fund expressed concern about spiraling asset prices in Hong Kong, adding a prominent voice to a heated local debate about whether the government should be doing more to prevent a housing bubble.

Hong Kong's extremely low interest rates and easy lending policies are prompting "a sharp run-up in prices for certain real and financial assets," the IMF warned Tuesday. "There is a risk that prices could become driven more by short-term liquidity conditions, divorced from fundamental forces of supply and demand," the IMF wrote.

Public concern has been rising after a surge of some 30% in the residential market this year, capped by a number of record transactions in the luxury market. Lawmakers last month organized a march on Hong Kong Chief Executive Donald Tsang's residence to push the government to increase land supply.

The IMF said it supported "increasing the supply of land to the market as one of the possible means to help moderate potential property price surges." So far, however, Mr. Tsang has resisted calls to make more land available for development through public auctions. In a speech Monday, he said the government was prepared to "stabilize the market if needed."

Kwok Ka-ki, a former lawmaker who organized last month's housing protest, said even the IMF as an outsider could see that more land supply was needed. "Donald Tsang says that he's concerned about property prices, but nothing has been done -- zero," Mr. Kwok said.

The Hong Kong Monetary Authority last month tightened home loans for luxury properties, requiring a 40% down payment instead of the previous 30%. But the impact of the new requirement will likely be limited, Paul Schulte, an analyst for Nomura recently wrote, since luxury buyers are less dependent on credit for home purchases.

Mr. Schulte believes new land sales are necessary, and that without them Hong Kong's large pool of deposits, low interest rates and deep well of mainland Chinese buyers will continue to exert upward pressure on prices.

More: http://online.wsj.com/article/SB125727605548125971.html

tpol 15 yrs ago

Could they raise the stamp duty for NON owner occupied residences or increase that ratio loan ration for NON owner occupied residences?

punter 15 yrs ago

A problem is evident when one can't buy a good place to live with a 2 million budget.

http://www.scmp.com/vgn-ext-templating/v/index.jsp?vgnextoid=9724d35e2f9b4210VgnVCM100000360a0a0aRCRD&s=Business&ss=Property

liebster 15 yrs ago

gold is up 2% today..HSI is up 1.65% and shanghai is up 1.21% as of this post...so what?

punter 15 yrs ago

That's comparing apples and oranges LGMV. e.g. why did Hong Kong property prices go up while London's was tanking?

liebster 15 yrs ago

sad sack: "Ive missed an opportunity to make 30% on a property provided I would have timed this right both in and out, but on the other hand if I timed it wrong I lose the margin I have made on gold, and I lose the hedge that gold gives me if I put those profits into what is clearly a bubble property market"

You are forgetting leverage entirely, and do not realize how property investment works. People who benefited from the 30% jump made a lot more than 30% return. e.g. if you bought a 1 million dollar flat, and it appreciates to 1.3 million, you actually make 100% return if the deposit is 30% (not including fees).

liebster 15 yrs ago

lol, do you want a cookie?

at 5% down, there are normally penalties for discharging the mortgage [early]. these fees can be 1-2% of the sale price. additionally, the PMI has to be repaid off the top of the amount you make. also, I am not sure you can buy investment properties that are not self occupied in HK and get a 95% loan (so im assuming this is your first property and self occupied). but yeah, more leverage = higher magnification of gain (or loss). risky risky!

tsuiwah 15 yrs ago

PizzaAce, you were able to buy more than one property with only 5% down?

If you chose to lock in your gains today, are there any costs? There's no stamp duty but what about any early termination fees for the mortgage insurance? Any taxes on the investment gain?

If you choose to hold your properties, as you seem to be doing, what are the carrying costs other than the monthly mortgage?

Cheers

punter 15 yrs ago

Even if growth catches up, the expected and unavoidable withdrawal of the stimulus funds will definitely have negative effects, unless of course they're going to find a non-painful way to do it.

The financial crisis was a "once in a lifetime" very rare incident, the reaction/solution used was also the first time it was used, and since this epic of a story is not yet complete, the ending is not yet and cannot yet be drawn. There certainly is a lot of uncertainties.

Anonymous 15 yrs ago

But Warren Buffet was buying in the midst of the financial crisis as well and he always buys when a bad economy creates bargains. He doesn't buy when he thinks the market is ahead of itself. That's why he is the smartest investor.

His railroad purchase means that he thinks the price is very good. It doesn't mean the economy is recovered because if it was I don't think he would spend $35 billions on this. I am sure he thinks it will recover at some time but I dont think he believes it is recovered.

I think all this says is that the economy is very bad because he is bottom fishing.

punter 15 yrs ago

Buffet bought trains in exchange of planes. Is the airline industry going to be in trouble then?

onemorething 15 yrs ago

Warren Buffett has bought a productive asset, and these will do well in most scenarios, be it a financial implosion, or an economic recovery. The only scenario that will hurt this investment is plotting along like Japan's lost decades. I actually think it was quite a clever move of Mr Buffett, although he definitely did not get these assets cheaply even by his own conventional measures.

In that respect I still do not understand his Wells Fargo investment rationale.

punter 15 yrs ago

That's an easy one 50kg: when prices drops again.

onemorething 15 yrs ago

LGMV said:

"These people who wouldn't take the risk are now screaming blue murder of course and demanding government help"

Don't try to twist the facts: property owners have been bailed out by the taxpayer. The taxpayer has every right to complain about the benefits going to the risk takers that got rewarded for their reckless bets!

onemorething 15 yrs ago

The HK government indirectly has bailed out home owners by vigorously defending the dollar-peg. The HKMA has bought 100s of billions of US dollars (selling HKD), which is a money-losing trade as we all know now. Consequently by default HK has decided to import price inflation, which particularly punishes savers and people on low income, and rewards debtors (mortgage takers) and holders of assets (i.e. the rich). Had it wished not to defend the dollar-peg, and one day they will be forced to let the peg go, we would not have seen the fund inflow and property recovery that has taken place the last six months.

Ed 15 yrs ago

Question re: housing prices in HK....

When we read that prices are up (or down) in dramatic fashion is the media seizing on the volatile luxury prices and implying that these same moves apply across all properties?

Reason I ask is a friend bought Belchers for 6M direct developer - the property was completed 2001 - and sold for 9M recently...

A nice chunk of chain on the profit but based on what one reads in the news, one would expect a much bigger bump...

onemorething 15 yrs ago

A typical The Belchers (Phase 2) flat sold for $7000 per square feet at the lows of this year. Now they are around $10,000 per sqft. It might be just me, but a 43% jump in half a year seems a bit "frothy" to me (to use Greenspan-speak).

Ed 15 yrs ago

So does that mean that prices in the non-luxury sector are well off their pre-November crisis prices?

And does it mean that what we read in the print media is irrelevant to most buyers/sellers because it's all based on the luxury market which operates on a set of fundamentals that are totally different from the rest of the market?

liebster 15 yrs ago

from what i can tell non luxury flat prices are aprox 5% higher than pre nov crisis numbers on average. they seemed to dip 20 to 25% during the downturn and then regained former prices and surged up an extra 5%.

when i talk about these numbers i am referring to the secondary market which comprises 80 to 90% of transactions. Primary market transactions follow different rules.

in general, non luxury secondary market properties can be separated into 3 price categories by age in descending order: 0-5 years (newish), 5-35 (moderate) and 35+ (old). anything 35+ the behaviour changes for a few reasons.

in regards to what the media reports, they normally report either record breaking luxury numbers, easily obtained primary market statistics from developers, or other easily garnered statistics like "data from the top 10 largest housing estates". the sample pools tend to be very small (usually no more than 100 transactions per week sample size.)

the total transaction volume in hong kong is around 10,000 per month, and this is used as a sort of benchmark to gauge buyer appetite vs. sellers willingness. i.e. when transactions dip suddenly but prices dont decrease, there is a perceived unwillingness of sellers to lower price.

onemorething 15 yrs ago

Quick calculation with liebster's numbers:

Nov08 = 100

Mar09 = 75

Nov09 = 105

(105-75) / 75 * 100% = +40% from the trough... I guess The Belchers example seems to support liebster's numbers, assuming he is right!

Ed 15 yrs ago

Only one problem... I am not sure on the specific date but he bought that property at least 4 years ago...

onemorething 15 yrs ago

I have noticed rents' asking prices are moving up. Probably 20% over the last three months based on emperical evidence. Some renewed economic confidence of the landlords perhaps, although vacancy rates still appear high to me.

Loyd Grossman is Miss Venezuela 15 yrs ago

With regard to mass residential property, I think we're at the treading water stage. People seem to have plenty of money judging from the crowds at Christmas but they are not willing to buy a property unless the price is cheap. On the other side, we have property owners who can rent out their properties and comfortably pay their mortgages and therefore don't need to sell. This will change when inflation returns. The question will rates go up quickly before inflation returns (bad for property owners) or will inflation go up before substantial rate rises kick in (bad for potential property buyers and renters). I'm with the latter which is why I'm still bullish. I reckon we'll see the Centadata Index hitting 85 or so before the end of 2010.

onemorething 15 yrs ago

Tough one. Assuming HK sticks to the peg, HKD interest rates have to stay low for quite a while in line with the US even when consumer price inflation starts to hit the economy here. Long rates (5+ years) may start to go up quickly. Will the banks keep on lending cheaply at 3-month HIBOR rates, if there is so much inflation around? It is more likely banks will start to become net short term borrowers (low rates) and long term lenders (high rates). Ergo it may all boil down to the availability of floating rate mortgages. This is just one scenario btw.

Ed 15 yrs ago

Contrarian Investor Sees Economic Crash in China

SHANGHAI — James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.

Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.

As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

“Bubbles are best identified by credit excesses, not valuation excesses,” he said in a recent appearance on CNBC. “And there’s no bigger credit excess than in China.” He is planning a speech later this month at the University of Oxford to drive home his point.

As America’s pre-eminent short-seller — he bets big money that companies’ strategies will fail — Mr. Chanos’s narrative runs counter to the prevailing wisdom on China. Most economists and governments expect Chinese growth momentum to continue this year, buoyed by what remains of a $586 billion government stimulus program that began last year, meant to lift exports and consumption among Chinese consumers.

Still, betting against China will not be easy. Because foreigners are restricted from investing in stocks listed inside China, Mr. Chanos has said he is searching for other ways to make his bets, including focusing on construction- and infrastructure-related companies that sell cement, coal, steel and iron ore.

Mr. Chanos, 51, whose hedge fund, Kynikos Associates, based in New York, has $6 billion under management, is hardly the only skeptic on China. But he is certainly the most prominent and vocal.

For all his record of prescience — in addition to predicting Enron’s demise, he also spotted the looming problems of Tyco International, the Boston Market restaurant chain and, more recently, home builders and some of the world’s biggest banks — his detractors say that he knows little or nothing about China or its economy and that his bearish calls should be ignored.

“I find it interesting that people who couldn’t spell China 10 years ago are now experts on China,” said Jim Rogers, who co-founded the Quantum Fund with George Soros and now lives in Singapore. “China is not in a bubble.”

Colleagues acknowledge that Mr. Chanos began studying China’s economy in earnest only last summer and sent out e-mail messages seeking expert opinion.

But he is tagging along with the bears, who see mounting evidence that China’s stimulus package and aggressive bank lending are creating artificial demand, raising the risk of a wave of nonperforming loans.

“In China, he seems to see the excesses, to the third and fourth power, that he’s been tilting against all these decades,” said Jim Grant, a longtime friend and the editor of Grant’s Interest Rate Observer, who is also bearish on China. “He homes in on the excesses of the markets and profits from them. That’s been his stock and trade.”

Mr. Chanos declined to be interviewed, citing his continuing research on China. But he has already been spreading the view that the China miracle is blinding investors to the risk that the country is producing far too much.

“The Chinese,” he warned in an interview in November with Politico.com, “are in danger of producing huge quantities of goods and products that they will be unable to sell.”

In December, he appeared on CNBC to discuss how he had already begun taking short positions, hoping to profit from a China collapse.

In recent months, a growing number of analysts, and some Chinese officials, have also warned that asset bubbles might emerge in China.

The nation’s huge stimulus program and record bank lending, estimated to have doubled last year from 2008, pumped billions of dollars into the economy, reigniting growth.

But many analysts now say that money, along with huge foreign inflows of “speculative capital,” has been funneled into the stock and real estate markets.

A result, they say, has been soaring prices and a resumption of the building boom that was under way in early 2008 — one that Mr. Chanos and others have called wasteful and overdone.

“It’s going to be a bust,” said Gordon G. Chang, whose book, “The Coming Collapse of China” (Random House), warned in 2001 of such a crash.

Friends and colleagues say Mr. Chanos is comfortable betting against the crowd — even if that crowd includes the likes of Warren E. Buffett and Wilbur L. Ross Jr., two other towering figures of the investment world.

A contrarian by nature, Mr. Chanos researches companies, pores over public filings to sift out clues to fraud and deceptive accounting, and then decides whether a stock is overvalued and ready for a fall. He has a staff of 26 in the firm’s offices in New York and London, searching for other China-related information.

“His record is impressive,” said Byron R. Wien, vice chairman of Blackstone Advisory Services. “He’s no fly-by-night charlatan. And I’m bullish on China.”

Mr. Chanos grew up in Milwaukee, one of three sons born to the owners of a chain of dry cleaners. At Yale, he was a pre-med student before switching to economics because of what he described as a passionate interest in the way markets operate.

His guiding philosophy was discovered in a book called “The Contrarian Investor,” according to an account of his life in “The Smartest Guys in the Room,” a book that chronicled Enron’s rise and downfall.

After college, he went to Wall Street, where he worked at a series of brokerage houses before starting his own firm in 1985, out of what he later said was frustration with the way Wall Street brokers promoted stocks.

At Kynikos Associates, he created a firm focused on betting on falling stock prices. His theories are summed up in testimony he gave to the House Committee on Energy and Commerce in 2002, after the Enron debacle. His firm, he said, looks for companies that appear to have overstated earnings, like Enron; were victims of a flawed business plan, like many Internet firms; or have been engaged in “outright fraud.”

That short-sellers are held in low regard by some on Wall Street, as well as Main Street, has long troubled him.

Short-sellers were blamed for intensifying market sell-offs in the fall 2008, before the practice was temporarily banned. Regulators are now trying to decide whether to restrict the practice.

Mr. Chanos often responds to critics of short-selling by pointing to the critical role they played in identifying problems at Enron, Boston Market and other “financial disasters” over the years.

“They are often the ones wearing the white hats when it comes to looking for and identifying the bad guys,” he has said.

http://www.nytimes.com/2010/01/08/business/global/08chanos.html?scp=1&sq=china%20bubble%20enron&st=cse

Shane 15 yrs ago

I hope prices fall. Shortage of land or no shortage of land the current HK situation has to change.

My apartment price rose over 1 milion dollars in 7 months. Based on what? No structural improvements were made. The building is 7 months older.

Reality is HK buildings are not well built. 10 years old is an old building here. Around the world its still new/young. Why pay so much for so little?

Mainlanders can keep buying flats but thats no good for HK people. HK people cant afford new flats. New flats are smaller and more expensive. Just like the US housing market, when people cant afford to pay they will default. Then prices have to drop.

Incomes for middle class are not rising so how do economists expect people to be able to afford the current prices?

The government will increase new flats which increases supply. People are now just trying to get into market while its hot just like US did. Many got burned in the end. In the US many did add value to property, unlike HK where people just buy and hold.

I hope the market falls. I listened to so many HK people make fun of Americans the past two years. Now is the time for me to chuckle.

Loyd Grossman is Miss Venezuela 15 yrs ago

China may economic problems going forward and this is obviosuly not good for the HK property market. However, if most locals in the mass residential sector have no credit card debt and a propensity to save, what is the chance of picking up something cheap? If only a few people lost money in HK housing during the recent crisis, then what is the chance of a bubble now? Zero in my view.

onemorething 15 yrs ago

I am starting to hear the first anecdotal stories about property speculation (flippers) from a befriended moving company.

Has anyone else seen similar early-bubble signals?

onemorething 15 yrs ago

I am adding "you missed the boat"-talk as yet another sign of a bubble building up.

Loyd Grossman is Miss Venezuela 15 yrs ago

Onemorething. Bubble 101. For a housing bubble, the majority of homeowners need to be highly geared. In HK, this is obviously not the case. Not sure if you have much contact with local Chinese, but they tend to do a lot of saving and they only buy from a position of strength - unless there is some hysteria. We have just had a huge economic crash and the effect on the HK property market wasn't that great - just a sharp blip as the desperados sold off whilst most homeowners hung on. What does that tell you? Also, stir in the DotCom bust, SARS and the collapse of 1997. Most homeowners have overcome all this and they are now sitting pretty with low mortgage rates, low debt and cash reserves. There may be a small bubble in the ultra-luxury but these people are so rich, they can usually absorb any losses. Mass residential looks very stable as people are still cautious about job security and will only buy when they have enough money. Inflation is the next story. We shall then get desperate buying. That may lead to a bubble but at present you are - in my view - confusing a sharp return in confidence with a bubble. The stock market is the US is up sharply this year but only a few people are talking about a bubble there. Why always this talk of a bubble in HK property?

tpol 15 yrs ago

I know alot of couples around 30ish who have had property for a few years. A number of them are thinking of selling and renting to cash in the profits that they have made.

onemorething 15 yrs ago

@LGMV

We can talk about the definition of a bubble for hours, if not days. I do not necessarily agree with your narrow definition of a bubble, but that is beside the point. Bubbles arguably start with irrational behaviour. I am looking for those signals.

For example tpol's anecdote is a sign that we have NOT entered the bubble stage yet, because his anecdotal evidence suggests people are still happy to sell at current levels, i.e. fear is bigger than greed.

PizzaAce crowing victory over the "bears" is a very clear sign of bubble blowing.

Loyd Grossman is Miss Venezuela 15 yrs ago

Onemorething. Maybe but for it to be a bubble, people need to have borrowed too much. It's a basic ingredient like flour in bread. Put yourself in the shoes of a property owner. He/she has already survived the above mentioned financial shocks; a big chunk of the mortgage has already been repaid, he/she is cash rich, interest rates are very low and probably locked-in with an HSBC mortgage which extends if rates go up, and the cheap rent probably covers at least 80% (maybe over 100%) of the mortgage. What is the incentive to sell? There isn't one unless the buyer offers a big premium over property valuation. Buyers now in a very weak negotiating position.

