How accurate is the centa city index?

"I have found a chart starting from 1980 and explaining the reasons for drops and rises"


The "explanations" leave out interest rates and sentiment - Both of which are very important.


S.,

If you want to make money, you should probably develop some metrics and methods which will give you a fundamental method of valuing property. You need to incorporate things like:


+ Rising incomes

+ Ultra-low interest rates

+ Low HK tax rates, and the fact that HK People have piled up vast amounts of wealth, and have few places other than property to invest in on this little rock

Does the Centaline Index accurately reflect Market prices ?


This is something I have been looking at recently, and I think it does. Specifically, if you wonder about how well movements in the Index are reflecting in price movements for individual areas, the answer I found is that prices all around HK correlate well with the Centaline index.


[img]http://img26.imageshack.us/img26/7871/taikoo.png[/img]


This chart contains four indices, and is pretty busy, so I had better explain it.


We are looking at mostly monthly intervals since 2010, and let's start with the Blue line:


+ Blue: Centaline index multiplied by 100

(Example: July 29, 2012: 106.54 x 100 = $10,654 )

+ Red: Taikoo Shing : $10,689 psf (at 7/29/12)

+ Green: Park Avenue : $11,145 psf (7/29/12)

+ Yellow: Island Harbourview : $9,663 psf (7/29/12)


Not only was 100x the Index a good proxy for Per Square Foot prices in the main two developments, but each of those, Taikoo Shing and Park Avenue/Park Central correlate well with each other - They provide good benchmarks for Hong Kong Island and West Kowloon.


I find it a bit surprising to find the prices for these two are so close to each other. Taikoo Shing is an old area, with dated and rundown housing stock, in crowded conditions. By contrast, the buildings which comprize Park Avenue/Central Park in West Kowloon near Olympic station - Is much more modern, and feels much less crowded. It continues to surprise me that HK people pay such high prices for inferior housing stock just because it is on HK Island. The journey by MTR from Olympic station is actually a bit faster to HK Station, than from TKS to Central. (Having said that, there is then a 5-6 minutes walk from HK station to Central.)


Is that little walk really worth living in a 25 years older building? To me, it is not.

"Current property prices are far beyond normal"


And yet...

Most people can afford to pay their rent - and if they buy, the monthly out-of-pocket cost comes down...


So in what sense is property overvalued?

As an investor, I don't really care what this or any other index does - I am interested in the longer term net cash flow from a potential property purchase. At the moment, the net yields as just too low to justify buying (and have been for some time).

Regardless of if it's accurate or not, keep in mind:


"Past performance is not guarantee of future performance"

Ed. Do you have a stake in a company pushing gold over the internet? It's just that in the past you have accused me of talking my book - about which I am open.

The point seems to have been missed...


What use is the Centa Index - even if it is accurate?


So what if property went up last month or yesterday? It went up the day before it crashed in 1997....


So if you bought using the CI as your indicator in 97 what did you say the day it crashed 'oh but... but... the CI was going up yesterday!!!! How could the market have crashed?????" (as violins and banshees wailed in the background).


Backward looking indices are of little use... and as the first line of every prospectus says "past performance is no indication of future..."

Is it accurate? As a predictor of future property prices - I would suggest - no.


Is the data fed into this index accurate - no idea.

Understood... however there are plenty of bulls on the various property forums that point to upward gyrations of the CI as a signal that property prices are going higher...



Is there any other index that tracks property in HK to compare the CI with?


(we are working a rather rudimentary index that will average out the rent and sale prices of properties listed on this site... not the most sophisticated of doing this but we thought it might be an interesting widget... )

http://www.rvd.gov.hk/en/doc/statistics/full.pdf taken from http://www.rvd.gov.hk/en/publications/pro-review.htm

"in the past you have accused me of talking my book"


Nothing wrong with that. If you have a strong and genuine view, then your investments should probably reflect that view. "Talking your book", just means you had enough conviction to invest in what you say you believe in

TI, your:

"the net yields as just too low to justify buying"


Especially if you think that rates will rise, as I do. But if they stay down, then there's at least a small premium ABOVE mortgage rates, and interest on bank deposits is something like: 0.4 - 0.8%