Hong Kong Property "not overvalued" writes Tom Holland of the SCMP
Tom Holland piece in his SCMP Monitor Column dated August 27, 2012 has commented on the question many are asking. Is Hong Kong property overvalued? He writes:
As Hong Kong property prices set new highs, fears continue to mount that the market is a momentum-driven bubble in imminent danger of bursting.
Yet, although some softening of prices is possible given the weakness of the global trade cycle and the mainland's slowing growth rate, this column has long argued that there is little threat of a 1997-style crash any time soon. The reason is simple: although prices have gained dramatically over the last few years, there is no sign that the current boom - unlike the one in 1997 - has been propelled by a rapid increase in leverage.
If you doubt that - and many readers do - here is a little more evidence. The second chart shows the growth in value of outstanding mortgages plotted against the nominal growth rate of Hong Kong's economy.
In the run-up to 1997, the rise in mortgage lending far outstripped the growth of the overall economy.
This time around borrowers have been far more restrained. As a result, at the end of June the value of mortgages outstanding stood at 43 per cent of Hong Kong's GDP, little different from the 42 per cent level recorded at the bottom of the city's property slump in 2003. What's more, according to analysts at Bank of East Asia (SEHK: 0023), the share of homeowners with a mortgage on their properties has fallen from 52 per cent 10 years ago to 40 per cent today. That's important because if the price gains aren't driven mainly by a massive expansion in leverage, there is far less chance of a full-scale property crash once the credit cycle turns down.
Its an interesting perspective Mr Holland provides, and one which I think is ultimately correct, but which I also think provides little comfort to people who are renting, and who are holding off buying right now.
Yet, although some softening of prices is possible given the weakness of the global trade cycle and the mainland's slowing growth rate, this column has long argued that there is little threat of a 1997-style crash any time soon. The reason is simple: although prices have gained dramatically over the last few years, there is no sign that the current boom - unlike the one in 1997 - has been propelled by a rapid increase in leverage.
If you doubt that - and many readers do - here is a little more evidence. The second chart shows the growth in value of outstanding mortgages plotted against the nominal growth rate of Hong Kong's economy.
In the run-up to 1997, the rise in mortgage lending far outstripped the growth of the overall economy.
This time around borrowers have been far more restrained. As a result, at the end of June the value of mortgages outstanding stood at 43 per cent of Hong Kong's GDP, little different from the 42 per cent level recorded at the bottom of the city's property slump in 2003. What's more, according to analysts at Bank of East Asia (SEHK: 0023), the share of homeowners with a mortgage on their properties has fallen from 52 per cent 10 years ago to 40 per cent today. That's important because if the price gains aren't driven mainly by a massive expansion in leverage, there is far less chance of a full-scale property crash once the credit cycle turns down.
Its an interesting perspective Mr Holland provides, and one which I think is ultimately correct, but which I also think provides little comfort to people who are renting, and who are holding off buying right now.
Is not an easy decision at all to decide whether to buy at the moment, but I think most people would agree that Hong Kong prices seem likely to keep rising over the next year. I actually regualrly get quite a few emails asking me "if now is a good time to buy an apartment on Park Island".
Its hard to give a perfect answer to this question, but I do feel that if you have a relatively stable job and are planning to stay in HK for more than a year or so, now is still a good time to buy on Park Island. You get excellent value for money, and it costs you way less to own and pay a loan than it does to rent. You get a high quality asset in a place that will only continue to grow in terms of demand and desirability long-term, and interest rates it seems will stay low for a long time yet. So I would say in general, go for it!
Agreed with PI Blogger. One of the often quoted danger warning was that prices today has exceeded the highs of 1998 when the property bubble burst. What is often omitted is that the burst happened 14 years ago and the economy/GDP/income has grown upwards of 30%. At Park Island the rental yield is between 3.5% to 4.0% which makes the buy vs rent decision easier to make i.e. prices is still cheaper relative to rental. But buy for the long term enjoyment of the place plus steady property price appreciation.