Loyd Grossman is Miss Venezuela 15 yrs ago

Tpol. I might do the same just to get some money though I still think it will go up further when inflation strikes. Problem is, if I take a profit, what shall I do with the cash? I originally wanted to put in CLP Power or HK Electric for the dividends but I don't really understand what effect the Scheme of Control will have on the companies earnings when inflation bites. Also, if the share price falls too much then they could end up being privatised (like PPCW tried to) with small investors getting hammered. I also thought about the Tracker Fund but it is now very mainland heavy, and I'm not so bullish on the Mainland. Quite bullish on the USA and a bit worried about the HK political situation so I might get a S&P 500 SPDR - but I then have to pay US tax on the dividends and I could lose a lot if the Yuan floats and takes the HK$ with it. Also, I have no US residency rights. Also like UK Govt inflation-linked gilts but I have no plans to return to the UK even though I'm a Brit. Any ideas?

Loyd Grossman is Miss Venezuela 15 yrs ago

Pizzaace, I misread Tpol's post. Yes, I wouldn't sell my only apartment and rent as you have to call the market perfectly (ie just before a huge collapse) in order to benefit. I am, however, considering selling an investment property on a mainstream NT estate. I too think it will rise but I think I might just switch to Tracker Units for some diversification and liquidity - though I won't get the gearing. Your basic premise that you should only sell property when people are begging you to sell is correct. However, the Hang Seng Index is still 33% off its high in October 2007.

tpol 15 yrs ago

This is what people have asked me.

My answer was If it was an investment property yes if not I would really really need to think about it.

LGMV, if you have a good tenant and can cover the debts if the rent stops, then I would hold on.

I would also say, hold a portion of cash and or very liquid asset, even though you don't earn anything off it.

The cash is for opportunities when they arise.

Loyd Grossman is Miss Venezuela 15 yrs ago

Thanks Tpol. The US investment option is now trashed. Nouriel Roubini has just said the best option for the HK$ is a managed float and that HK can have an independenty monetary policy. Hear, hear to that!

cookie09 15 yrs ago

i know one person who just sold their only apartment and is renting again, anticipating a crash of 20-30% within 1-2 years to then get back in

not my personal view, but was interesting to see the execution

onemorething 15 yrs ago

@LGMV

I am going to make it an academic discussion now, to avoid the bubble-no-bubble discussion. Sufficient cash savings is one thing, but future affordability is another. Obviously the horizon is extremely foggy at the moment, so it is hard to make any predictions. Short term interest rates going up will affect affordibility for new buyers, and it is the marginal demand that supports real estate prices. Now I am not saying that interest rates will go up any time soon, but if it happens, all of a sudden a HK$5k per sqft property may be out of reach for 80% of buyers. The decline in home prices can eat up all your savings really quickly. What I am trying to say is, that it is not just leverage that defines a bubble.

Loyd Grossman is Miss Venezuela 15 yrs ago

Onemorething. Okay I take your point but in that scenario I still don't think you would get a large number of sellers (certainly not enough to produce a crash). The owners would just hold and rent and wait for inflation to kick in. There are very few geared up HK property owners at the moment; they were all shaken out years ago.

punter 15 yrs ago

The discussions in this forum have been very informative. I'm sure a lot of readers have used some bits and pieces of advice in their decision making.

Now it looks like inflation is coming. Is it going to be a bad one? What do you think? What are the scenarious you're playing?

liebster 15 yrs ago

There are some people selling, but its not really confirmer sales in the true sense. Prices have risen 30% after falling 25% in 2009, so that alone is enough to push people to sell if they bought last year.

pizza ace, your logic is contradictory. you say its ridiculous for someone to sell their apartment to lock in a gain and then rent, but this is precisely what people do when they attempt to sell high and buy low. they do not rebuy immediately, since they would simply be buying someone elses expensive apartment. they rent, and in the meantime wait and search for a good deal, or the next dip. you say this is like gambling, but this is exactly what informed property buyers do. they wait until they find a great deal, then they jump on it. if they are good enough at this, they make a profit.

Loyd Grossman is Miss Venezuela 15 yrs ago

Pizzaec is right. If you could time the market like that, you could retire after about 2 or 3 trades.

cookie09 15 yrs ago

well...i know at least one guy who did it. started off with a 1m apartment 8 years back and just recently got an offer of 22m for his place above kowloon station

punter 15 yrs ago

The stock market has gone down about 10% in the past few weeks. Will property prices follow or are they not related?

Ed 15 yrs ago

Hong Kong housing market retreats

Residential property transactions fell in the fourth quarter as potential buyers wait for changes in policy

HONG KONG—Hong Kong's de facto central bank said the city's residential property market cooled in the fourth quarter, allaying concerns a real-estate bubble may be forming, though it noted the city's asset markets remain vulnerable to international capital flows.

Home prices jumped 27% last year as Hong Kong emerged from recession and funds poured into the city from mainland China amid a credit boom. To ease public concerns about home prices becoming unaffordable, the Hong Kong government has said it will fine-tune its land-supply policy to avert a bubble if necessary, while other agencies have moved to keep a lid on prices.

The Hong Kong Monetary Authority said in a document submitted to the legislature Tuesday that monthly residential property transactions fell to about 9,000 in December, from more than 11,000 in September. Land Registry figures also show Hong Kong's total property transactions—not just residential deals—fell 0.7% in December to 11,112 from November, while the total value of all transactions fell more than 10% to 42.86 billion Hong Kong dollars (US$5.52 billion) from the previous month.

Those declines came as potential home buyers delayed purchases on the possibility of economic policy adjustments following the runup in prices.

The government has recently shown signs it is willing to increase land supply. In December it held a land auction for two major sites in the New Territories, and it has approved the conversion of two plots of farm land owned by blue-chip Henderson Land Development Co. into developable sites.

The HKMA has also been stepping up its rhetoric, repeatedly warning banks about offering competitive mortgage rates. Government-run Hong Kong Mortgage Corp. has offered an extended fixed-rate loan program to help low-income home buyers.

Analysts have mixed views on the outlook for Hong Kong's property market. Many believe the downside is limited and mass residential prices could even rise as much as 10% this year because of low interest rates and pent-up demand from end-users.

But others warn of some correction this year, because of an outflow of funds, especially from China, as Beijing has begun to tighten its monetary policy.

Hong Kong's commercial-property sector has also been improving. Grade-A office rents in most districts stabilized in the fourth quarter, while those in the core business district of Central may even rise 5% in the first half of this year, property adviser DTZ said Tuesday.

Hong Kong's overall grade-A office rents stood at HK$44 a square foot in the fourth quarter, unchanged from the previous quarter, as Hong Kong's economic environment improved, DTZ said.

The HKMA also said uncertainties over the global economic recovery and the timing of stimulus exit strategies by other governments will pose risks to Hong Kong's economy this year.

http://online.wsj.com/article/SB30001424052748703906204575026723801690684.html?mod=WSJ_HomeAndGarden_sections_RealEstate

Loyd Grossman is Miss Venezuela 15 yrs ago

Punter. Well if you shop around you may get someone to sell at a slightly lower price but most owners won't sell cheap just because the stock market has been off recently. As Ed's article states, property transactions fell which also means owners aren't selling - as well as potential buyers not buying.

punter 15 yrs ago

Prices are high so only people with money to spare will buy. That's free market.

When the Stock Market goes down, people lose money. Some of these will have to sell some property holdings to cover those loses. But how many are they? Nobody knows, but usually there's a lag of about 4-6 months when the stock market goes down (and stays down) before it trickles down to the property market. However, times have changed. These trends might not be there anymore.

onemorething 15 yrs ago

@PizzaAce

"I see renewed USD$ strength on the horizon, which bodes well for HKD$ and subsequently asset prices denominated in HKD$."

No that is not true. RE prices in HK rose due to a weakening dollar. A strengthening dollar will obviously work as a break on RE prices or even push prices lower. What may still benefit RE prices is a CNY revaluation, since it will make HK property cheap in CNY terms.

I am looking forward to your explanation of that statement though.

onemorething 15 yrs ago

@PizzaAce

"I'm assuming all other things being equal, if the USD$ rises and since the HKD$ is pegged, then HK asset values would rise relative to other currencies e.g. Euro."

And therefore it then becomes overvalued for European (euro) investors. Same mechanism happened to London property: rescued by a depreciating pound, attracting Continental and Russian buyers.

And yes it is simplified, but it is either price inflation or currency appreciation for pegged currencies, that's how it has worked and how it will always work. That is exactly why China is now sitting on an price inflation "timebomb".

Loyd Grossman is Miss Venezuela 15 yrs ago

I think the HKMA boss Norman Chan is overreacting a little. Very keen to get the warnings out. I think he's completely wrong though.

Ed 15 yrs ago

Excerpt:

The latest examples of crazy money in the Hong Kong property market are the YOHO Midtown luxury apartments that go on sale tomorrow.

The developer Sun Hung Kai Properties is hoping to fetch an average of HK$5,200 per square foot, about 18 percent higher than secondary transaction prices nearby. The really big dollar signs are flashing above the special units, such as the 39th floor apartment that is on offer at HK$11 million. This is close to the amount reached at the height of 1997's property market frenzy for the same neighborhood.

More: http://www.cnngo.com/hong-kong/shop/hong-kong-property-bubble-hk11-million-home-boonies-490390Hong Kong property bubble: HK$11 million for a home in the boonies

onemorething 15 yrs ago

I am not convinced they will sell that well. The property market may get a wake-up call... then again, probably not.

Loyd Grossman is Miss Venezuela 15 yrs ago

Ed. Why is it crazy money? I have a small flat in the first phase of YOHO Town. When they first went on the market, they were selling at about HK$2,000 per square foot - it was the same day as the anti-Regina Ip democracy march and the economy has definitely improved since then. The Phase 1 development is of high quality, has 2 swimming pools (indoor and outdoor) and is linked to the West Rail. It is half-way between Kowloon and Shenzhen (so no longer in the boonies). When it is completed, it will have a huge shopping mall and a massive bus station (as well as the Light Rail and the West Rail). It's basically the benchmark property for the western New Territories and there are a lot of wealthy village people who live there. There is life outside Mid-levels you know.

Loyd Grossman is Miss Venezuela 15 yrs ago

And let's not forget, people in HK have been saving money since 1997. Just look at the crazy loan-to-deposit ratios at the banks. There is no way this a bubble yet. maybe in 6 years.

Ed 15 yrs ago

Note that I didn't pen that article....

Loyd Grossman is Miss Venezuela 15 yrs ago

Yes but a lot of the New Territories big boys are now into this development like Lau Wong-fat, the Heung Yee Kuk Chairman. 11,000 per sf is chicken-feed for these guys plus all his mates and relatives. There are also a lot businessmen who do a lot of trade in Shenzhen. Not just talking my YOHO book here as I also bought Park Island. The latter has also gone up in price but - as an investment - it has been weak. In Hong Kong, convenience always trumps life-style. By the way, sorry Ed.

hongkongoldie 15 yrs ago

could new territories property have a slight increase as a result?

hope so!

onemorething 15 yrs ago

We got a seller!

Ed 15 yrs ago

Hong Kong's Real Estate Surges

HONG KONG—Strong results in a Hong Kong government land auction are the latest sign that the city's real-estate market is surging higher after a brief lull, as government officials here and elsewhere in the region grapple with how to cool off overheating property prices.

On Monday, blue-chip developer Sun Hung Kai Properties Ltd. agreed to pay 3.37 billion Hong Kong dollars (US$434 million) bid for a 130,000-square-foot site in the suburbs of Hong Kong. That price, reached after an intense bidding session, was above the average US$362 million forecast of six surveyors and analysts polled earlier by Dow Jones Newswires, and was 69% above the reserve price of US$258 million.

The big purchase came just after Sun Hung Kai sold 900 apartment units in a major new residential complex over the weekend for a total of US$541 million. The units, ranging from 400 to 1,400 square feet, sold for about US$700 per square foot, a steep premium to other apartments in the area. That indicates the mass-residential market could be vulnerable to the speculation that led to a jump of about 50% in Hong Kong's luxury-apartment prices last year.

Sun Hung Kai is Hong Kong's biggest developer with a market capitalization of about US$34 billion.

Around the region, easy credit and ample liquidity is fueling fears that real-estate prices may be rising to irrational levels.

In China, where by some official measures home prices have risen as much as 25% in the past year and land values have doubled, officials are keen to tamp down the market. Beginning Thursday, the People's Bank of China will require banks to hold more cash in a bid to clamp down on excessive lending.

Last week, Singapore's government made an attempt to "temper sentiments and pre-empt a property bubble" by imposing a tax on those who flip properties within a year of purchasing them while capping residential mortgages to 80% of a home's value, from 90%.

In spite of cooling measures instituted last autumn, Singapore's government said "there are recent signs that [the property market] is starting to heat up again," noting that the number of primary-home sales in the city-state last month was triple that of the month before, accompanied with a sharp price increase that outpaced previous rebounds.

"There is a risk that the market could overheat in the next few months, fueled by low global interest rates and positive sentiments associated with the economic recovery," the government said, pledging to take further action if required later. Singapore also said it would boost housing supply.

Unlike China and Singapore, however, Hong Kong has little control over interest rates because its currency board system, which pegs the local currency to the U.S. dollar, forces it to import U.S. monetary policy.

Instead, says Nicole Wong, a property analyst with CLSA Asia-Pacific Markets, there is little Hong Kong's government can do about what she describes as a full-blown housing bubble in the city's mass-residential markets.

"Hong Kong property buyers have been in a prolonged low-interest-rate environment, and now they're behaving like drunken drivers on the road—they don't think about consequences," Ms. Wong says, estimating that prices have increased 5% this year. While speculative activity has been subdued, she argues the public is "overstretching" itself, convinced that "prices will go up forever."

The government has tried its best to tamp down overexuberance in recent months. Chief Executive Donald Tsang has said the government would monitor property prices and fine-tune its land-sales policies if necessary. The Hong Kong Monetary Authority also told banks late last year to raise the standard down-payment ratio on luxury properties to 40% from 30%.

Keith Yeung, a property analyst at Mirae Asset Research, expects Hong Kong's financial secretary to announce a policy response Wednesday, when he delivers Hong Kong's annual budget. "The government is now under tremendous pressure to intervene in the Hong Kong residential market," Mr. Yeung says.

Not everyone is worried about home prices. Kelvin Lau, a Hong Kong-based economist with Standard Chartered Bank, says he doesn't see a bubble, pointing to low levels of speculation and an official mortgage-debt-servicing ratio of 36.4% as of last autumn, lower than Hong Kong's 20-year average of 52.6%.

Alva To, head of consultancy for brokers DTZ in Hong Kong, says the participation of a broad range of developers in Monday's auction, and the "very expensive" auction sale price, were signs that prices could continue to spiral upward. Mr. To isn't worried yet, however: "The public can still afford this, because interest rates have been as low as 0.7%."

http://online.wsj.com/article/SB10001424052748703494404575081171550297354.html?mod=WSJ_SecondHomes_sections_ReaEstate

Loyd Grossman is Miss Venezuela 15 yrs ago

And there is this Monitor piece from the SCMP's Tom Holland (23Feb2010) which goes into detail about the amount of money floating around in the banks at the moment and the affordability of homes:

Despite the warnings, there is still no bubble in HK property

At the time, it looked like a woefully bad call. Last Friday, Monitor argued that Hong Kong's asset markets would remain buoyant this year even if the US Federal Reserve were to begin raising interest rates sooner than generally expected.

In the event, the Fed began even sooner than that. At 5:30am Hong Kong time on Friday, long after the South China Morning Post went to press but before most of us were reading the paper, the Fed announced it was jacking up its discount rate by half a percentage point.

Far from ignoring the news as Monitor had argued it ought to, the stock market promptly went into a tailspin, with the Hang Seng index plunging by 2.6 per cent during Friday's trading session. Monitor, it seemed, could hardly have got it more wrong.

Happily, not all markets proved as jittery as Hong Kong's bourse. American investors were clearly made of sterner stuff, shrugging off the Fed's move to push stock prices marginally higher on Friday.

That example clearly stiffened Hong Kong's nerve, and the local market yesterday clawed back almost all of Friday's losses as investors concluded that the discount rate rise wasn't as dreadful as they had first thought. So, perhaps Monitor wasn't entirely wrong after all, just poorly timed.

But if Hong Kong's asset prices do remain strong despite the Fed's shift towards tightening, their strength will only fuel fears that a bubble is developing in the city's property market.

Those fears are already running high after repeated bubble warnings from government officials. And they are only likely to grow further after yesterday's land auction netted HK$3.37 billion for a residential site in Tseung Kwan O, well in excess of expectations.

Yet even though average home prices rose by around 25 per cent last year, and despite all the warnings, there are few signs that a bubble is developing in Hong Kong property.

Certainly, prices of the most expensive properties are looking frothy after doubling last year. But taking the definition of a bubble as an unsustainable momentum-driven rise in prices propelled by credit-fuelled speculators in search of quick capital gains, then it is hard to argue there is a 1997-style bubble at the moment.

For one thing, even after last year's gains, mass market prices remain more than 20 per cent below 1997's highs (see the first chart).

It is true that at just 2.5 per cent, residential rental yields are at their lowest level in three decades, which according to some analysts indicates that the market is overvalued.

But low rental yields should be seen in the context of record low interest rates and low yields on financial assets like government bonds. The property yield may have been higher in 1997, but it was just half the yield on seven-year exchange fund notes at the time. Today, the rental yield is roughly the same as the seven-year exchange fund note yield. So by that yardstick at least, the market does not look overpriced at present.

What's more, there are few signs that excess leverage is fuelling the run-up in prices. The banking system's loan-to-deposit ratio - one measure of leverage - is currently around 70 per cent, compared with 130 per cent in 1997. Mortgage loan-to-value ratios are in line with the historical average, and according to Hang Seng Bank (SEHK: 0011, announcements, news) , local banks' mortgage books expanded only by 3 per cent over the first nine months of last year. In 1997, they ballooned by more than 40 per cent.

At the same time, speculators are relatively thin on the ground. As the second chart shows, confirmor transactions - where buyers sell again before the property is actually transferred - are at relatively low levels, far below the proportions reached in 1997.

And finally, despite a lot of grumbling, Hong Kong properties are actually quite affordable by historical standards. Thanks to low mortgage rates, the housing affordability index, which measures the cost of funding a mortgage on a typical flat relative to household income, is lower now than at any time during the 1990s (see the third chart).

