China's economy is slowing and stocks are crashing. The Federal Reserve is poised to raise rates, and Hong Kong's de-facto central bank is warning about "uncertainty" in the city's all-important housing market, where transactions plunged last month.
So what does it all mean for real estate prices in the former British colony? The answer, according to Michael Spencer, Asian chief economist at Deutsche Bank AG: Not much.
Mr Spencer, and property experts including CBRE Group Inc's Yu Kam-Hung and Knight Frank LLP's David Ji, point to healthy borrower finances and continuing domestic demand for housing as evidence Hong Kong isn't on the verge of repeating the six-year slump that started in 1997. Barring a major political upheaval in China, the decade-long property bull market is likely to continue, albeit at a slower pace, they say.
"People say property prices will fall because of the Fed, and that in my view is wrong," said Mr Spencer, who bases his conclusion on 20 years of data. "If you build a model based on real interest rates and real GDP, neither have mattered." Property analysts including JPMorgan Chase & Co's Cusson Leung and Morgan Stanley's Praveen K. Choudhary are calling for Hong Kong property prices to plunge as much as 10% next year amid the prospect of higher interest rates and slowing growth in China. An anemic pace of home transactions in August - which showed that volumes tumbled by almost a third to the lowest in 17 months - also stoked concerns, especially in light of increasing supply of private housing, weakening retail sales and data showing that Hong Kong's private sector economy suffered its sharpest contraction since 2009 last month.
Anecdotal evidence has begun to surface that buyers are walking away from deals and forfeiting deposits, as sentiment has soured. The stock-market volatility in China and Hong Kong and the possible increase in US rates means "the outlook for the property market over the coming few months is uncertain," Hong Kong Monetary Authority Chief Executive Officer Norman Chan told reporters on Wednesday.
"The Hong Kong property market is getting very close to a turning point; housing prices have been rising for seven to eight years and the rally is coming to an end," Jeff Yau, an analyst at DBS Vickers Hong Kong Ltd, said by phone. "However, it won't be a freefall unless unemployment rises sharply." No one expects a repeat of the crash that began in October 1997 with the Asian financial crisis and bottomed as the city was gripped by the severe acute respiratory syndrome, plunging almost 70% in a six-year period. They have surged more than 370% since the 2003 trough.
Fears surrounding property prices are overblown, and it is misleading to focus on just one month of transaction data - and a month that was marked by unprecedented stock-market volatility and a shock move by China to devalue the yuan, said CBRE's Hung.
"Hong Kong property is very volatile and I don't think it means anything," Mr Hung said. "You can't draw conclusions on one month or two or three." Joseph Tsang, managing director of Jones Lang Lasalle Inc, said the situation today differs from previous housing market meltdowns when borrowing costs and household debt levels were high. The ratio of new loans to property values is at the lowest in at least a decade, according to data from the HKMA, and delinquencies stand at 0.03%.
"In 1997 the mortgage rates were in the region of 13%, today we are comfortably at 2%," he said. Government curbs on mortgages have also kept overall debt levels as a percentage of property value low.
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So what does it all mean for real estate prices in the former British colony? The answer, according to Michael Spencer, Asian chief economist at Deutsche Bank AG: Not much.
Mr Spencer, and property experts including CBRE Group Inc's Yu Kam-Hung and Knight Frank LLP's David Ji, point to healthy borrower finances and continuing domestic demand for housing as evidence Hong Kong isn't on the verge of repeating the six-year slump that started in 1997. Barring a major political upheaval in China, the decade-long property bull market is likely to continue, albeit at a slower pace, they say.
"People say property prices will fall because of the Fed, and that in my view is wrong," said Mr Spencer, who bases his conclusion on 20 years of data. "If you build a model based on real interest rates and real GDP, neither have mattered." Property analysts including JPMorgan Chase & Co's Cusson Leung and Morgan Stanley's Praveen K. Choudhary are calling for Hong Kong property prices to plunge as much as 10% next year amid the prospect of higher interest rates and slowing growth in China. An anemic pace of home transactions in August - which showed that volumes tumbled by almost a third to the lowest in 17 months - also stoked concerns, especially in light of increasing supply of private housing, weakening retail sales and data showing that Hong Kong's private sector economy suffered its sharpest contraction since 2009 last month.
Anecdotal evidence has begun to surface that buyers are walking away from deals and forfeiting deposits, as sentiment has soured. The stock-market volatility in China and Hong Kong and the possible increase in US rates means "the outlook for the property market over the coming few months is uncertain," Hong Kong Monetary Authority Chief Executive Officer Norman Chan told reporters on Wednesday.
"The Hong Kong property market is getting very close to a turning point; housing prices have been rising for seven to eight years and the rally is coming to an end," Jeff Yau, an analyst at DBS Vickers Hong Kong Ltd, said by phone. "However, it won't be a freefall unless unemployment rises sharply." No one expects a repeat of the crash that began in October 1997 with the Asian financial crisis and bottomed as the city was gripped by the severe acute respiratory syndrome, plunging almost 70% in a six-year period. They have surged more than 370% since the 2003 trough.
Fears surrounding property prices are overblown, and it is misleading to focus on just one month of transaction data - and a month that was marked by unprecedented stock-market volatility and a shock move by China to devalue the yuan, said CBRE's Hung.
"Hong Kong property is very volatile and I don't think it means anything," Mr Hung said. "You can't draw conclusions on one month or two or three." Joseph Tsang, managing director of Jones Lang Lasalle Inc, said the situation today differs from previous housing market meltdowns when borrowing costs and household debt levels were high. The ratio of new loans to property values is at the lowest in at least a decade, according to data from the HKMA, and delinquencies stand at 0.03%.
"In 1997 the mortgage rates were in the region of 13%, today we are comfortably at 2%," he said. Government curbs on mortgages have also kept overall debt levels as a percentage of property value low.
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