ReplyDeleteI also agree with you Park Island blogger. I am not an expert, but I am a carful investor. I bought a place on Park Island around a year ago, with some hesitation as people were questioning if it was a bubble or not. I paid 4.4m for my place 750 sqft, 2 brms, lovely rennovation, balcony, ocean views, and nice kitchen. I also got some left over furniture from the last owner as an added bonus as he did not want it. Last week I was offered 5.3, for it. It was a serious offer, agent had a signed contract as in the past I had told him I would take 5.3m, never thinking it would get to that price so quick. So now, funny as it sounds, I am in the position of turning that down as I actually like living here so much first of all, secondly my interest rates are so low that its much cheaper to do this than to rent, and lastly as I am thinking now prices are going to keep rising. People are already talking about 5.5 being the new level for the types of place like mine. And if I compare to places of friends in the Mid Levels, their places are either smaller for that price, or much older, or more expensive. They are renting, and paying a lot. I bought in, got a very nice place, and am already financially well ahead. I missed out on the UK property boom to my regret, so my first place is actually Park Island HK and I am enjoying what it feels like to have my own place, and rising wealth. For my age and experience I am really pleased and so far made more on paper then my entiree salary in HK over the year.
ReplyDeleteThat is the issue, you have only made it on paper. It is not real. If you cash in, you will pay an over-inflated price for your next place. Relatively speaking, you have not really had a gain as everything around has also increased proportionately.
DeleteThese are now around 7-7.5m for these ones. I hope you did not sell Agnes!
DeleteTom Holland of SCMP said on 4 Sept that ...it is likely a fresh influx of liquidity (from US Quantitative Easing) into global asset markets will continue to push HK property prices, regardless of any near term measures CY's administration is likely to take. I assume PI prices will be similarly affected?
ReplyDeleteAnon, I think we will have a few factors contributing to ongoing rising prices in the Hong Kong property market. Yes QE from the US will lead to more money flooding into places like HK so the trend we have seen since QE started in terms of how that affected HK property prices will continue.
ReplyDeleteApart from QE in the US, once we have the new administration in China transition completed, likely by the end of this year, we will get more stability and stimulus from China, which of course benefits Hong Kong.
As for CY Leung, my feeling is that he, and the Chinese administration knows that stable long term property growth is good for Hong Kong. Overall that will be his aim and mandate I believe, along with creating the appearance (illusion?) of providing some lower cost housing solutions for low income earners.
Specificaly for Park Island, my main feeling as to why it will rise strongly is simply because its so nice here! Time and time again, I see people coming over for the first time, and being amazed at the quality of lifestyle here, the Park Island facilities, the ocean views, and the relaxed almost resort-like atmosphere. So in my mind that alone will lead to increased demand and rising prices for Park Island, let alone the more general factors that are pushing Hong Kong property prices up.
PI Blogger, Good points. Your last point about excellent facilities and quality lifestyle is valid. It will provide strong support for prices from home owners who has discernible taste (and enjoy living in PI) and to a certain degree less severe in the face of general downturn in property market. The areas of strong prices remain in popular sites eg City One Shatin, Tai Koo Shing where people sacrifice quality for convenience. Roadside pollution in those places must be quite bad however due to the presence of good schools and "convenient" transport faclities those places have fared strongly in the recent uptick in prices. That said over the longer term quality i.e. living conditions/facilities/environment will prevail. It is encouraging to see that PI prices have been on a steady upward trend.
ReplyDeleteI feel now is a very good time to buy as we have a stable economy and its very sure rates will stay low. It might seem expensive now but actually if you look at many factors it is very likely prices will keep rising. So much money has been pumped into the word economies so its inevitable that HK prices will rise a lot into the future due to our low tax rates, low loan interest rates, limited supply and strong economy.
ReplyDeleteAnything housing related in Hong Kong is not really a high quality asset, but something akin to a box. That it will only continue to rise is naive, prices are already beyond affordable for a percentage double the norm for rate and owner based indexes. The majority of Hong Kong is based on Debt and Gambling (Banking), speculation has been the driver and speculation is artificial. The irony is that whilst speculation has driven this, it will also be its downfall.
ReplyDeleteWhen considering the variables involved in Hong Kong against core economic principles and measuring scales, NOTHING makes sense and it is rotten to the core (i.e. Debt, Speculation - and Hope to a large extent).
2015 now, and they have gone up since 2012, and property prices are still looking to go up until at least 2018.
ReplyDeleteI think the market will keep going up as especially with all the China money and now the stock market it will definitely lead to property buying. We could be leading into a 1997 type of crazy boom over the next few years!!!
ReplyDelete