As a result, with the market not looking overpriced, leverage low, speculators largely absent and flats relatively affordable, it is hard to conclude that Hong Kong is experiencing a property bubble.

On the contrary, the current run-up in prices looks robust and likely to be sustained over the coming months - barring any more surprises, of course.

Ed 15 yrs ago

Always good to have a little balance to bullish stories... if we recall the crisis in American was caused by ignoring the warnings... and by the unleashing of tremendous amounts of cheap loans that pumped up the housing market... China is not Hong Kong and vice versa but no doubt some of these trillions are making their way into the HK market... and surely Hong Kong will not be immune if this plays out across the border...

Ponzi in Peking

China's economy is humming along in high gear, thanks to a fast-growing pile of dicey debt. Such booms tend to end badly.

http://www.forbes.com/global/2010/0118/companies-china-economy-schemes-ponzi-in-peking.html?boxes=Homepagemostemailed

Loyd Grossman is Miss Venezuela 15 yrs ago

I would agree with you Ed if HK hadn't been in the doldrums for 13 years. We're just starting to emerge from the shock of China opening up. HK people now have enough cash in the bank to ride out most shocks. This was evident during the Lehman crisis.

Loyd Grossman is Miss Venezuela 15 yrs ago

Yes, the government has got itself tied in knots with this stupid peg.

bing2 15 yrs ago

hi guys,

how much do you reckon a combined unit on elgin st near the escalator 1100 sqf gross with 2 terraces (150 net each) will go for these days? the unit occupies the whole first floor and has nice decoration. how much for sale and rent? would like to hear your opinions. thanks.

Loyd Grossman is Miss Venezuela 15 yrs ago

What's the address so we can check with other sales in that building.? On the face of it, at least HK$10,000 psf but depends on age, location, lay-out, lifts, building restrictions etc.

bing2 15 yrs ago

hi lgmv,

it's close to 30+ on elgin st. i am also thinking around that price per square foot. thanks.

Loyd Grossman is Miss Venezuela 15 yrs ago

Maybe not so much. A 1,000 sf flat in Grand Panorama on Robinson Road trades at about 8,000-9,000 per sf. Also, by a combined unit I assume you mean 2 flats joined together as one. This would make it less attractive for most buyers. Having said that, as you are in SoHo, there may be some novelty value and the terraces are very rare so it all depends. If you can wait, you will probably get 10,000 per sf or substantially more if the right buyer came along. Rental; difficult to say. If it's mundane 15,000-20,000; if it's breath-taking 40,000-80,000. Local demand would be small so you are relying on some life-styled-crazed foreigner with deep-pockets.

bing2 15 yrs ago

yes it depends on the renovation and buyers' taste and requirement. how much do you think for collective sale for the whole building around soho area?

Loyd Grossman is Miss Venezuela 15 yrs ago

A whole building would be worth gazillions. Why?

bing2 15 yrs ago

there is no unauthorized building works. anyone know who should i contact for collective sale? i happen to know most of the owners want to sell. lgmv, how much do you think per square foot for collective sale on elgin st?

Loyd Grossman is Miss Venezuela 15 yrs ago

If I were you I would contact a firm of surveyors. This is way out of my area. Of course, you also need to look at it from a developer's point of view. If your building is bought up, what can they build to replace it? Is the plot big enough for a podium? Are there any height restrictions? Who owns the neighbouring buildings?

bing2 15 yrs ago

pizzaace, actually the units have not been joined together yet. i am thinking of doing so, but would like to opt for collective sale of the whole building if i can.

awlchung 15 yrs ago

There is certainly no bubble YET in the second hand mass residential side! When there is a bubble most people are talking about wanting to buy a property, thats not happening yet! (new properties are being sold by developers at way above market prices and the very high end luxury is frothy). DONT BUY FROM A DEVELOPER AT THE MOMENT. (march 2010)

Best value at the moment is second hand units in Lohas Park new build. Above new MTR and still cheap. (Some 20% cheaper than the main TKO developments)

That's my recommendation.

tristan1970 15 yrs ago

you are all living with your heads in the clouds, lets ignore the very low interest rates, the debt to salary ratio. The absolute over supply of property in Hong kong, and concentrate on the terrible space planning, you all live like rats in pathetic tiny, ugly flats. The quality of the building is terrible.Worse so on new developments.

we in Hong kong are set for a crash unlike before. Property in this town is so bad and so over priced it is ridiculous. This is so reminiscent of the USA market, even someone earning as little as 20K a month is able to get a $2 million dollar mortgage 90% of property value for a intro rate of 1% what do you think happens when the interests rates as they most definatley will raise. The market will not allow rent increases. All of you will be loosing your properties and jumping out of the windows... Wake up!!!

HONGKONGEXPAT 15 yrs ago

Hi Tristan.

I would say that those that don't own property would have your arguement and those that do own property would have the oppposite and it all makes for a great debate. I did buy property at the beg of last year so natually I am looking at things in a different way to you and biased on the pro property side. However, having said that after living her for 16 years can say that the size or quality of apartments for the mass market really has close to zero impact on the locals buying habits. We have over 7 million people and basically extremely limited land supply around the prime central areas and as such need to move out to the NT etc to find larger dwellings. As for conditions of the buildings here I disagree, if you want luxury, Hong Kong is really second to none, however, here you need to pay an arm and a leg for luxury.

As for mortgages, old buildings you will be lucky to get 70% at best for the new luxury buildings you can get 90%, but if you check the stats, most of these buyers are either buying outright 100% cash, or 50-60% deposits. The luxury market is a completeley different animal. Also the general belief of the local Hong Kong Chinese is they like to buy most things with cash and limit their mortgages, or keep the bulk of their savings in cash deposits, hence we have about HKD6 trillion in deposits, the highest of all time.

Rents, rents rents, they are going up and up, just negotiated my rent, I rent a different apartment and own one that is rented out, 15% rental increase since mid last year. My friends are all in the same boat, 15-20% increase since mid last year.

Rents always lag but within about 18 months they will catch up and as I know nobody can tell the future, will not say where the market is heading but if one follows general economic theory, the more of a growing middle class you have in any economy we have them all next door, the more that "needs" are replaced with "wants" and the more property values in that economy are driven up by the public. This has happened throughout the history of time.

OffThePeak 15 yrs ago

I have just read through this very long thread - every posting! I want to tell you, it is a real adventure - it reads like a good novel or a celebrity's diary. If you like investing in Hong Kong property, it is a true education. I learned a good deal, and had a few laughs too.

It does show that it is not easy to get the market right. Some of the best-reasoned and persuasive arguments came from the Bears - I am thinking of SadSack, in particular, who was relentless in his comments, warning people: "Do not invest in property, or you will find yourself in negative equity in six months." He carried on with his warnings, even after the market began to lift off in Q2-2010. Only recently has he given up, perhaps when his voice most needs to be heard. The bears arguments do make sense, and they may ultimately be proven correct, if the global stimulus programs fail to ignite a permanent improvement in the global economy.

The Bulls, like Lyod Grossman is Miss Venezuela (LGMV) made a spirited and graceful defense of their investments, even in the face of some ridicule as the market slid in late 2008. Ultimately, LGMV's arguments proved correct: the mass market held up better than the luxury sector -especially the rentals. And HK people proved that they really are cash rich. They came in an started buying, when prices were low, and the news looked most bleak. They know a bargain when they see one, and were not frightened off for long, when banks were aggressively cutting their valuations in Q4-2009.

This thread has gone a bit quiet in recent weeks. And I hope that it can be revived. I like charts, since they can express well what is happening in the market. I hope that Ed and the AsiaXpat team will allow me to post a few links to threads, without banning me. I think they can add something to the discussion.

My view is that we may be approaching an important turning point, and the comments and opinions expressed on this thread will be vital and useful once again.

ArtfulDodger 15 yrs ago

There's no bubble. They want $13,000 per square foot in Sha Tin

http://www.thestandard.com.hk/news_detail.asp?pp_cat=30&art_id=96080&sid=27482942&con_type=1

There's still alot of money left on the table. People who have stayed on the side lines since February 2009 must be in pain watching the property market skyrocket.

As long as mainland China manipulates its currency, there will be plenty of support for the HK property market, esp. from Chinese investors looking for anything above zero yield back in their country.

OffThePeak 15 yrs ago

Shatin, Festival City article:

"Nearly half of local viewers were from Sha Tin or Kowloon Tong. Chiu said the first homes will be sold at prices that both the developer and buyers will find satisfactory.

Cheung Kong said HK$13,000 per square foot is a reasonable target price, but market talk is that the Festival City flats may go for HK$7,000 psf for the first homes that are sold.

Asked whether Festival City will try to prevent incomplete transactions, Chiu said buyers can normally only defer payment for around three days.

Only one of the 25 flats sold in October and November at the luxury project 39 Conduit - developed by Henderson Land (0012) - were reportedly completed, according to Land Registry records."

I suppose it is easy to get "high prices" if you do not insist on completing transactions. (haha.) One thing I do find strange in Hong Kong, is how people will pay 10-15% more for a flat which has a long completion, with "only 5% down". In fact, they must realise that it is not so eay to walkaway, and that it will not be easy for them to flip the property to "a real buyer", since the real buyer will not be getting the same easy credit, and the price will look very high.

Why do so many HK people (& mainland people too) fall for this stupid trick?

tristan1970 15 yrs ago

HONGKONGEXPAT.. I did purchase 3 apartments in Hong Kong, all in 2003, so i did very well. I rented 2 and live in one. Thankfully i have just sold 2 for over 160% profit. My third is now up for sale and i have had 3 offers. So far the third is $400'000 more than the asking price. This is only a $6'000'000 apartment. The guy that is buying is adding to his portfolio of 4 flats all acquired in the last year. His rental yield on this flat of 3%. He has a mortgage agreed of 80% at an interest rate of 1% from HSBC.

This is ridiculous what is he thinking, if all his properties are based on this formula then as soon as the interest rates rise as they will he is in serious trouble.

You cant rely on China there bubble is coming, The USA and EU will be pushing for the RMB to be revalued, if China dose not comply we will see import duties rise on China made products. This and the slow down in the USA is going to stem the flow of Chinese made products, and in turn stem the flow of Money from the mainland.

I saw the crash in the USA and sold my properties maybe 1 year too early but here? I think not.

Just look out at night see the amount of properties terribly designed and built. The Hong Kong property market is controlled by 6 or 7 greedy developers and kept artificially high by the HK government. Take a walk and see how many shops are empty this is unpresentated.

You mention luxury what living in Park view in a 2000 sq ft apartment overlooking a polluted mess. Hong Kong is Ugly, Dirty and getting more polluted.

Enough is enough im getting my kids out of this they have ben here for 9 years thankfully no respitory issue. unlike lots of his friends!!

Good luck im not preying for a crash i have seen all these signs before... My feeling, its coming!!!!

ArtfulDodger 15 yrs ago

tristan1970 is so smart. He knew to buy during SARS. Why do all these clever people like to post on online forums anonymously boasting about their investment prowess.

He arrived in 2001 in HK, was quick to learn the HK property market and buy 3 apartments in 2003 (wow that was a quick accumulation of cash in 2 years to make 3 downpayments + purchasing costs -> stamp duty, etc).

A newcome to Hong Kong, with the balls during one of the worst economic periods for Hong Kong to buy and had enough cash for deposits on 3 apartments, and the bank willing to provide 3 mortgages on a single income. I just don't buy it!

HONGKONGEXPAT 15 yrs ago

Tristan1970, I wouldn't really worry about interest rates moving up too much, as they are historically very low and even if they go to 5% it will take time plus Hong Kong people are holding serious cash reserves. At 5% interest rates we have never seen a dumping of property. This added with our dollar pegged and hence it will all depends on the US recover or should I say some normality in the US economy/unemployment. We don't see any improvements in the unemployment in the US and no movements in inflation there either to prompt any sudden massive rate rises. Yes, I agree they will come but only when the US sees serious improvements in their unemployment. As Bernanke said they are committed to a loose monetary policy whilst unemployment is at record highs and no signs of inflation.

The other key issue is land in prime areas of Hong Kong is so limited and when you have a growing middle class next door all wanting a part of the pie it is very hard to see any negative movements in the property market regardless if interest rates move.

It is great that you got three properties during SARS, unfortunately I was both too nervous to do that and I was in Europe during the time. To sell at such a huge profit is definately a huge monetary gain and naturally a personal decision. However, can say that if you know the prime luxury market of Bowen, MacDonnell, Old Peak Road, May Road, Po Shan Road, Tregunter, Magazine Gap rd,Deep water Bay, Parts of Repluse , The Peak, areas of Kowloon Tong, where the amazing huge mansions are you will see the finish of the buildings both interior and exterior and the views are breath taking. I have friends that live in houses and apartments in all these areas and can say having travelled the world the views, finish and general conidtion is on par with any first class major city. Having said that for such luxury and I am not talking about parkview, you have to pay a huge premium, but it is what it is an island with about 7-8 million people and no land in prime areas left! Plus a growing middle class next door in the hundreds of millions.

As for the mid tier market, well those buyers seem less fussed with the views/conditions/exterior and interior of the premises, they just want a roof over their heads and the locals hate the concept of paying rent, they have all grown up with the mentality of owning your own premises regardless of view/condition etc! This idea has been pushed down from generation to generation.

OffThePeak 15 yrs ago

HKexpat,

I like your postings, but wanted to react to a few excerpts from your post

+ " At 5% interest rates we have never seen a dumping of property" - The relative move in rates matters more than what happened at 5% rates in the past. Going from today's 1% rates to 5% may have a much more dramatically negative impact on HK house prices than going from 1997's 10% rates to 5% rates a few years ago.

+ " Land in prime areas of Hong Kong is so limited." That will not matter if jobs flee HK and incomes start falling. Look at Detroit for an extreme example. Jobs were lost, and the population fell by almost 2/3rds. In Detroit now, you can buy a house for $10 plus back taxes. I am not predicting that for HK, but if too many jobs are lost, rents and property prices can fall dramatically.

Loyd Grossman is Miss Venezuela 15 yrs ago

OffThePeak. Everyone in HK knows US rates are likely to go up; if you watch the local news in the morning the first report is nearly always about where the Dow Jones closed. Mass residential housing prices haven't moved at all over 2 years so where is the bubble? They gained 24% last year - but that was a rebound not a gain. Go to Bank of China and look at how many cash deposit machines there are relative to the number of ATMs. It's about 50/50. Most people put more into the bank than they take out. They are not coked up on credit and consumption like in the West. Most people save because they know if they are poor, others can take advantage. The market may be volatile in future but I doubt you'll be able to pick up anything cheap from a desperate seller. Meanwhile, your rent will go up. Re Detroit: HK has been through the 1997 crash (a real bubble), the Dot-Com boom (another bubble based on crazy valuations), SARS, Lehman - and it still hasn't collapsed. During this time, HK people have been saving. When the Centadata Index gets above 90, then I'll start to think about selling.

OffThePeak 15 yrs ago

LGMV,

I have read all your comments here. And my hat is off to you, Sir. You have mostly called the market correctly. And I agree with you than Hong Kong took much pain during the 7-years after 1997. A 69% crash is a fairly strong "innoculation" against bubbles.

We do not need to be in 1997-stretched-Bubble conditions, to get a healthy correction. We saw such a correction, and a very rapid one, in the second half of 2008. I do not rule out another one, even one as deep as that, before we head up into the "blow-off phase" of the 18 year cycle, which I would expect to peak in 2015 or 2016. Like you, I think that final surge might be trigger by HK's dropping the dollar peg entirely, or maybe just moving to a 50/50 peg, half to the US$ and half to the Rmb. (This idea is not my invention. I have heard peg-inventor John Greenwood talk about it.)

My concern now is the widespread complacency that you will find towards interest rates. I had a bank branch manager tell me this week that I should fell free to borrow on a Hibor-linked basis, because "his bank doesn't expect any significant rise in rates before the end of the year." Many estate agents here have told me the same thing. Now, they may be right. But what if they are not? A bigger-than-expected rise in rates is the most likely trigger for a second "correction" in HK prices. And I think that may start in Q2. But I can provide no guarantees on the timing.

Have you noticed that: + Many HK property developers saw their share prices peak in late 2009 (and those peaks have not been exceeded), + Interest rates took a huge jump in the US yesterday. The writing for a Q2-peak in HK property may be getting scrawled "on the wall" now.

If I am right about that, then I will be happy that I sold most of my properties over the last few months. If I am wrong, and prices push higher, then I will be happy too, since I still have two to sell, before I have to move back into renting.

HONGKONGEXPAT 15 yrs ago

Offthepeak- I understand your points but surely Detroit and Hong Kong are two different animals. Detroit, a city based completely on a highly inefficient industry, the car industry, that was still producing cars that America didn't want or need. It was just a matter of time and add the crime rate in Detroit etc. I suggest you compare apples with apples not oranges. So lets compare it to Central London or Manhattan, now we know that prices for prime real estate barely moved in those markets even when the money boys lost their jobs. Now they are back with bigger salaries to hide the smaller bonuses.

On the point of interest rates, my point is that with cash reserves at an all time high and interest rates at an all time low, as long as we are pegged to the USD, whilst the US will take its sweet time to slowly raise rates, it will take a while to even hit 5% and this is still historically low, very low. For it to even hit 5% we need to see inflation in the US economy combined with much lower unemployment. Price inflation is based on consumer spending, to reach a point of consumer spending that leads to noticeable changes in inflation, we need to see people not only get their jobs, they need to feel secure in their jobs and the general economy. I am not saying this will not happen, it will but it all takes time. By then we should expect to see growth globally hence, as interest rates increase, basis growth and lowered unemployment, we will see rents going up. Landlords will pass on part of the costs to tenants, even if rents lag behind it will still happen.

OffThePeak 15 yrs ago

HK Expat, jobs can be lost in many cities, not only the industrial midwest, where I was born. Other cities that have lost jobs and population include Berlin, and various cities in the UK. It need not be fatal, if the lost jobs are recovered. But steady erosion over decades, like Detroit has seen, can be devastating for a city and its property investments.

I recently heard a talk by HK legislator, Regina Yip, who fears that HK will have a real problem in holding onto its jobs. Just across the border are those willing to work much cheaper, and Guangdong is doing its best to copy everything that works in HK. While Shanghai and Beijing are working hard to attract regional offices.

Don't take anything for granted, and you should keep in mind that job losses are a real risk for property owners, even though there is a "shortage of land" in Hong Kong.

