Hong Kong’s housing market has, for a long time, been a boom/bust market.
According to Puru Saxena, an established money manager based in Hong Kong, there have been two episodes since 1980 where Hong Kong property prices fell by 50-60%. In 1980, prices peaked and bottomed-out four years later losing over 50% of their value. Similarly, in 1997, prices topped-out and then fell by 65% over next five or so years.
The next chart uses Bank for International Settlement (BIS) data to plot Hong Kong house prices from 1993 to now. As you can see, the latest boom in Hong Kong property prices has been unprecedented, with prices surging by nearly 300% over the past decade:
The huge surge in property prices has led to a recent spate of warnings of an impending price bust.
Earlier this month, ANZ Bank noted that Hong Kong housing was significantly overvalued and argued that it was facing a “perfect storm”, as recently introduced macro-prudential measures aimed at cooling housing demand collide with policies aimed at boosting housing supply and, potentially, rising US interest rates (Hong Kong’s currency is pegged to the USD, hence, it must import US interest rates).
Puru Saxena expressed similar sentiments, noting that “this bubble is even bigger than the bubble we saw in the US”, whilst claiming that home affordability “is off the charts” taking some “13.5 years of income to purchase an apartment here in Hong Kong” and around “25 or 30 years of income” in some Chinese cities. Like the ANZ, Saxena attributed much of the problem to “the Fed’s zero interest-rate policy”, which have been “near zero for almost four years”, and expects the bubble to pop via a combination of government efforts to cool the market and rising interest rates in the US.
Now Sanford C. Bernstein (Hong Kong) Ltd, the sell-side research unit of AllianceBernstein LP, has come out predicting that Hong Kong property prices could fall by as much as 25% after the government stepped-up measures to cool the housing market and banks raised mortgage rates.
As reported by Bloomberg yesterday, there are already tentative signs that the top might have been rung for Hong Kong property:
Home prices fell 1.41 percent in the week ended April 14, the fourth-straight weekly decline, according to an index compiled by Centaline Property Agency Ltd., Hong Kong’s biggest closely held realtor. It was the biggest drop since May 2010…
Before February’s measures, a housing shortage, low mortgage costs and buying by mainland Chinese helped prices more than double since the start of 2009 even as policy makers attempted to rein in gains amid an outcry over affordability.
The government on Feb. 22 doubled the stamp duty on all property transactions higher than HK$2 million ($257,612), while the Hong Kong Monetary Authority told banks to maintain the risk weighting for new home loans at a minimum of 15 percent to help protect them against a drop in home values…
Given the huge run-up in Hong Kong property prices over the past decade, and its history of extreme price volatility, it looks like it’s only a matter of time before Hong Kong prices experience a sharp correction.