HONGKONGEXPAT 15 yrs ago

Offthepeak- As per recent figures that came out this week, our unemployment actually fell, but agree that Hong Kong will naturally lose jobs to mainland China but this will be more in manual labour, such as the garment industry. However, a lot of these people will actually move to China and the middle class Chinese will just keep moving over here and buying property here. However, having said that, we will see greater job growth in the financial services industry as we are seeing the main banks moving more offices/headquarters here. It will just be a shift of the labour market to more professional services and hence this type of labour market will only drive up the luxury market, as they are much higher paid and skilled than the manual labour market.

Ted the Angry American 15 yrs ago

I already had my suspicions, but with the 18-year property cycle comment, the good Doctor reveals himself. I've actually wondered what took so long to get him into this long-running thread.

Loyd Grossman is Miss Venezuela 15 yrs ago

I'm still bullish for the following reasons: 1) I think we are seeing the return of inflation which is property positive - especially when so many people are holding large amounts of cash on deposit. They may accept a loss of 2% per annum but when it hits 5%, they will panic and move into fixed assets. I think, on balance, this will outweigh any increase in rates 2) HK people have little debt 3) Above posters have said compare HK to London and Manhattan. In London, prices have zoomed up since 1994 when I first came to HK. You could have got a Canary Wharf penthouse for 180,000 pounds. HK prices haven't risen over the same period. For all the talk about Shanghai, HK is the only place in China that works. You can say what you want, you have visa free access to most of the other countries in the world and corruption is low. Stir in a world-class education system and a tax rate of 16%. Most Chinese people would come to HK if they had the chance. In that sense, the HK property market is underpinned by the growth of the Chinese middle class. Having said that, HK is a volatile place you need to be able to ride out shocks.

ArtfulDodger 15 yrs ago

I would agree with LGMV, I think HK still holds long term attraction for many people, expats and locals alike. Its dynamic, and one of the most free economies in the world (less tax and less bureaucracy). For other cities in China to take over Hong Kong, that would be at least another 20 years. Then you have to get rid of the peasant mentaility in those Chinese cities to truly attract foreigners to come in and pay big sums for residences there.

Many PRC people would definitely want to migrate to HK, to pay less taxes, and a perceived better upbringing of their precious one child (or more if the second is secretly born in HK) because HK has had more international exposure than China in the past.

There will always be people trying to talk down the market whether in supposed good times or in bad times. They either don't have any properties and consequently their vested interest is wanting to buy in on the cheap, or they are just nervous investors without any fortitude to let their winners ride so simply want to lock in profits at some arbitrary precentage return. Exiting the property market now is leaving money on the table in my opinion. There is no concrete reason to sell, but just the purely speculative negative opinions that one can easily say at any point in time in history (i.e. its gone up alot already so therefore it must come down eventually). As JP Morgan once famously said regarding short term investment outlooks: "its volatile".

The Centadata Index (Centa-City Leading Sub-index) is only 77.24, which is way below 90 - the indication of a bubble (start of 1997). The downtrend was broken in 2004, and if you bought at the start of 2009, then I'd say you're fairly safe without having overpaid and consistent with the long term support trend.

OffThePeak 15 yrs ago

Angry Ted,

"...with the 18-year property cycle comment, the good Doctor reveals himself. I've actually wondered what took so long to get him into this long-running thread."

Yes, I am familiar with Fred Harrison's work on the 18 year cycle in the UK, and how Bubb has applied this to the Hong Kong market. I find that work compelling. And if it is right, there may be another big and crazy rally into 2015, 2016, or whenever the 18 year cycle peak comes.

Even so, that does not rule out another good solid correction first. Maybe starting around mid-year, as Bubb is talking about. I put his latest summary on another thread here, since Ed doesn't like Links outside AsiaXpat.

tristan1970 15 yrs ago

ArtfulDodger in the past i have learned that sudden decreases usually correct themselves over time, my bonuses enabled me to purchase a few investment properties, while my housing allowance easily covered all three mortgages if i was unable to rent them. So for me it was a great opportunity.

I have no wish to see the crash here , but i feel it is coming. I understand that all local people want to own there own properties and not rent. But they have all become very greedy, and now own there own residences as well as sometimes 3 rental units. This cant last as most are working with a 3-5% yield. This is the USA all over again. As the economy in China continues to cool. The influx of mainlanders with slow, who now make up 20% of sales. Its coming trust me!!

Loyd Grossman is Miss Venezuela 15 yrs ago

Tristan. Tell me; how is this market going to crash? What are the mechanics? People that want to sell may have to accept a lower price for their flats during periods of volatility; but how is that going to make the market crash given the strong balance sheets of most HK property owners? The local people are not greedy; they have saved instead of consuming and most have put down large deposits. A cooling off of the mainland market may affect sentiment - like the Lehman's crash - but it didn't destroy the local property market. It simply closed it down with most owners battening down the hatches and holding on. The housing market in the US and HK are completely different animals. How many Americans put down 30-60% deposist with no credit card debt? The vast majority of HK home owners do.

tristan1970 15 yrs ago

Loyd Grossman. Luxury property may survive but the rest will crash because Greed, and the expectation that property will always go up, and the fact that 90% of Hong Kong people earn less than 10k a month. The yields that many locals are working on are to tight. The guy that bought my last apartment is working with a 2.5% yield that is ridiculous. The interest rate will raise, these teaser rates will expire. When the economy in China begins to cool and westerners start to realize that the pollution and the life style is terrible then who is going to afford these rents. I have an assistant that owns 2 flats in Tsing Ye, both 700 sq feet (really about 450 sq ft) rented for 12k a month, but are worth 4 million. He is selling one, the guy buying is putting 10% down and getting a 1% rate. What happens when that runs out. Greed will kill this market, and the realization that Hong Kong is a polluted hell hole!

The property market in Hong kong is kept unrelably high by the Hong Kong Government and the 6 large corrupt property devlopers that controll this market!!

Just take a drive through Hong Kong and drive over to Kowloon and look at the amount of flats as you drive to the New territory. The Hong Kong population is in decline. You think that Mainlanders will save it... You're kidding yourself.

huey205 15 yrs ago

I wish I hadn't read this ...I am more confused than ever as to buy now or wait a few months as some inner sense is telling me ... the thought of paying another 6 or 12 months rent to greed ka shing depresses me

Loyd Grossman is Miss Venezuela 15 yrs ago

Tristan. Property is still 22% below where it was 13 years ago. Over the past 13 years, people have been recovering from the that shock and numerous others (SARS, Lehman etc). Today's prices are the same they were 2 years ago; if you don't believe me look at http://www.centadata.com - they haven't gone up and the rise we saw last year was just a rebound. Salaries may be low but most people pay no tax and they can live very cheaply. There is also a huge propensity to save. Everyone knows rates are going up.

bailout10 15 yrs ago

LGMV, what are your thoughts on the soverign risk, the collapse of Eurozone and its effects on the world economy?

ArtfulDodger 15 yrs ago

Tristan says "westerners start to realize that the pollution and the life style is terrible". None of this is new, and won't be the reason they would leave in droves. I think your argument is totally unsupported.

"When the economy in China begins to cool"... when do you think that will be. Everybody is saying at least 8% p.a. growth for the next 50 years. If you mean cooling by dropping to 5% p.a. on 1 or 2 of these years.. big deal.

No buyer in the last year expects interest rates to remain this low for years. They have already factored this in. If you think EVERY BUYER has been foolish, then you are the one with the wrong assumption and wrong analysis of the situation.

Anyway Tristan should stop throwing around baseless theories. We'll see in 1 year from now, whether this crash he predicts is really upon us. The fundamentals say no, and the technical trend says no.

Loyd Grossman is Miss Venezuela 15 yrs ago

Bailout10. I'm not an economist, just a Brit who has been in HK for 16 years and bought some local property. As regards sovereign risk and eurozone, I don't think Greece, Spain and Portugal are major countries anyway. As long as Germany and France are okay, then there is little risk. If I had a little bit of cash, I might hold a small bit of P-I-G debt but not too much. I really don't like Irish debt for the reason that the country is too small and their problems have been magnified by having a liquid housing market (Ireland was a real property bubble like HK in 1997) - even though they have made the greatest effor to turn things around. The UK, though, might help them out if things get really bad. As for world economy, I think we'll get inflation.

cookie09 15 yrs ago

artfuldodger,

"Everybody is saying at least 8% p.a. growth for the next 50 years."

I wonder where you got that one from. Made me chuckle. if that was really going to happen, then the GNP would be more than 40 times as much as it is today

ArtfulDodger 15 yrs ago

cookie09, you think its laughable.

Then why don't you see how the US did it:

http://www.acus.org/files/u3/USA-GDP-1810-2010.png

tristan1970 15 yrs ago

ArtfulDodger China needs growth of at least 8.25% PA just to keep it going, anything less will dramatically rise unemployment levels and slow there development.

Imagine if there unemployment went to 10% as it is in the US that's 160 million people.

Watch Bloomberg, European and US companies are loosing faith in China, as soon as the RMb is revalued as it has to be. Manufacturing in china will slow. Maybe thats a good thing. At least you sill see less of this yellow acrid smog floating through the streets of Hong Kong.

This place is great if your single and ant to pay low taxes, but when you have kids and you see the massive increases in asthma ect you have to leave. 30 days and counting i cant wait.

lalib 15 yrs ago

Tristan,

Where are you off to?

OffThePeak 15 yrs ago

LGMV: "Tell me; how is this market going to crash? What are the mechanics?

People that want to sell may have to accept a lower price for their flats during periods of volatility; but how is that going to make the market crash given the strong balance sheets of most HK property owners? The local people ... have put down large deposits."

Okay, Lloyd, here's my thinking:

The move we saw in the second half 2008, was a slide of over 20% in just 3-4 months. That's huge! We had many weeks where property prices fell over 1% in a single week. To me, such a rapid drop, with a total fall of over 20%, counts as a crash. Many Landlords, myself included, cuts their rents, and got through a soft patch for rentals, and just "rode out the storm." But I do not forget that we LL's were very lucky in 2008-9. The banks never raised rates for existing mortgages. In fact, by the end of 2008, when Quantitative Easing kicked in, the banks were cutting rates. The softness in rents, which lasted for many months, was very bearable, thanks to lower rates.

We may not be so lucky next time. The problem now is the Central bankers have painted themselves into a dangerous corner. With rates at record lows, and the credit of sovereign borrowers deteriorating fast, there is no way they can take rates lower if there is another crisis. In fact, spreading problems for sovereigns may force rates back up, as they have already done in Greece; and may soon do in Spain and Ireland - and even in the UK, which is now a over-levered basket case.

For me, I am happy to sell at current price levels, and let someone else take my properties when they are yielding only 2-3% (Gross!), and much less than that on a net basis. Those lower yields may make sense when mortgage rates are 1-2%. But if rates push higher, they will look pathetically low, and propertt prices will have to fall to bring yields back to more reasonable levels.

There is just too much complaceny now, about rates, property prices, and China's economy. This is the sort of environment where important tops are put in place.

tristan1970 15 yrs ago

Im off to Australia, and cant wait! Clean air and space! House with 4 bedrooms pool, tennis court garage se view, for the price of ash*tty 1000 sqft (thats Hong kong SQ. FT, so really about 600 sq. Ft) mid levels flat!

Hong kong you're crash is comming get out now if you can!! This greed driven market so resembles the US before thier crash!!

watz 15 yrs ago

Hey tristan1970,

Very interesting posts, indeed. Some of it I agree with, some I don't. But thanks for your views; they do give some pause for thought.

Now that I've said that, don't let the door hit you in the arse on your way out!

Regards

Loyd Grossman is Miss Venezuela 15 yrs ago

Tristan. The bad thing about Australia is that human beings are not always at the top of the food chain. Go for a swim in the river and the fresh-water crocs'll get you; go for a swim in the sea and the salt water crocs, sharks, box jelly fish etc will show up. In addition to the poisonous spiders, Australia is also home to the world's most poisonous snake plus loads of others which are just really poisonous. If China goes, then the Australian resource-driven economy won't fare too well. It'll be back to 'throw another shrimp on the barbie'.

bailout10 15 yrs ago

Well, it appears China alone holds the key to the global crisis. It is fuelling the demand while all other countries are taking the time to ease out of the recession. Worse still, they are putting so much pressure on luxury homes that an average man can't afford a decent home for himself. I had met with the last man standing of the Blue House in HK and he was also stating how Chinese are buying up property nearby and putting pressure on the rentals of their own humble abode. In Singapore too, the primary home buyers are from the PRC as is the case in the UK and the US. If you have only one set of people creating the demand, if that demand contracts for any reason it is going to create ripples. It is not an economy which shows healthy growth; just a whole load of speculation and illegal money flowing out of the country.

OffThePeak 15 yrs ago

(from elsewhere on the web, came this comment yesterday):

SCMP says home prices have peaked / See today's 'Property' section.

UNQUOTE

(the response was):

You are right about one thing. The headline says:

"Home prices seen as peaking out"

and:

"Buyers baulk at premium pricing of new flats while sales in secondary market surge"

If you (bother!) to read more carefully, it talks about how Cheung Kong was too greedy, and asked too much for their new flats at Festival City. Buyers baulked, and now they are cutrting prices on later phases.

In reaction to very big prices increases in the primary market, buyers are turning to the secondary market:

+ Secondary market sales have hit a post-1997 peak (that's bullish BTW!)

+ 2nd markets sales soared 77 percent to 2,056 deals in March from 1,161 deals in February.

(If you understand markets, you know that it very, very, very rare to makes tops on record volume.

Tops are typically made on lighter volume.)

+ "The sharp increase in sales in the secondary market is evidence that many home seekers are finding that new flats do not offer value for money and are shifting to the secondary market."

+ "Hui (Prof. CM Hui, of HK Poly) believed that prices were peaking and would rise a further 5 to 10 percent only"

sistim 15 yrs ago

It will be interesting to see what happens to SHK's luxe new "Larvotto" - touted as full sea views, island south, Aberdeen Marina Club on your doorstep, but actually Ap Lei Chau, sandwiched between the Lei Tung public housing estate and with sweeping views of er, the back of Jumbo's... maybe that should be another thread about dodgy advertising, but price wise they're talking $18,000 to $25K psf.... and they're expecting the rest of the area to go up in price on the back of it. Hmmm...

ArtfulDodger 15 yrs ago

The technical analysis is correct. You can form an absolute top on record volume. Absolute top formations are formed by low volume as there are less buyers willing to meet sellers asking price. I think there is still a long way up to go.

Once volume starts to fall, but the price is still rising then we may be close to the top. But you would still need a trigger to start a mass sell off. Unless debt levels in HK get out of control real quick, then I don't see an imminent trigger.

If the PRC market crashes (maybe < 5% chance) for whatever reason, then this doesn't necessarily mean a huge sell off in HK. Sure, some PRC will sell to get liquid, and they may sell less than purchase price if they are desperate but that doesn't mean it will flow onto the secondary market. Because of the price premium those PRC paid, perhaps they will actually be selling at the realistic price and locals or non-PRC people may deem it value for money and purchase and therefore provide a support in the market. There are plenty of savers out there who still have not entered the property market sitting on a wad of cash.

Loyd Grossman is Miss Venezuela 15 yrs ago

I really think it is impotant to to take a very local view of the HK mass residential market and forget - a) China b) the prices of new developments and c) technical analysis (not a criticism of Artful dodger but I think it muddies the water). I believe the main story for HK property is inflation and the amount of money people are holding in their bank accounts for a rainy day. I think if inflation hits 5% then mass residential will go through the roof as all this money scrambles for a home. Of course, interest rate rises will create a few bumps but the fact that most people have strong balance sheets should prevent the market from falling. For the record, I have just sold a flat but that is because I have bought a new one and I like to be conservative. I know that is not of any great interest to most people but I don't want to give the impression I'm talking up my book. I would still buy now as there are some people that want to take a profit after holding their properties for a long time. Stick to the main estates in my view and forget lifestyle.

tristan1970 15 yrs ago

OK i have to admit maybe i made a mistake. Hong Kong property cant ever crash! I have just accepted an offer on my last flat nearly 3.5 million above the asking price. What am i missing!

Greed and a smattering stupidity and blind faith. Lovely jubbley!!!!!

jk333 15 yrs ago

I must tell you i am really suprised at the pollution here, I come from LA and even in the 80's it was no where as bad as this! I read on the internet that the HK governemnt is rigging the air quality readings. Does anyone no where to get the real thing. As an avid jogger i would like to know if i'm rotting my lungs.

If what they say is true that the China economy is to grow by 9% a year then productivity must grow also. So in 5 years the pollution will be 45% worse.

Why are rental prices and the sales prices so high?. I have $30k a month and I'm looking at a crummy apartment .Can anyone tell me where on HK side is best for low pollution.

I cant afford Victoria Peak. I've looked in Midlevels but every time i walk around looking at properties i get a horrible taste in the back of my throat and the smell of the pollution is almost unbearable... Will i get used to this. I have only been here 1 week.

jk333 15 yrs ago

I have just found an apartment in Stanley. Is that a good place to live. I work in the IFC will it be possible to commute?

OffThePeak 15 yrs ago

Stanley to IFC?

You'd better test it before moving there.

BTW, why are you posting on THIS thread?

Loyd Grossman is Miss Venezuela 15 yrs ago

JK333. I'd forget jogging if I were you and take up yoga. The fine particulates will get deep into your lungs if you jog. As for smelling the pollution, you must be very sensitive as I can usually only smell it at the roadside in China - and I'm quite sensitive. The HK govt isn't technically rigging the pollution numbers, it's just using out of date measurements - which amounts to the same thing. The pollution here, though, is appalling. Is your $30,000 US$30,000 or HK$30,000? I assume the latter. The air in Hung Hom is surprisingly good (away from the tunnel that is) but it's quite a depressing place to live. I'd go to the east of HK. If you want a nice, cheap apartment, try Park Island - though that is more to the west on Ma Wan off Lantau. No cars, great facilities and a 30 minute commute to Central. Rents and prices are low here because most HK homeowners want a car. Tristan1970. Of course the HK property market can crash; however for that to happen, people need to be over-extended which is plainly not the case at the moment. What we are seeing - I believe - is a kind of short-squeeze where the people who bought when it was risky are now charging people who were too scared to buy. Fortune Favours the Brave; Who Dares Wins.

ArtfulDodger 15 yrs ago

I would be very cautious buying now. The easy money is gone, but there is still money on the table if you look carefully enough.

I would definitely stay away from new developments as greedy developers are fooling people with their glitzy marketing. People are already shunning them (cf: the latest releases by Cheung Kong and Henderson and Sun Hung Kai) where there was not much buying.

However, if you have been renting, then it would make sense to own now and finally break out of the rental cycle (assuming you can afford to buy). Even the property doesn't really rise, you would have, over the long term, save money because your interest repayments (tax deduction up to $100K on interest) would have been much less than the market rent + all the intangible benefits of owning the property you live in.

jk333 15 yrs ago

off the peak, I searched Hong Kong property and pollution and up came this thread..

It looks to me as an outsider and very new to this place, is that the low interest rates and the belief that property always goes up is fuelling a bubble. Coming from the USA I experienced this very recently, I know the fundamentals are slightly different but a bubble is a bubble.

I read in a previous message that 95% of HK residence earn less than $10K a month how do they live here on that, is that true? If so who owns all these apartments, It seems to me that this market is fuelled by speculators and landlords. That is what destroyed the US housing market.

I've looked at the sales prices of apartments in the Belchers in Kennedy town, the yields are less than 3%. What are the mortgage rates here? They would have to be 1% or less fixed to make that a viable proposition.

I have just been transfered from London, for $4000USD i had a lovelly 3 bed apartment in Kew, In LA i could get a 2000 sqft apartment in Venice for $4000 usd. Here for nearly $5000 usd i get a tiny ugly rabbit hutch.. with a tiny kitchen well you cant even call it that What is going on?

Help me i cant live like that, where do i go? I have 3 weeks left in my Hotel.

This seems like a great place for a young single guy but I just can’t understand why if you had the amount of money needed to live here comfortably why you would. I have been here a week and the pollution is killing me. I have to stop my morning jog. I'm here for a year, i'm sure i'll grow to love it!!

ArtfulDodger 15 yrs ago

LGMV was spot on about HK inflation being the main thing to look at.

I love this quote today in the NY Times:

“As recovery takes hold, inflation pressures, particularly in asset prices, may well start to mount in the region,”

http://www.nytimes.com/2010/04/14/business/global/14asiaecon.html

Inflation will hit Asia hard and swiftly before it hits the US. Since HK's interest rate is the same as the US, it will have to look at other more drastic measures to curb inflation here. Curb but not eliminate it. Meaning asset price inflation is coming. Inflation was 2.8% for February 2010, I could easily see it jumping to 5% or even 10% if the HK government does nothing. That bodes well for the re-sale price of my HK properties :)

Article also says HKD$ is at least 20% undervalued compared to USD$. Another bonanza since I determine my net worth in USD$.

People can keep believing there is a bubble. Most likely coming, but not right now. So stay on the sidelines, we don't want the bubble to get too big this early :)

Septicfrog 15 yrs ago

LGMV can I ask you a question as you seem clued up on the mass market.

I have two flats - knocked into one. This was done legally with a government architect approval. I also have two car parking spaces. Everything in the flat is brand new from wiring/plumbing/windows/doors/floors/walls/bathrooms/kithen etc.. If I wanted to sell it - would I only get the market value of each flat or would I be able to charge more because of the flat combination and brand new fittings + the two car parking spaces. Appreciate your reply and from anyone else in the know. Thanks. I am in the NT - there are only 4 blocks to my estate.Well managed and a shuttle bus - if that helps.

Loyd Grossman is Miss Venezuela 15 yrs ago

Septicfrog. To be honest, I don't know. I suppose to get an idea of what it is worth, you should get a bank valuation and also look at the recent transactions on your estate. If it is done tastefully then there will always be demand for more space. The fact that everything is legal is also a big plus. On balance, I think you can charge a bit more because space is at a premium. However, I have no expereince in this area. Sorry, I can't be more helpful.

Loyd Grossman is Miss Venezuela 15 yrs ago

Okay, I'm going to talk my book now. The reason I'm doing so is that I think there is still money to be made. I own a high-floor flat in Park Island - 994 sq ft, 8-years old and with a full seaview over to Sham Tseng through a floor-to-ceiling window. HSBC has just valued it at 4.4m or about HK$4,500 per sq ft. It has 3 bedrooms and a maid's room and good layout and you can see huge ships plying the channel from the living room. The developer is Sun Hung Kai - the best develpoer in HK. Meanwhile similar flats at One Silversea (developed by mediocre Sino) - right at the northern end of the West Kowloon typhoon shelter and close to Cheung Sha Wan - are going at 9,000 per sq ft. Why is this? Park Island has much better facilities and is not as inconvenient as many think with cheap direct ferries to Central, Tsuen Wan and shuttle buses to the airport and Tsing Yi and Kwai Fong MTR stations. In short, it's the car access. People in HK are paying a huge premium for space, seaview and car access. They are not willing, though, to pay for space, seaview and convenience (without car access) - cars not allowed on Park Island. Okay, not too far from One Silversea there is an MTR station at Olympic but it's not that close by. Anyway, my point is that I think there is still room for the much-unloved Park Island to rise. However, please remember that I own a flat in PI and that I am not recommending you buy there as it is less liquid than other estates. Having said that, it does appear to have been over-looked somewhat. And, I'm not selling until it reaches at least 8,000 per sf - if that day ever comes.

Septicfrog 15 yrs ago

Thanks for the honest reply LGMV.

I spoke to the agent who acted for me when i bought the first flat and he said - yes, you should get a good premium on it as I have 360 views and the flats in this complex are very rare size. Not thinking of selling just yet - I was just looking for info. Thanks again.

cookie09 15 yrs ago

LGMV let me know once it reaches 8,000/sqf. i own a 1,500 sqf place on PI, so that should be 12,000/sqf by then :)

tristan1970 15 yrs ago

Come on guys are you serious nearly $1'000'000 USD for a 1000 sq.ft (HK square ft i presume, so really 600 sqft) council estate flat on an island penisula were the woft of pollution from the container ships is ever present. Thousnads of screaming kids running around. The view of Tsing Ye bridge. The place is a hell hole....You are kidding yourselves.

OffThePeak 15 yrs ago

PRICE CUTS in a world of ambitious pricing

Cheung Kong is now offering a 2-3% rebate for those buying flats at Festival City in Tai Wa.

(These apply to 40 "lower floor" homes with Park views priced at HK$7500-8000 psf.)

Meantime,

+ Sino Land plans to launch The Hermitage in Tai Kok Tsui, and will bench its prices off

The Cullinan, The Arch, and The HarbourSide - which is a bit like Wanchai pricing off

a benchmark in Central (ridiculous!)

+ Flats at Larvotto will go on sale at HK$25,000 psf for 2,600 sf flats

A nice contrast here - who is kidding whom ??

OffThePeak 15 yrs ago

JK33:

"Help me i cant live like that, where do i go? I have 3 weeks left in my Hotel"

We are very happy living in The Long Beach, near Olympic. If you can bear living in 744sf, you can get a nice 2BR flat on a high floor for about $16,000, and there are a few 3BR's for about $25,000.

The terrific clubhouse and location on the sea means this place beats everything else in the area, in "value-for-money"

lalib 15 yrs ago

Looks like Tristan1970 hasn't left for Aus and is still in HK.

tristan1970 15 yrs ago

Lalib, I leave in 2 weeks, You sound like you have a problem with my posts?

Its my opinion thats all.

I see there are 2 options for HK property market and i'm sorry but i feel both are bad.

1. China's economy continues to grow, and so does it's pollution output, making Hong Kong an unbearable and dangerous place to live. As wealthier residents start to leave that leaves the over 90% of hong kong's residents that earn less than HK$10k a month with properties that they can not afford, pushing property prices through the floor.

2. As Europe's and the USA economy retract and the upward revaluation of the RMB, the demand for China's products declines, slowing China's economic growth that has to be at least 8% per anum. This will create massive unemployment on the mainland and inturn stem outward investment from China. Stemming demand for HK's already well overvalued property.

It's just common sense the yields in HK are 50% to low for a strong sustained property market, and the % of HK residents earn way to little to keep the growth once external investments decline. Once property prices start to fall you watch the panic destroy your investments!

It happend after 1997 and after Sars, it will happen again and soon!

lalib 15 yrs ago

Tristan,

Your too hard-lined. Everybody knows that property is expensive here and we can get more for our money if we rent/buy in some other city. Its great that you state you opinion which is why why have this forum ....but you keep going on and on with so much doom for HK property.

I'm not even a home owner and I really dont care that much, but your views/reasons are a bit over the top.

jbunch14 15 yrs ago

I believe that Tristan has a chip on his shoulder, perhaps missed the boats too many times and feels better when talking the market down. You want to make comparisons to 1997, but how about the fundamentals of then versus now? How about the percentage of income going to service mortgages then? I believe it was more than 90%. Now, it's 36%. How about the percentage of down payment? I believe then it was less than 15%, now it is in the region of 50%. Think the price now are high? How about adjusting the prices now for 13 years of inflation? But they are still 20% below the prices then? I believe you are working on flawed logic, or perhaps you have an axe to grind. I am a homeowner, this is my second property. I am very conservative by nature, especially with my investments. I believe that unless another major catastrophe happens, the house prices here have nowhere to go but up. Maybe not at the torrent speeds of the past, but up nonetheless. Now please, go and enjoy your fantastic property gains back home in Aus!!

OffThePeak 15 yrs ago

"ThinThink the price now are high? How about adjusting the prices now for 13 years of inflation? But they are still 20% below the prices then?"

What inflation is that? The one that matters to property is inflation-in-incomes.

If I am not mistaken, media incomes in 2010 are still below 1997.

What has pushed up prices over the last year or so?

+ The move to ultra-low interest rates, to rescue a sliding economy,

+ The flood of money from the mainland, as China pumped historic amounts of liquidity into its economy

Are these sustainable? If you thinks so: keep buying and bidding up prices, and I will keep selling. ... And I thank you.

Philly Cheese 15 yrs ago

All we need is another Global Bank to blow up (c'mon Goldman's), interest rates to rise and a little uncertainty to creep in. Stock market dropped today already.

tristan1970 15 yrs ago

jbunch14 i have no chip on my shoulder, actualy i have made a lot of money out of living and working in HK, and also from 3 properties that i have just sold.

I have justt been forced to rethink my life and that of my families. Living in this polluted mess is just not worth it to me.

If you think property only goes up , well good on you!

jbunch14 15 yrs ago

Nowhere in my post did I say I believe property always goes up. I don't. I do however believe that the market here in Hong Kong has a significantly higher ceiling, and we may not even reach it in the next 3 years. I have also made good money here in HKG, in my job and in property. I also have plans to move my family back home in the next 3 years. I also believe that when we leave, barring catastrophe, the property market here will still be rising. That is just my opinion. Like I said before, count your blessings and head home to a better life!!!

ArtfulDodger 15 yrs ago

People expecting this Goldman fiasco to produce some spectacular buying opportunity in HK property are dreaming.

Similarly if you expect the Icelandic volcano erruption to produce a buying opportunity, this will similarly be thwarted.

Buying opportunities only happen when sellers are forced to and a stirred into a panic frenzy. I doubt this will happen again. Post 1997, SARS and Lehman Bros collapse are once in a generation opportunities.

The fence sitters who did not buy need to analyse their psychology and emotions at the time and not repeat their mistakes again. Waiting for a crash is akin to waiting for the top of the market to sell. Easy to see in retrospect but difficult to do in the midst of it.

At the end of the day, it is still going to be "cheaper" owning than paying rent. So if you're a renter, at this point in the market, it will still be better off to own than rent so long as you're going to live there for at least two years. The bonus will be if there is any capital gain on the property at the time of sale. If the price stays the same, then your savings would've been the the different between rent and interest payments on a mortgage.

johnk348 15 yrs ago

"Post 1997, SARS and Lehman Bros collapse are once in a generation opportunities."

LOL

jk333 15 yrs ago

Dodger,

Sorry that is such a naive statement, Sars and Lehman brothers both happened in one generation! you are correct that buying is cheaper than renting but now only because the interest rates are unrealistically low. The yields are also unrealistic for investment purposes. When the interest rates go up and rents won’t accept the required rents that are when prices go down. The next catastrophe to affect Hong Kong is going to be the pollution. I have only been here a week and the research I am doing indicates that is much worse and even very dangerous now, and is expecting to get worse year on year.

But what do I know, common sense doesn’t always prevail!

I would not buy here now, not until this pollution begins to lessen and the rental yields become viable. In my experience in the USA and Europe you need at least 7% for sustainable growth!

Loyd Grossman is Miss Venezuela 15 yrs ago

JK333. Do you really think the HK housing market is going to collapse if interest rates go up? This after people are putting down 30-40% deposit on their flats with no credit card debt. Rental yield is worth looking at but it's not the be and all. If yields were a big factor then the HK luxury market would never have got off the ground. Yields on luxury property is miniscule compared to mass residential (which is around 3% gross in somewhere like YOHO Town Yuen Long). In HK space is at a premium and a good, convenient location with a strong school network trumps life-style. HK is not comparable to USA and Europe - look at the tax and savings rates.

Loyd Grossman is Miss Venezuela 15 yrs ago

So your typical flat in the mass market is 2.5m to 3.5m (secondary market). Are you seriously suggesting that someone who has put down 720,000-1.05m (ie 30%) hard cash is suddenly going to drop the price of his flat and sell because interest rates go up? You may be lucky and find a desperate seller but most will have budgeted for this. There will be a knock-on effect if rates go up but most people will sit tight like they did when Lehman's collapsed. Meanwhile, renters are making a spactacular monthly loss of 100% of their rental money - which adds up over the years. And we haven't even begun to consider inflation which is stoking up nicely. I've just bought a flat for 5.5m from an old couple who paid 186,000 for it in 1986.

ArtfulDodger 15 yrs ago

We need people like tristan1970 and jk333 to exist. They are the renters or early sellers. That's what makes the market.

Common sense will prevail and inflation will soon be upon us. I have no doubt that inflation will be passed on in the form of rental increases which will then give pause to existing renters to consider buying, which in turn will result in greater demand, which in turn will translate into higher asset prices.

The only thing that can make a sustained impact on upward property price pressure in the mass market is more supply in HK. This is not happening in any significant shape or form, and doesn't even look likely on the future horizon.

The culture in HK is to own their own property rather than to pay dead rent money. This differs significantly from Western developed countries where there is still a significant proportion of the population who don't mind renting for life. As long as this underlying driver is present in the mindset and culture of the people, any correction barring a major castrophe, will underpin property price increases. It is simply an income transfer system in HK where expats who are drawn to HK because of low taxes, safety, education, high income compared to their home countries simply transfer a proportion of their income to pay for rent to landlords who have been playing this game for a very long time.

Ed 15 yrs ago

This video presents the bigger picture - but if Daley is correct this has huge ramifications for the Hong Kong property market... any thoughts on his comments particularly those re: China's growth being mostly stimulus driven (and unsustainable without a US/Europe recovery)...

http://www.cnbc.com/id/15840232?video=1469428794&play=1

Ed 15 yrs ago

Timing a housing market: http://curiouscapitalist.blogs.time.com/2010/04/21/the-dangerous-development-of-the-market-timing-mindset/

Loyd Grossman is Miss Venezuela 15 yrs ago

Read today's Tom Holland column in the SCMP (April 22).

Ed 15 yrs ago

Loyd - SCMP doesn't make it onto my substantial list of high-calibre reading sources ... perhaps you could paraphrase the column for me an others... always good to get as many angles as possible when making decisions...

Loyd Grossman is Miss Venezuela 15 yrs ago

I don't rate the SCMP that much but Jake van der Kamp and Tom Holland know what they are talking about. They also both know a lot more about HK than CNBC for that matter. He's basically talking about property and saying - surprise, surprise, there isn't a bubble. Just expensive property.

ArtfulDodger 15 yrs ago

Correct. Expensive housing does not automatically mean a property bubble. Its that simple.

Loyd Grossman is Miss Venezuela 15 yrs ago

Yep, if your typical HK flat owner has money and no debt why do they need to sell cheap? In 1996, triads used to queue up at big property sales and there were loads of confirmor transactions. Now, that is not the case. People have money after 13 years of hard slog and don't know what to do with it. A lot of money from the very wealthy in China - who would be immune to any recession - is underpinning a small amount of the market (mainly luxury). However, the demand that is driving up home prices is mainly local. People are feeling more secure, inflation is picking up and minibonds and other financial wheezes are out of favour. Property in Shenzhen is no longer cheap; the US and Europe look tatty and resource plays like gold are pricey. Stir in a shortage of supply and you have a squeeze on people who want to buy but left it too late. Unless there is an extremely large spike in interest rates - say 5 percentage points - over a very short space of time, I can't see the market going down much. Even 5 percentage points is bearable for many people.

Ed 15 yrs ago

I think someone has already said it but I don't think the actual price of a property that would indicate a bubble... would it not be more the yield? I think someone has indicated that the yields are well under 5% on most properties in HK?

Say a one bedroom 800sf apartment sold at 100M and you were able to rent it for 1M per month... no bubble...

But if the same apt rented for only 250k per month... bubble?

Loyd Grossman is Miss Venezuela 15 yrs ago

As you say, the yield is a reflection of the price. A NT flat gives a gross yield of about 3% which is infinitely higher than the 0% you get on bank deposits. Yield is important but not so much if people can afford to hold the flats. It only kicks in if you are renting your property and the mortgage is high and rents fall dramatically - like people who bought mass-market-luxury like Bel Air prior to Lehman's with a view to renting to financial professionals. Of course, if inflation picks up then your yields will rise sharply as your purchase price will remain the same but you rental income will zoom up.

Ed 15 yrs ago

I don't think the bank deposit rate is relevant... does it make sense to buy property because you get 3% vs 0% keeping money in the bank? Surely there are plenty of other investments that will get you at least 3% without committing a massive amount of cash...

I think the relevant argument that has been made by others and in that one article is that when the yield drops too low then this indicates that prices are too high i.e. a bubble...

Some have indicated that this is not a bubble and references higher prices in 1997/98... is that really relevant?

What was the yield on properties purchased and rented during that time?

Was it higher or lower than the current 3%... I think that is the relevant figure rather than the absolute price of property at any given time...

Anyway... does anyone want to address the comments in this video - the analyst is indicating that China's growth is mostly the result of massive stimulus... and that if exports dont pick up to the US and Europe... watch out...

http://www.cnbc.com/id/15840232?video=1469428794&play=1

Any thoughts - this is hugely relevant to the HK property market...

Loyd Grossman is Miss Venezuela 15 yrs ago

Sorry, Ed, I disagree. Firstly, you do commit a lot of cash when you buy a property but you also get the gearing which means you make more money in a rising market. Secondly, you're looking at current yields and not yields over the next 10 years or so - ie anticipated yields. Anyway, to keep things simple. I think most people are buying because 1) they can and 2) they think prices will rise over the next few years. Taking a Phase 1 YOHO Town 589 square foot flat as example. Bought in 2003 at 1.2m - rent was then an ultra cheap 3,900 per month or 3.9% gross. If rented out now at a conservative 5,500 per month that gives a yield of 5.5%. Assuming we get some inflation and rents rise by 5% for every year for 4 years, then we get yields of 5.75%, 6.06%, 6.36% and 6.66%. If you were to buy this property now at 2.27m, you would get a yield of 2.9% (not that much difference from 2003). Of course, in the real world, the landlord will put up the rent by 15% after 2 years if he is not too greedy. This would mean a return of 6.325% for someone who bought at 1.2m and giving 3.4% for someone who bought at 2.27m (not a bad rise after only 2 years). Stir in the fact that tax rates are low and savings rates are high and the market doesn't look out of kilter to me. China and the world economy have a big influence on HK but these housing markets (prior to the crash) did quite well over the past decade and HK hasn't really moved much by comparison due to the economic shock of being next to China and SARS etc. Demand for HK property is mainly local; and local people are now more confident than they have been for a long time and they have more cash. If the economy in China collapse then they will retire into their shells and eat at Cafe de Coral. This doesn't mean they will sell their properties cheap. People have been saving for 13 years. Look at the cash in the banking system. It's not all hot money from hedge funds many of which have been wiped out buy the Lehman's fiasco.

jk333 15 yrs ago

Lloyd, this is such a naive look at property investment, rents and property prices can’t always go up, there are fundamentals that you have to consider. You state that the main demand for property is Local, but over 90% of HK residents earn less than $10k a month. Where do they get this money to buy the apartments? And who will pay the rents 15% more for living in Yoho, I was recommended to look there what a dump. I can’t believe any expat would consider living there yet alone investing, tiny little flats in the middle of nowhere. I was told it was 600 sqft. But I estimate it was not bigger than 400 sq. ft. I also looked at Park Island are you kidding me! Who is paying these rents? I was offered a 600 sq apartment for $11k month, but to buy those apartments was $3.6mill that’s a 3.7% yield. It is not viable. When interest rates go up as they will and the market can’t accept the rent increases that is when a bubble bursts.

Ted the Angry American 15 yrs ago

Actually when investors decide it's time to cash out all at once is when a bubble bursts.

Well JK you've found an awful lot to complain about in a relatively short time. You'll fit in just fine in HK

Loyd Grossman is Miss Venezuela 15 yrs ago

jk333. Of course demand for property in Hong Kong is mainly local. Who else is buying the property here? Vietnamese? Uruguayans? Who bought the property before China opened up? If you think demand is based on Chinese money, it's like saying the London property market is driven by wealthy Russians. This only affects the super-luxury end. It's mainly local and locals save. You need about HK$750,000 to get on the property ladder with 30%. If you use HKMC, then you can get away with about HK$300,000. That's easily within the reach of most people especially when a family of four is living in public housing. How come so many expats are convinced this place is so expensive when tax rates are so low? I mean no one says Monaco, Jersey or Barbados are in a bubble - and these are the places you should be comparing HK with. I know this is a HK thread but low tax rates (most people pay no income tax), no capital gains tax, no VAT or GST and an open economy suggest house prices should be expensive. Stir in the fact we are an off-shore centre for wealthy Chinese and this place actually looks cheap. I also never said rents and property prices will always go up. I am saying we are now on a very strong base because of the large amount of savings. Inflation looming though it is still low. Bubbles are formed when people borrow too much - not when they put down 40-60% deposits.

ArtfulDodger 15 yrs ago

I think jk333 is the naive one. He only conjures up the same old rhetoric of yield and "why would anybody do this or that" arguments. He thinks that 90% of the population is entitled to live in a luxury apartment. He thinks that people under 25 years old should be property owners as a right (I mean his % was the total population). I think you need to reference your numerical data.

The proof is already in the pudding. The transaction prices are there for all to see. So somebody believes it was worth that price, and has paid it. That is all the historical sales data that one needs to analyse.

As for future price direction, I agree with LGMV. Rental yields must be taken into consideration together with the inflationary environment and yields of other investment classes having the same risk profile AND same ability to leverage (i.e. a LTV ratio of 70%). Only a few "blue chip" shares have a maximum LTV ratio of 60%. Hence, your cash on cash return (which is what true investors look at such as Warren Buffett) should be higher a property investment that yields less than 5% and a share investment that yields 5% because the cash you use (not the banks) is less.

Also, taking a microscopic view of the current rental yield is short sighted. The yield is more than likely to increase because your purchase price is fixed, but rents will generally rise over time, especially in an inflationary environment and one that is about to possibly explode in HK since HKMA can't even control interest rates directly (and also for reasons already stated in this thread). Hence the wonder of a compounding growth rate will kick in and you may end up having 10% - 20% rental yield on the original purchase price in 7 years time.

And Ted is right, you need to look at who is buying. What is the mix between owner-occupiers and investors. If its more investors, then perhaps a bubble is looking, and if they do all cash out at the same time then this will create a panic. But the statistics show that isn't the case. PRC buyers are not necessarily investors per se as they have many reasons to buy and own such as HK residency.

"As many as 40 percent of new home buyers in Hong Kong are from the mainland"

http://www.asiasentinel.com/index.php?option=com_content&task=view&id=2330&Itemid=224

Ed 15 yrs ago

If a 3% yield is not to be interpreted as overheated property market then what metric would be a better indicator?

Anyone know what the yield range was before the 1998 collapse?

Loyd Grossman is Miss Venezuela 15 yrs ago

Ed. How about loan-to-deposit ratio at the banks (now 70% ish, typically 120% I think and well above that in 1996)? A LTD ratio of 70% means that banks are lending out $70 for every $100 they have in deposits. Please feel free to correct me if I'm wrong. Also, affordability - housing costs as a percentage of monthly salary.

Ed 15 yrs ago

Here's some good info:

http://moneycentral.msn.com/content/banking/homebuyingguide/p37631.asp

Anyone have the PE for HK property at the height of the 97 bubble?

jk333 15 yrs ago

ARTFUL. LUXURY YOU'VE BEEN HERE TO LONG. I AM LOOKING IN THE $40K RANGE AND IF WHAT I'M LOOKING AT IS CALLED LUXURY, ID HATE TO SEE SQUALOR.

TO BE HONEST I DONT CARE MUCH ABOUT THE HOUSING MARKET HERE, I WOULD NEVER INVEST HERE UNLESS PRICES FELL BY AT LEAST 40% AND THE POLLUTION LEVEL FELL TO BELOW WHO SAFE LEVELS. THE POLLUTION HERE WILL BE THE CATALYST THAT WILL START THE COLLAPSE. DO SOME RESEARCH, THROAT AND LUNG CANCER ARE ON THE RISE EVEN WITH NON SMOKERS, CHILDHOOD RESPIRATORY DISEASES ARE REACHING EPIDEMIC LEVELS.

YOU SAY LOCALS ARE BUYING MOST OF THESE PROPERTIES, THAT MAY BE TRUE BUT ARE THEY RENTAL INVESTMENTS OR TO LIVE IN. MY NEW SECERATRY AND HER FAMILY OWNS 5 APARTMENTS ALL AS RENTAL INVESTMENTS. ALL FLATS ARE IN THE NEW TERRITORIES. SHE OFFERED TO RENT ME ONE IN PARK ISLAND.... I CANT BELIVE ANY EXPAT WOULD LIVE THERE! HERE YIELD WAS 5% BUT THEY AQUIRED THIS APARTMENT IN 2005.

Loyd Grossman is Miss Venezuela 15 yrs ago

JK333. No one appears to be taking the low tax rate in HK into account. Obviously if you are comparing yields in other parts of the world with HK, you have to factor in the low tax rate here like you would with Jersey or Barbados. JK33. This is HK not the west. If you want real luxury here, you will have to compete with factory owners, nouveau riche in China, long-established HK families and local businessmen all of whom who pay little in the way of tax. HK$40,000 a month is much higher than most people pay in rent but it's not luxury. Just out of interest why can't you believe an expat would be able to live at Park Island? The management, facilities and flat quality are superb and infinitely better than Discovery Bay. The transport is also way cheaper. It's not so much geared towards expats as DB but the pollution is the same as anywhere else in HK. Pollution, unfortunately, comes with the territory for the forseeable future - though it is not as bad as it was. It is, at least, now firmly on the government agenda both here and in Guangdong.

JJChan 15 yrs ago

You made me giggle there for a moment Loyd Grossman.

I'm not sure how long you have been in HK but over the last 22 years the pollution has got progressively worse. It is now at an all time high! As for pollution now being firmly on the government agenda both here and in Guangdong - what a load of old poppycock! Just take a look at the recent watering down of the ideling engine legislation and lets not get started with the anti smoking law.

Loyd Grossman is Miss Venezuela 15 yrs ago

JJChan. It's on the agenda. A few years ago nobody was doing anything. Governments are like supertankers, they take a long time to draw up measures and implement policies. The main polluters are electricity generators and cars. The former take a long time to turn around and the latter will depend on the next generation of cars to hit the streets. The HK government, in my view, should introduce road pricing but the road lobby is simply too strong. Idling engine is a small step and the anti-smoking law will now be enforced folling a decision about what constitutes 'indoors' by the Court of Final Appeal. now relocating to other provinces.

jk333 15 yrs ago

Lloyd If you believe that this pollution is generated here in Hong Kong you are delusional, there are only 500K cars in HK most are modern cars, Look at the amount of cars in London, or LA. Pollution is nothing compared to here….This pollution is coming from China. I visited GZ and SZ on Friday I was horrified.

As long as China is one huge factory Hong Kong will be a seriously polluted city! And a dangerous place to live.

This has to drive property prices south!

I am desperately trying to find what the pollution consists of, I understand that there is extremely high levels of lead, and Sulfur oxides. But there seems to be no official reports.

Loyd Grossman is Miss Venezuela 15 yrs ago

JK333. Please read my posts. In the first post I mention HK and Guangdong. HK roadside pollution obviously comes from HK. So far, the property market hasn't been affected inspite of the pollution. That's because local people don't want to move.

cookie09 15 yrs ago

numerous studies have now shown that most of the HK pollution indeed originates inside HK (and not in south china). i believe the figure was something between 59 and 79% originating in HK

Ed 15 yrs ago

Interesting article on the pollution... http://www.businessweek.com/news/2010-04-22/hong-kong-anti-pollution-figure-hedley-leaving-for-cleaner-air.html

bailout10 15 yrs ago

It is also a known fact that Hong Kongers are also extremely speculative in nature. So even though they have 'savings' they buy property to be able to flip it. This is what creates a bubble and this is why Hong Kong property market despite the pollution and despite its small size apartments continues to be volatile.

As for pollution, well I have the ability to move and have therefore moved to Singapore to give my son fresher air to breathe. So pollution is a factor to attract foreign labour and on this front, the future of Hong Kong does look bleak.

jk333 15 yrs ago

Lloyd.

Most local HK people earn less than $10k a month, how can they prop up this inflated market

Wlkup.. for me there is no anger, I would never choose to live long term somewhere that is detrimental to my health, and where the market is driven solely by speculators!

You all seem very scared and angry when someone offers an opinion that is not as blindly optimistic as yours, I understand that you must have most of your cash tied up in this house of cards.

The majority of residents in this city cant even afford to get on the property ladder here. It's controlled by investors and speculators

The perceived wealth is in there properties, when that falls and mortgage rates rise things go very wrong. It has happened all around the world, many times. It will happen here also!

It is clear to me that the majority of Expats have forgotten what the quality of life is like back home.

What do familes do here there are no parks, green open spaces. Where do they play football and run about. There seems to be nothing for kids to do. I suppose they are all indoors breathing air through air filters.

I visited the science museum and space museum ... very low grade.

money in the bank is not everything, its no use when you are dead!

Ted the Angry American 15 yrs ago

You ought not to be whining to us jk... go talk to your boss or HR dept and ask for a higher allowance so you can live in the luxury to which you feel you're entitled. All those things you mentioned are available with not a whole lot of looking (or even cost, but of course money helps). And personally I think the science museum is pretty good... you should try the history museum next door as well, it's quite interesting. But overall you can't expect the Louvre or Deutche Museum anywhere in Asia, at least yet.

Cookie... I would love to see that study, as I have long believed the majority of the pollution (at least RSP's) indeed comes from South China (the smell alone is enough to convince me). The fact that the air improves considerably after a long Chinese holiday speaks volumes. That's not to say that HK could not improve considerably - power co's, ships/ferries, old buses... pathetic compared to modern standards.

marksix 15 yrs ago

I've been reading the whole thread trying to learn about mass market pricing and its been very informative. However, there's also a lot of misinformation so I'm glad I didn't read this thread while I was decision making last year!

I agree almost entirely with LGMVs arguments. It seems he has a very accurate insight into the behaviors of the local investor/speculator.

In todays news..

“The soaring home prices in Hong Kong cannot be explained simply by the laws of supply and demand. A rising concern about a possible resurgence of inflation and the virtually zero interest rate spurred people to take out their money from banks and invest in flats. We have noticed that many investors have settled deals with cash without the need for any mortgage, and most of them, we believe, are speculators,” said Wong Leung-sing, associate director of research at Centaline.

Notice how these investors/speculators are cash rich. These people have no reason to sell unless they make a substantial gain. Conditions existed last year to almost force savers with hefty deposits to channel it into property. Lehmann, bank deposit fears with Donald Tsang guaranteeing bank deposits amid a tidal wave of fear, 0% interest rates, US economy doing down the toilet and printing $$ like there is no tommorow. Really, the perfect storm. What we have seen is result of the local saver population stampede like a herd of elephants towards what they know best, property- more out of fear than greed. I parked my $$ into a property in April last year (put down 80% cash), to be completed end of 2010 and Im very satisfied with the outcome.

Are tristan and jk333 joke posters? Seems like the same poster to me using different ids. Their talking points seem identical

-both complain of respiratory problems

-both say pollution will spark crash

-both say crash is coming

-both say HK resembles US market before crash

-both have subordinates who own X number of properties

-both say 90% of locals earn less than $10,000

-both say all your homes suck! ( or words to that effect)

-both say hk is great if you are single

Loyd Grossman is Miss Venezuela 15 yrs ago

JK333 etc. Re Pollution. Pollution is undoubtedly a problem in HK and it affects everyone - even the polluters. Yes, it is down to vested interests on the Mainland and a ridiculously strong road lobby in HK - which has many more votes than the MTR for example. There isn't much we can do about it apart from complain. However, this doesn't mean HK is done for. There are major issues which blight other countries: Youth crime in the UK, poor schooling in the US, over regulation in ther eurozone.

HONGKONGEXPAT 15 yrs ago

Well just catching up with all the "pollution" posts! Interesting, very interesting, to say the least. All I can say is give me pollution any day over not being able to walk home in the middle of the night just because it is warm and I feel like it and not get stabbed/robbed/raped! Give me pollution any day when I see kids being able to get on the mtr/bus, walk around without the same. Give me pollution any day when the distances are so small and I don't have to be on a stinky/dirty, tube/subway/metro system for hours each day commuting to and from work. Give me pollution any day when the weather is warm 8-9 months of the year and the rest is a mild winter and no need for being covered in snow/dark skies and showers most of the year. Give me pollution any day for making this the most efficient city in the world. When we talk about high property prices and high rents please remember general economic theory demand and supply. We have zero supply left in prime areas and huge demand and as for the NT well naturally they get pushed up as more and more people move out there. Also don't forget you have to pay for all the above benefits of living in a city like this and property value is one way you pay.

I don't know anyone with respiratory problems that came here healthy over 10 years ago , I'll take my chances. Please don't mention words like lung cancer in the same forum as it makes you look ignorant and ridiculous. Unless you have medical evidence or a doctor of oncology you should never make references to things which are far beyond your scope. For the record if pollution brought on lung cancer the entire western and developing worlds would be riddled with lung cancer, the whole medical system world wide would stop to function and it would be like the plague, we would have a complete freeze of the global ecomomy. Please get your facts right, before throwing around such mis information.

cookie09 15 yrs ago

i understand where you are coming from HKxpat and agree on your basic argument, but here's my take on it:

- it really annoys me to have a gov who basically denies the situation and does nothing to improve it, playing with the health of its residents. the property market (like the stock market) values homes at the discounted future value inherent in these properties. so if pollution is getting worse and the gov is doing not enough, that might impact property prices at some point

- secondly, i do personally know quite some people who developed severe health issues quite probably because of the pollution (and no, it's not just some people like our friend in shanghai whose kid developed serious allergies which the parents blame on being unlucky (rather than looking at the related statistics)).

my former boss (EVP) threw away his whole banking career because he started to develop serious migranes every few days. he went back to a backwater in australia and the migranes have never appeared again

the healthy and sporty kids of other friends who moved to HK started to develop astma within 2 years of being in hong kong.

yes, it's only anecdotal examples, but they do point to the issue at hand, i.e. expats might demand a higher premium to move to HK

jk333 15 yrs ago

marksix, i dont kn ow waht you mean Joke poster

i read the posts and take from them what i agree with.My concern since moving here is pollution and the poor choice of affordable property thats all.

I am single and it is great fun, i just feel likesh*t, im unable to jog and i hate gyms.

Ed 15 yrs ago

Unfortunately there is evidence that pollution does contribute to lung cancer and other diseases...

Perhaps even more worrying, though, is the other nasty stuff contained in bunker fuel, like nitrogen, sulfur and particulate matter — tiny particles that can penetrate deep into the lung when inhaled. Academic studies have estimated that 15 percent of global nitrogen oxides and between 5 and 8 percent of global sulfur oxide emissions are attributable to oceangoing ships. Health experts have long linked such pollution to respiratory illnesses, cardiopulmonary disorders and lung cancers, particularly among people who live near heavy ship traffic.

Full Article on the impact of air pollution generated by shipping in HK:

http://www.nytimes.com/2010/04/26/business/energy-environment/26iht-green.html?src=busln

marksix 15 yrs ago

jk333: oops in that case, my apologies. When reading this thread, Im not sure whether some posts are serious or not. Hope you enjoy your stay in HK :)

Loyd Grossman is Miss Venezuela 15 yrs ago

Ed. How can 15% of global nitrogen oxides and between 5 and 8% of global sulphur oxide emission be linked to ocean going ships?

Loyd Grossman is Miss Venezuela 15 yrs ago

Ed. Don't know if you ever been to sea but it's pretty windy - at least in the middle of the North Sea. It's not as if the bunker fine particulates aren't dispersed. Also there are considerably fewer ships than there were 100 years ago. Everything is now packed onto a single Maersk super cargo carrier. Not saying maritime pollution is not a problem but surely no where near the top of the pollution list. Ships only tend to burn a lot of fuel when they are sailing full speed ahead - ie miles away from port. Roadside has to be much worse . NY Times reporter on the electric soup by the looks of things.

ArtfulDodger 15 yrs ago

@bailout10 - "moved to Singapore to give my son fresher air to breathe"

omg, don't get us started on the Singapore versus HK debate. HK wins handsdown. Yeh, so Singapore has got better air (unless Indonesia is burning its forests for several months) ... but what else has it got, really.

I'm sure most expats who come to HK are well aware of the pollution issue, and do demand an uplift in their remuneration package to compensate for this "discomfort". That's why HK still pays more than Singapore for similar roles by several factors.

And to the poster saying that the optimistic posters are locked into this house of cards of HK property, then I bet all if not most of these optimistic posters can sell out as of today without any loss, but probably at a decent profit. Expats always have the choice to dump their properties in HK and simply leave. Locals however, with no overseas work visa, PR or citizenship in another country do not have such freedoms and must live somewhere and by in large over the long term they will desire to become owners rather than life renters.

I also don't put much emphasis on the P/E ratios of houses to determine whether there is value in buying. That's the same logic saying why buy Google shares when their P/E levels have been considered ridiculously high since their IPO. I would much rather do some real analysis to basic supply/demand. Housing demand coming from locals and newly arrived expats and PRC people. Housing supply from the HK government releasing more land, public housing and developers and their new estates. From my analysis its pretty clear that demand is outstripping supply by a very large factor.

Unless developed western countries like Australia, US, Europe drop their income taxes to 16% maximum and remove capital gains tax on sale of assets, there will be a continual influx of high income eaners arriving in HK for the foreseebale future. A 3% income yield after tax in HK, is like comparing to a 15% yield in these western countries.

HONGKONGEXPAT 15 yrs ago

Well actually I have yet to see medical proof of pollution and lung cancer. I do know quite a lot about this topic, first hand, hence can comment. My mother's opthamologist, she was also my opthamologist when I was younger died of lung cancer in her early 50's. She told us everything about it. This is a woman who grew up in Bondi and swam at the beach daily. Ate the best food, exercised and had a healthy life. Needless to say never had one cigarette and living at the beach in Sydney you can say very limited pollution. She was never exposed to any radio active matter, asbestos or arsenic elements but unfortunately had average exposure to second hand smoke from someone that never got lung cancer and as she was a doctor herself explained that unfortunately with lung cancer just like most other cancers, it has very little to do most of the time with external factors but it is purley a gene which at birth was say faulty, to put it simply. This might of never manifested later in life, but with a breakdown in the DNA (usually a crack in the wall of the immune system, putting it simply again) that the medical world can't explain causes various types of cancers. She had the healthiest most outgoing life and zero pollution issues and when she was undergoing treatment she told us that everyone else going through the same treatment, were in almost identical situations. Between 45-60, non smokers, no exposure to radioactive material, arsenic or asbestos, all grew up around the beach areas, all white colour jobs, but a faulty gene which can now be tested at birth, which simply and unfortunately increases various types of cancers and one is lung cancer.

I suggest when one makes a decision about the property market, they think about their mortgage repayments, type of property, financial situation, rental return, or do they want to be an owner occupier, job safety, etc and not lung cancer.

Otherwise people in both developing countries (cities) and highly industrialised ones will all be dropping off the face of the earth if lung cancer and pollution were linked, as frankly speaking lung cancer is usually a death sentence because by the time it is caught it usually stage 3 or 4.

jk333 15 yrs ago

Did anyone look out of there windows today, i just arrived back from GZ and the pollution is just as bad there today!

Ed 15 yrs ago

Personally I don't think the air pollution is going to crash the HK market... money from HK and PRC drive this market and people have to live here so they will continue to buy property...

That said... here is some research that shows that breathing HK air is truly life threatening...

Air Pollution Linked to Deaths From Lung Cancer

Risk for Other Diseases Is Increased As Well

Air pollution – mainly from vehicles, industry, and power plants – raises the chances of lung cancer and heart disease in people exposed to it long term, according to a report in the March 6 Journal of the American Medical Association (Vol. 287, No. 9: 1132-1141).

http://www.cancer.org/docroot/nws/content/nws_1_1x_air_pollution_linked_to_deaths_from_lung_cancer.asp

Interestingly, some of our members may recall we held a pollution conference with Christine Loh's Civic Exchange... Anthony Hedley who was head of HKU's community medicine was a speaker... I had a chat with him before the cameras went on and asked if there were any parts of HK that were safer to leave in terms of air quality... his response:

'The air is marginally better in some parts of HK however it is dangerous everywhere... not as bad as smoking a pack of cigarettes per day but somewhere in between that and living in a place with clean air."

I note that Hedley is leaving HK because things are not getting better...

Anyway - this is a property conversation and at the moment pollution doesnt seem to be having much impact on the market...

HONGKONGEXPAT 15 yrs ago

Ed- Thanks but the article clearly doesn't explain in detail what any oncologist will tell you, these people that developed lung cancer, even though they lived in various cities throughout the States (clearly even states no idea what level of pollution is acceptable) and the Environmental Protection Agency sets up certain standards for air quality basis all requirements, these people already had a disposition in their genetic make up. Hence you have people smoking their entire lives, or living near an industrial plant or exposed to radiation and never have lung cancer, because of their DNA. It is like the majority of cancers, yes you can then look at outside factors, are you overweight, what is your diet, where do you live, what chemicals, toxins are you exposed to, etc.

Anyway, fully agree pollution or no pollution will have no impact on the Hong Kong property market.

bailout10 15 yrs ago

@ Artfuldodger

OMG – Please don’t start the HK v/s Singapore debate yourself. If you will read my post, I have clearly said that it is because of pollution that I have moved and that decision is for my son and also because I can move. I have lived in HK for 14 years and bought property. I 100% agree with you about HK being more vibrant and that pollution has never had nor will ever have any effect on property prices. But pollution separately is a gripe among many and for a city that is so beautiful as HK, pollution is really a great shame. And if I have to trade one city for another, Singapore comes probably closer than other cities in the region for what I would like for my family.

So please keep your lid on.

Ed 15 yrs ago

While pollution, Chinese buyers with suitcases of money are certainly relevant to the HK property market... I also like to look at the bigger picture... which is how the global economy impacts HK property...

Greece is now paying nearly 15% on their debt... this in spite of Euro and IMF support... it would appear that their support is irrelevant... Greece clearly is insolvent and giving them cash just drags out the problem so the money is wasted (Germany appears to know this)... this indicates they will either renegotiate or default (huge impact on banks holding the debt ... no way to bail out the banks because the worsens sovereign debt problem)... if Greece fails other countries with unsustainable debt may collapse..

More on this http://business.timesonline.co.uk/tol/business/economics/article7109943.ece#cid=OTC-RSS&attr=797093

Question is... do these problems cause global stock markets to convulse and if so what happens to the HK property market if we see a crash similar to the November 08 bust?

Loyd Grossman is Miss Venezuela 15 yrs ago

To be honest, I think this is a buying opportunity for the stock market. The countries in trouble - Greece, Spain, Portugal and to a lesser extent Ireland - are not major players and the Germans ain't going to bail them out. Shouldn't affect the economies of the US and China too much. The UK, France and Germany will be fine. As for the euro, well that's really just a Franco-German-BENELUX currency with a bunch of losers attached. Shake-out.

Ed 15 yrs ago

Hmmmm.... I am not so sure about that...

We are in a banking crisis... I'm seeing numbers like 150 billion euro losses for fragile European banks just on Greece... where does that money come from? Governments? Not likely as that only exacerbates the sovereign debt problem (funny thing - countries absorb private debt in bail outs hoping it will go away... but it's too big to go away and it emerges like a medusa in the form of a sovereign debt crisis)...

Then there's the possibility of contagion - if one country fails hedge funds will target others with unsustainable debts. (remember the Asian crisis?)... and that could include the UK which is running 13% of GDP deficits... if the UK goes into crisis watch out!

On top of a possible domino effect as confidence in other countries' ability to repay debt fades... there is also the problem that Europe drops back into recession because of this... if they have no money to run deficits (which are at best producing anemic growth if any) then imagine what happens when nobody will finance their borrowing (Greece is finding out right now... ) - there will be a recession to end all recessions...

China is plugging a huge drop in exports by releasing over a trillion USD in loans and stimulus (I just read again the other day a comment from an official that indicated the majority of growth in china is from this stimulus cash - I personally dont drink that cool-aid - how can PRC have record growth when Europe and the US aren't buying stuff - the only way is to be spending their savings)...

If Europe (and of course the US) go back into recession how long can China fill the export hole?

No exports = no growth = big impact on HK property?

I'm hoping that this analysis is not correct and eager to see someone put forward some sound arguments that all of this is wrong... I've searched high and low for a solid analysis that demonstrates we are out of the woods...

That said... you might be right on the opportunity to buy stocks... if this all plays out they will be way cheap...

Loyd Grossman is Miss Venezuela 15 yrs ago

I'm no expert on this but I'm from Europe. As far as I'm concerned, Greece, Portugal, Spain and Italy have always been rubbish so I would never have lent money to them in the first place. The fact that they are in the euro makes it slighly more complicated but the Germans will not pay unless they are allowed to crank up the Panzers and administer the place themselves.

ArtfulDodger 15 yrs ago

China can actually rely on fulfulling domestic demand even if if its imports are in less demand than in US/Europe. There are still things that US/Europe need to buy from China because the just don't have those industries anymore.

Ed 15 yrs ago

Have you got anything to support the claim (that I have heard more than once) that domestic demand can replace the export losses to the US and Europe?

I've researched this and I can find nothing that indicates this is realistic anytime soon... what I have found is that the government has forced banks to loan enormous amounts of cash to people and businesses... this cash is getting unleashed into the economy as people splurge on cars... businesses build more bridges etc...

But I guess the big question is whether or not it is sustainable and what happens to all of these loans down the road... I seem to recall that the US tried the same strategy after the dotcom crash... they pumped big bucks at low interest into the system to escape the recession and 911 problems... and Bush urged people to shop... that was a fantastic strategy... until it wasnt....

Serious implications for the HK property market...

sybil33 15 yrs ago

Hi jk333,

I'm a local having left the territory for twenty years. I agree with you that a healthy & sustainable economic environment is more important than low taxes & capital returns. You certainly can leave HK if it doesn't fit you, me too. But during your stay, during maybe the next hiking season (ends generally in May & starts in November) maybe you can try the various hiking trails in NT (especially the North Eastern), Lautau or even in HK island (Tai Tam Reservoir country park, Peak to HKU, Shek O). My husband & I have returned from Switzerland two years ago & we are still discovering the nature in HK. You will be stunned by the beauty of HK nature, which is still unknown to many visitors. This aspect of HK is eclipsed by other cliches. I live in Tai Po, somewhere between the town & Tai Mei Tuk. The air here is really better. Every time I go to the city: Mongkok, Hunghom, Central, Causeway Bay, etc. I got migraine. Just Google hiking hk, you will wonder about the possible places you can exercise safely in HK. Here are some of the many websites :

http://www.hkhiking.com/hiking.htm

http://www.hkoutdoors.com

http://www.hiking-in-hong-kong.com

jk333 15 yrs ago

Sybil, thanks i have looked at the sites. I will be exploring this weekend. I have no car but im sure i will find a way there.

Ed 15 yrs ago

Lots of ideas here: http://hongkong.asiaxpat.com/directory/expat-fitness-leisure/

nosey-parker 15 yrs ago

to:. Hongkongexpat, I have been reading this blog with much interest, I have 2 rental flats on Victoria road, both from 2003 to 2009 rented for $18k a month easily. But both expat tenants left Hong Kong within a few months of each other blaming the pollution (both had young children). One apartment I have managed to rent for $14k and the other has been empty for 2 months. I am about to accept an offer for $13.5k. There are quite a few empty units in my building. This was never the case!

HONGKONGEXPAT 15 yrs ago

Hi nosey-parker- Sorry to hear that you are taking a cut in your rent and the places were empty for a while. I am not saying people don't leave because of pollution, even though it would be very hard for you to know the exact or real reason. I am saying that as we had someone very close with lung cancer and had a lot of medical info., unless someone has a genetic disposition pollution alone will not cause lung cancer. That is what I am saying. I also think the issue of safety, convenience, short travel disctances, great public transport, warm weather, low tax system etc far outweights pollution for many expats. Lets not forget many cities worldwide have pollution plus all the other problems. Hope you rent the second place ASAP.

nosey-parker 15 yrs ago

i Hongkongexpat. I have just rented my flat for $13.5 for 12 months, Its the lowest rent i have ever taken but luckily i payed much less than today's market value. so I still get a decent yield.

But i am now thinking that if the sales prices are as strong next year when these 2 tenancies expire i will sell. I too cant take this pollution!

Is anyone else experiencing soft rental prices?

ArtfulDodger 15 yrs ago

nosey-parker, absolutely no softer rental prices. In fact, they're going up. Do a cross check on Centadata and you can see properties renting at double digit % higher than last year.

nosey-parker 15 yrs ago

well i dont know what is going on, but there are a few empty flats in my building, they have been empty for over 2 months, The asking prices are not being met. I have also noticed there are a lot of empty shops around, and have been empty for months. Even in places like Hollywood road. I have never seen that before.

Thanks for the Centadata info, but all i see is sales prices going up nothing about rental prices rising? Am i looking in the wrong place

ArtfulDodger 15 yrs ago

Rentals are up. You either have a bad agent working for you, or you are not looking at the right places or there is probably better housing stock in the local vicinity.

nosey-parker 15 yrs ago

i keep hearing that but in my experince and those of people i know, they arre not up and actually going down, Maybe in your market. But with Expats who i have always rented to. there seems to be a thinning of demand. My building has always been popular.

Maybe i am incorrect but i do see lots of empty shops and apartments on the market for a long time. maybe the owners are expecting to much rent?

Can you post a link wgere i can see the rental data

thanks

Ed 15 yrs ago

Revisiting the macro economic influence on the HK property market... http://www.marketwatch.com/story/hong-kong-slumps-early-as-property-shares-slide-2010-05-04

Loyd Grossman is Miss Venezuela 15 yrs ago

I don't see a big impact on HK property prices. I'm sure most owners will hold as before during the Lehman crisis. This is essentially a European crisis and Greece and Spain have always been weak financially.

Bausi 15 yrs ago

To nosey-parker

My landlord is asking 30% more rent so have been looking around and wondering about all those empty flats I see . They are all for sale!!!! For every flat for rent there are about 10 flats for sale which certainly seems to indicate an impending bubble top for me. I have to agree with Sad Sack!

jk333 15 yrs ago

Sad Sack... At last someone is talking some sense, everyone on this site seems to think the HK economy is bigger than the entire Euro zone.

Any property market that goes up so rapidly, is investor driven. Such bad value for money and has no relation to local salaries in my mind is doomed!

aliendavid 15 yrs ago

good to see you back sad sack, you have teken your taken your beatings and came back right when the stock market is showing a bit of weakness.

Ted the Angry American 15 yrs ago

Sack, how do you feel about those who sold / are selling their primary residence and renting in anticipation of a big crash?

bing2 15 yrs ago

sad sack, anything can happen but for hk property to go down, it has to be brought down by some big events such as sars or worsening pollution (this could happen). i think the fundamental of hk property is still strong. most people put down 30% and can afford their mortgage or some of them even pay with cash. saving ratio in hk is relatively high and according to the latest data hk people are only using about 35% of their income to pay mortgage. in 97 bubble hk people were using 90% of their income to pay mortgages, and the last bubble in the us was created because banks were lending 110% of the value of the property to people who didnt even qualify. also rmb is going to appreciate which will make hk property more attractive to chinese buyers. i think there will be no crash in hk property market at least for the next 12 months because hk people have the holding power.

bing2 15 yrs ago

absolutely will crash hk market too if that happens but let's be realistic here, i dont think this will happen at least not in this part of the world. although china had spent so much money on the stimulus last years they still have over 2 trillion dollar in reserve if not more. gov all around the world will prevent this from happening. regional collapse like in europe is possible but dont think we will see global collapse.

bing2 15 yrs ago

i've never said china is immune. i feel they still have a few rounds of bullets, unlike other countries. also if you think china is depending heavily on export you are wrong. china has invested a lot of money in infrastructure all over the world. their top economists have predicted that export will not be sustainable so all the money they have made are being invested heavily in other parts of the world such as in africa, se asia, s america, etc. china has a very diversed investment portfolio.

as i said regional collapse is possible but not global collapse. i am worry about spain's economy as well as britain's economy. i have no idea how they are going to solve this one.

however, asia's economy is relatively strong, for example indonesia was unscratched from the financial crisis and they are one of asia's strongest spending power houses. hard to believe but it's true.

bing2 15 yrs ago

sad sack, from your earlier posts after lehman collapsed you said many things including property in hong kong would be cheaper than the cost of building it. of course we all know it didnt happen.

by the way, you also said you failed to predict that chinese gov would pump trillions to boost the economy. how could you not see that coming??

china was never in the panic mode and they would have spent those money anyway on infrastructure - recession or no recession.

us was in the much better shape during the first depression? cmon, did the us have over 2 trillion in reserve and globally diversify investment portfolio (of course not the same amount but same value)? also i dont think we can compare the 30's to today's situation. the world is getting smaller and we all can help each other very quickly before things get worse. you wont experience today's technologies in the 30's wont you?

i know chinese gov still have a few rounds of ammunition. all chinese banks are in good health financially and they are now the major players in the world. icbc is already the biggest bank in the world by market value.

it's not we dont like to hear what you have to say but your track record is rather flat. also i am very happy for you that you have made a huge profit in your investment but along the way i am sure you had scared some people here during the financial crisis to take the plunge and invest in the property market when the market was down 20-30%. those people who listened to your doom and doomer predictions (worse than sars, social unrest, cheaper than the cost of building it, global financial collapse, etc) could still be kicking themselves on their butt right now. if they had jumped the market during the financial crisis they could already make 30% profits in such a short time.

jk333 15 yrs ago

It makes me laugh why when someone talks some sense you all attack. You must all be so scared that someone will trigger the panic monkey's into a mass selloff as they always do.

China's economy is not as immune as you all think. Most of china’s investments around the world have been in the purchase or mines and the acquisition of methods of supply for raw materials to supply there big factory, That’s all China is the world’s factory. When the demand slows further, the RMB is revalued watch out!

Hong Kong’s house of cards will fall also.

Chinese greed and short term philosophies will bring China down. They want the whole pie, The Raw materials, the manufacturing and the retail, Just look at Alibaba and EBay, Factories selling one of a product to a consumer for 20% more than the manufacturing cost. This is not how to build a long term business! They want as much cash as fast as possible, they know there time is limited!

bing2 15 yrs ago

it makes me laugh that you said we are all scared because ss could trigger the panic monkey....hahaha....you are so funny. how could this expat forum trigger a panic sell out? maybe a few readers are getting worried and put their property on the market but they will still be asking HIGH prices or higher than they paid for.

i personally dont attack anyone, just want to get more of their perspectives. i found some of the preservatives mentioned have been heard 12 - 24 months ago and it's the same old perspectives.

china is greedy? hahaha, everyone's greedy in my opinion. if greece or spain fails asia can still survive, if china fails we're all doomed. do you know that china is already the second biggest importer?

Ed 15 yrs ago

A couple of clarifications... approximately half our audience hold HK passports...high correlation between HK passport - English skills - and wealth... so this is an important demographic... we had nearly 600,000 visits to the HK site last month...we have nearly 100,000 views of this thread... and regardless of what any other site says we are the most popular property site in Hong Kong (we have well over 100 property companies advertising with us - others have next to none...)

I don't think any one source moves the market but its quite possible that what is said on a forum like this is talked about and influences people's decisions...

jk333 14 yrs ago

China has gone from one of the world’s poorest economies to the 2nd richest and in that time has only allowed its currency to be revalued once. Because all economic data from China is based on lies and deceit!

I agree China is the 2nd biggest importer, But of what? I'll tell you raw materials to feed its factories.

You try and import products into China, it’s impossible even if you try and return faulty crap that the factory has sent you! If you do manage to import, there's 100% duty to be paid. I just hope the rest of the world wakes up and starts giving China some of its own medicine! Start by imposing high duty rates on all Chinese made products.

bing2 14 yrs ago

jk333 says: China has gone from one of the world’s poorest economies to the 2nd richest and in that time has only allowed its currency to be revalued once. Because all economic data from China is based on lies and deceit!

wow this is a serious accusation. can you reveal your source?

do you know that china is now the biggest car importer in the world?

gugubear 14 yrs ago

First I need to clarify my stance. I am a multi property owner locally and have been active in the local stock & property market for over 15 years. I do not participate in this forum too often as I've heard all the same stories every time there is major regional/world event 1997/98, 2000 dotcom bust, 2001 attack on the US, 2003 Sars epidemic and so forth not only on this site. Yes, I am one of those evil, dasterdly, greedy landlords this site so much loves to hate too. I have owned property throughtout all the above events and despite the latest global financial crises debacle,

do not fret or get myself into panic selling mode. I do however agree with Bing2 comments, sorry sadsack, every time there is a bit of ruckus in the market you come back to the forum with the same stories I've heard as a child - "chicken little and the sky is falling". I've heard this from many, many people and not only in the property market but the stock market too. A lot of people would have lost an opportunity in decades if they listened to what was said since last year. I wholeheartedly agree with Bing2 on taking advice from a forum or whether this forum could affect the property market, I doubt it very much people would take seriously what is said on an anonamous comment website without knowingwhat their agendas are. If so, I would seriously advise people to only trust yourselves, do your homework and take comments from a trusted circle of friends or advisors who own or do not own properties for whatever reasons and are familiar with the markets. As for whether I think the market is going to crash, and when I will be selling my properties ? That is only for me to know, but seriously I think many posters of this site should get together, join hands and sing "kum-by-yah".

The one thing I like reading on this thread though is the free entertainment and drama.

jk333 14 yrs ago

Walk up no anti China agenda I just think they should be forced to play fair. The RMB needs to be freely traded, allowing the markets to set the rates. they need to open there imports up to all goods, not just luxury items. I might add that have 100% duty Maybe the USA should impose the same Duty rates across the board

Bing you say China is the biggest importer of cars, That may be true of luxury brands, but all regular car manufacturers have been forced to open factories in China, (because the import duties and taxes on imported cars made them way to expensive). where the factory has to be owned 51% by a Chinese company or Chinese national. Can you imagine if the USA or Europe insisted that no company could be owned 100% by a China company or Chinese individual. That would be racist!

But it's Ok for Chinese companies and individuals to travel around the world buying up retail outlets, factories. and mines,

I am all for free and fair trade but with China it's a one way street.

If China's economy was put under the same scrutiny as Greece has just been watch out!

ArtfulDodger 14 yrs ago

Sad Sack says "The difference in between my opinions and most others is that mine are cold hard calculations based on facts. "

Thats bollocks.

Let's look at the real facts. The negativity of subprime mortgages gained widespread media atttention in Feb 2007... and yet the HK property market continued to boom until Nov 2007. The smarties who knew how big the problem was had the luxury of 9 months to exit the equity market.

Lehman collapsed in Sept 08. Only in Nov 08 did we get the trough in HK property. Massive liquidity rushed in, and it probably saved the day.

Fastforward to today. April 2010 has 30.7% higher transaction volume year on year. Its 12.5% higher month on month. In other words, its very strong.

We're only at 76.76 on the CCI. In 1997, it was over 100. Still a long way before I would even consider calling it a "bubble". Just because property is relatively expensive, doesn't mean you can label it a bubble.

So this is what I think is gonna happen if we have another major crisis that has some direct adverse effect onto China. People who are over-leveraged are going to get destroyed. They're the first victims and quite rightly so since high risk = high return. If they can't afford repayments (i.e. lose their jobs, or cab;t afford substantial interest rate rises), then its all over for them. Those who aren't over leveraged will hang on by cutting down their expenses or raising income (if they are smart enough to know how). For ordinary people, their real estate is not marked to market so as long as they can service their loan, they're fine but probably spend less which will have a knock on effect to the rest of the economy. Transaction volumes will drop accordingly. Those with cash can go bargain hunting for the forced sales... like the smarties did during Sept 08 - Feb 09 period.

The segment of the market most at risk is at the luxury end - heavily reliant on expats to rent them, and most likely to be over-leveraged. The mass market will take a hit but I doubt for a prolonged period like Asian currency crisis or SARS since there has been massive de-leveraging in the HK market since then. There is a lot of cash on the sidelines for the mass market, and people will start to re-enter probably at post-Lehman prices for fear of missing out again in case the property market shoots back up. So this second wave of buyers needs to be depleted before prices fall much lower.

Only a prolonged recession together with high unemployment (9% in HK) can we see massive destruction of the HK property values. Unemployment ticked up to 4.4% from 4.3% and bankruptcies are slightly up but still slightly below the long term average. No cause for alarm yet. It takes about 2 - 3 years in HK for the unemployment rate to double if things go real bad.

If things really do go fubar, you'd have about 2 - 4 months to save your bacon and probably walk away without any significant loss. Holding on any longer after this and you join the herd and you'll probably get smashed with everybody on the sell side.

Studies have shown its better to hold real estate during bad times (depression and/or high inflation) rather than gold. At least you can rent out your property for some income to feed yourself, and use it as shelter as well. If one were a betting person, I'd be buying long dated puts as a hedge just in case something does go bad.

bailout10 14 yrs ago

"it will result in a global depression and I am certain there will be social unrest."

SS, I have a lot of regard for you so don't get me wrong, but social unrest is a pretty big and serious prediction. I do hope the best and worst of your predictions come close to property crash as we can think of returning to better times just as we did past '98 AEC and SARS. BUt depression that too at a global level would mean mass unemployment. Where would we all be if that was to happen?

Ted the Angry American 14 yrs ago

Sack as before I'm somewhere in the middle, knowing that the world is not nearly out of the woods but having doubts that real armageddon is upon us. If the latter well and truly is the case, then everything boils down to your basic needs... none of which is shiny yellow metal. I think one of the things driving gold now is just that, the fear (and of course the movement of the dollar over these last years), and it's just too easy for governments and other large holders to manipulate the prices. Put it this way, if it's the end of the world, I have no food but a loaded gun, and come upon you - holder of the last Big Mac and a gold bar, you'd better believe it's your burger I'm coming away with. You can't eat gold, drink gold (Goldschager notwithstanding), grow more gold, live in gold, or drive gold to the nearest 7-11. If I have a brand new Bonaqua water I can dump it into a cup and if you're thirsty you'll still drink it, even today. I can even wreck it by mixing it with something else and it's still very usable. On the other hand now take one of your krugerands and smash it flat with a hammer, and see how much someone will give you for it afterwards... I'm guessing much less. As an inflation hedge... of course you're doing great (wish I stayed in longer than I did myself). But as a hedge against the rapture... not a chance.

Loyd Grossman is Miss Venezuela 14 yrs ago

Sad Sack. I don't even think a major economic crash will crush the mass residential property market for the simple reason we have just had one. A big crash in China may shut the market but people who have just put down a huge cash deposit aren't going to sell just because the paper value of their house is going down; they will ride it out. Only a war or a revolution will lead to a huge collapse in mass residential prices as there is simply too much cash in HK and very few people have debt. Anyway the market appears to be cooling down at the moment though this is not because of economic conditions - it's because people are sitting tight to see what the government does. Yesterday's Land Auction was very poor. My interpretation - a complete guess - is that the developers were sending a message to the government ahead of this public consultation over restarting 'sandwich-class' housing construction. By the way I don't think restarting HOS which make much difference as it didn't pre-1997.

Loyd Grossman is Miss Venezuela 14 yrs ago

Sadsack; you can't see the wood for the trees. We're not talking about 1997 here. I'm not sure if you were here in 1997 but everyone was playing the market. The British HK government was basically hands off, people entered into lucky draws just to get the right to buy a property (which were often something like 30 times oversubscribed). Those who won the draw could usually flip it for a HK$300,000 profit the same day (in mass residential). Triads used to beat up people waiting in property queues, China was opening up but US rates were low, a cheap mortgage rate was Prime plus 1.75%, inflation (I think) was not far from 10%, people had borrowed a lot to buy property, people didn't worry about unemployment and often switched jobs every 6 months just to get a pay rise. It's nothing like 1997 now. HK people have had 13 years of economic catastrophe (housing market down 60%, China opening up and taking HK jobs, SARS, dotcom, Lehman) and only now are they starting to feel optimistic after scrimping and saving for over a decade. The foundations are simply too strong. You can't get a cheap property from someone who doesn't have a mortgage or has a small mortgage and lots of cash and doesn't want to sell.

Loyd Grossman is Miss Venezuela 14 yrs ago

Sadsack. Think back. Things were so bad after 1997 that HK people ended up trading Snoopy dolls from McDonald's. That was the only form of economic activity available.

nosey-parker 14 yrs ago

Lloyd I am not sure where you get your information, I hear many stories of Hong Kong people owning 3 or more properties, usually owned by their immediate family who all live in one small flat. then rent out the others, all On 90% or sometimes 95% mortgages. When the prices start to fall, rental yields fall and Interest rates rise this is when you will see prices collapse. When they cant make the payments.

I have been researching for the last few days and everything points to price drops in the next 6-12 months. I have decided to try and get out and sell my 2 rental properties now. I just can’t see how the prices can rise anymore. This has to be top of the market. My agent says there are investors waiting for my building. Even as one of my properties brings only a 2.1% yield.

Loyd Grossman is Miss Venezuela 14 yrs ago

nosey-parker. Such families may exist but I don't think it is the norm for the simple reason that to get a 90% mortgage you cannot rent out your flat. As for yields, I don't think they are that relevant when it comes to long-term investment (though they play a part) and 2.1% looks good compared to 0% on bank deposits. Sadsack. As for the euro and Greece I can't get too excited about it. If these countries choose to create a false currency without political union then they deserve what they get. Overspending is also a feature of democracy so I see it as a good thing. It basically stops poor people being ripped off. Just look at California. It'll all come out in the wash.

nosey-parker 14 yrs ago

Lloyd.. Of course you can rent the flats out, you just do not inform the bank. 2.1% is fine if you are paying 1% mortgae rate, but what happens when it raises to 3% or 6%. The rental market will not accept those rises.

Loyd Grossman is Miss Venezuela 14 yrs ago

Nosey-parker. I don't think it's the norm or the factor which is driving the market higher. You can get away with this but the banks and HKMC are pretty tight. Most people who have bought know that interest rates have to go up as they are already so low. The majority will have thought this through.

liebster 14 yrs ago

when interest rates go up, rental rates tend to go up to match those increases as rental contracts finish. when rates rise substantially, renters tend to bargain shop and lower the quality/price of the next apartment to match budgets. this doesnt really effect the mass market rental, but it does negatively effect the luxury rental sector.

ArtfulDodger 14 yrs ago

sadsack as I said ... you do have several months to sell out if things go south.

I seriously doubt that day 1 your friend's property was $10mil, and day 2 it was only $5mil.

Anyway your friend was always going to be the first victim of the greed of 1997. Heavily leveraged I bet... and as you said, just into "flipping". High risk = high return. So he got caught out by sitting at the roulette wheel too long. Tough titties... lose your shirt and now get back to the end of the queue.

as for everyone else who is not over-leveraged... you gotta live somewhere. I don't see many people with the fortitude to sell their principle place of residence to rent because they fear the armagadden you espouse... and want to be cashed up. In those times, if you have a roof over your head with little or no mortgage repayments, and have food on the table, water and electricity, I think most people would put these necessities up there in the priority.

1997 is still pretty recent memory for most local HK'ers. Alot of them are not making/have not made the same mistake again.

Buying gold would be one of the last things people would be doing in such a situation.

jk333 14 yrs ago

Hopefully economically the future is not all grim, but one thing I can tell you is the pollution in this city is DIRE. I have been here 1 month now, renting an apartment that is an absolute rip-off in a chemical soup. I feel like I am living in an exhaust pipe.

The future for Hong Kong looks bleak especially if China economy continues to grow, more productivity more poison in the air!

Ted the Angry American 14 yrs ago

Sounds like you made a great choice coming to Hong Kong JK

jk333 14 yrs ago

Ted, to be honest dont know what i was thinking, i just did'nt realise how bad the pollution was in this city. I thought nothing could be as bad as 1980's LA. But this is much much worse. I cant belive HK residents put up with it!

This place is great for tax reasons but whats the point if you're not around to spend that extra money. My health is far more important to me, thankfully im single. If i had Kids i would be gone by now!

HONGKONGEXPAT 14 yrs ago

jk333- Yes but if you moved to any other major industrialized city pollution is something to consider perhaps not at our levels but then if you had children you have to think about crime, transportation difficulties just getting around, in cities with the 4 seasons extreme weather conditions etc. You can never get it perfect, you just make a trade off.

liebster 14 yrs ago

sad sack, not sure why you paid off your house when the financial crisis started. the interest rates plummeted, meaning its the best time to stay leveraged. I wouldn't recommend anyone paying off their home while interest rates are so low. safest route would be to buy a corp bond at around 5%, or if you want, take a chance and speculate in stocks or gold. In any case, I would be willing to bet you would make a lot more than the measly 2% savings per year interest from paying off the house. I would only consider paying off a mortgage when rates start hitting 4-6%, making it comparable to other investments.

nosey-parker 14 yrs ago

In a dilema, i mentioned to my rental agent that i was thinking abouut selling, within 48 hrs she had an offer at the full asking price from a mianland investor. should i sell now. I cant imagine that prices can continue to rise. The mainlander is buying both flats i expect as an investment, but the combined yeild is a little over 1%. at the purchase

I thnk i want out it was very difficult to rent the two flats the last time.

Maybe now is time to invest back home, the pollution here is only going to gget worse and i cant imagine this place with more mainlanders acking and spitting everywhere.

I am convinced there is a crash just around the corner

OffThePeak 14 yrs ago

If you are very nervous, then Hit the Bid,

Evidence suggests the downturn has started.
We should be discussing this on the other thread.

nosey-parker 14 yrs ago

offthe peak... I think you are right. This mainland buyer says he wants this sale to go through very quickly, 2 weeks? Is that possible? Aperrently he is buying a number of flats in HK. My feeling is he has managed to get some China gov stimulus money for his business and wants to spend it before it all goes tits up over there.

RCD 12 yrs ago

From what i understand is the HK only offers adjustable rate mortgages.... most buyers of real estate have no clue how these things work... As once i was a realtor in US i was taught never ever ever do a adjustable rate mortgage!!!!!! it is a total suckers loan --first six months very low monthly payments but there after it goes up automatic.. like big time goes up... first six months like you pay say 8000 hkd then all of a sudden it goes to 14000 hkd per month and then in 1.5 years as the sub prime increases you loan will increase as well it might go to as much as 25000 hkd per month.... and here is the really really bad new!!! none of your monthly payments go against the loan for like 8 years... the system is set up for the market to fall last one was before SARS and then again during SARS to dump.... I think 65%of in HK loans were upside down --meaning if you want to sell you then have to pay like 40% of value of property because your down payment and payments were not enough ...IE---you buy property for 1000000 but when property dumps it is worth 400000 and your down payment was 100000... So you have to come up with 500000 just to get out of loan assuming you can find someone to buy... "buy on bad news" it is all good news now with financial Armageddon all around us... going to be very interesting to see how it all does down (no pun intended).. i will buy again on bad news someday

Cx777er 11 yrs ago

This post started over 2000 days ago, and still no correction. I remember 20 years ago houses selling in Clearwater Bay for almost the same price they are today. We did have a correction then, in fact many, with the Asian financial crisis ETC ETC. Will it go down?, who knows. But I feel without any undue influence from unexpected sources, I think they will plateau for a few years then keep rising. Famous last words!!

Soru1234 9 yrs ago

Nice post

OffThePeak 9 yrs ago

"Will it go down?, who knows."

Well, no one knows for sure - but we do have History as a Guide.
And I think you can find long cycles of 15-18 years in many Property markets.

I continue to expect a high in 2016 +/- 1 year

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