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PostPosted: Mon Jan 16, 2012 12:38 pm 
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I heard at the weekend that a friend has recently paid rather less than 2 million for a 700 sq ft flat in Po Wah Yuen, despite the owners trying to haggle for more. They appeared to accept that given the current state of the market, both in HK and on Lamma, they could no longer push for the ridiculous prices of a year ago. It's still a lot to pay for a crappy concrete box, but hopefully suggests prices (and rents) will start coming down in line with market analysts' predictions.

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PostPosted: Wed Feb 01, 2012 1:33 pm 
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H.K. Homes Face 25% Drop in Year of the Dragon

The Year of the Dragon, representing wealth and power in China, is shaping up to be the opposite for the world’s costliest housing market, Hong Kong.

Mortgages (HKMGLEND) that need to be insured by the government because of risk experienced the steepest plunge in six years in 2011, a sign the biggest home price decline since the global credit crisis is accelerating. Property prices that have slid 6 percent since June may fall as much as 25 percent by 2013, estimates Andrew Lawrence of Barclays Capital, who predicted the initial slide in April.

Asian real estate markets from Singapore to Beijing to Mumbai are stalling or have started declining as governments seek to curb the type of housing bubble that brought down the U.S. economy. In Hong Kong, rising borrowing costs, extra transaction taxes and higher down-payment requirements imposed by the government have fueled the slump.

“We’re in for a very challenging first half,” said Wong Leung-sing, associate director of research at Centaline Property Agency Ltd., the city’s biggest closely held realtor. “The drop in secondary mortgages means buyers are having trouble borrowing from the banks the full amounts they need. The ones that are taking the biggest hits right now are the middle- to lower- priced housing segment.”

Prices had surged 70 percent from 2009 to their 14-year high in June. Home deals in December fell for a sixth straight month to the lowest since November 2008, according to the Land Registry.

Hong Kong will continue measures to maintain stable home prices, Financial Secretary John Tsang said at his annual budget speech today.
36 Percent Drop

Loans covered by the Hong Kong Mortgage Corp.’s insurance program decreased 36 percent in 2011 from a year earlier to HK$26 billion ($3.4 billion), according to figures released Jan. 11. It was the biggest drop since 2006, said the body, which was set up in 1999 to provide government insurance for mortgages exceeding 70 percent of a property’s value -- also known as secondary mortgages -- in a bid to revive slumping home prices at that time.

The HKMC in June 2011 reduced the maximum value of property that can be covered by its insurance program to HK$6 million from HK$6.8 million, the second reduction since late 2010.

Hong Kong’s median home price of HK$3.15 million is a record 12.6 times the annual median household income of HK$249,000, according to a Jan. 23 report by Belleville, Illinois-based Demographia. Second-place Vancouver had a 10.6 multiple, followed by Sydney with 9.2.
Falling Transactions

The number of property transactions with a value of below HK$2 million will probably fall to less than 900 this month, the lowest since record-keeping began in 1996, according to Midland Holdings Ltd. (1200), Hong Kong’s biggest publicly traded realtor.

The Hang Seng Property Index (HSP), which tracks the city’s seven biggest developers including Sun Hung Kai Properties Ltd. (16) and billionaire Li Ka-shing’s Cheung Kong Holdings Ltd. (1), fell 24 percent in 2011, after gaining more than 75 percent over the previous two years.

The gauge fell 0.5 percent at the noon trading break today, reversing an earlier gain. It has gained 12 percent this year, compared with the 11 percent increase in the benchmark Hang Seng Index.

Chinese New Year began on Jan. 23. Dragon years in the 12- year zodiac are associated with wealth and power because the creature is the icon of China’s emperors.

A three-room, 880-square-foot apartment in Tai Koo Shing, one of Hong Kong’s biggest middle-class private housing projects, was sold for HK$7 million this month, HK$1.5 million lower than the original asking price, according to Kenneth Chiu, a district sales manager at Centaline.
Rising Lending Rates

Last year’s decline in prices and transactions coincided with the rise in borrowing costs. Hong Kong banks, led by HSBC Holdings Plc (HSBC) and BOC Hong Kong Holdings Ltd. (2388), increased mortgage rates at least six times since April as liquidity dried up.

Despite the Jan. 25 announcement by U.S. Federal Reserve officials that benchmark interest rates would probably remain below 1 percent through 2014, average mortgage rates in Hong Kong are forecast to rise.

They could reach as high as 4 percent by the end of 2012 from the current 2.38 percent, said Sharmaine Lau, chief economist at mReferral Mortgage Brokerage Services. Borrowing costs were 0.9 percent in early 2011, almost the lowest in 20 years, the company’s data shows.
‘Slightly Faster Fall’

The increase “should weigh on transaction volume and suggests we will see a slightly faster fall in prices,” said Lawrence, the Hong Kong-based analyst at Barclays. “It’s incremental that each time mortgage rates go up, there are less people in the market.”

Liquidity is falling as tightening measures in China have driven companies to borrow in Hong Kong, while capital outflows from the city continue as foreign banks repatriate funds from Asia because of the European sovereign debt crisis.

The Hong Kong Monetary Authority, the city’s de-facto central bank, has asked lenders to keep more reserves as part of their counter-cyclical measures, Chief Executive Norman Chan said in November.

“Hong Kong banks are very reluctant about raising mortgage rates further because of what it may do to transactions,” said Lau. “But at the same time they’re facing a steep increase in funding costs.”

For a HK$2 million, 20-year mortgage, the increased interest rate of 4 percent from 2.38 percent means an extra HK$19,656, or 16 percent, in annual repayments, Bloomberg calculations show.
‘Irrationally Low’

“The last couple years mortgage rates have been irrationally low,” said Lau. “Bringing them back to the 3 to 4 percent range would bring things to a more reasonable level from a historical perspective.”

The HKMA, which doesn’t have an independent interest-rate policy because of the local currency’s peg to the U.S. dollar, has kept its base rate at a record-low 0.5 percent since December 2008.

Hong Kong’s property prices halved between 1997 and 2003 as the city fell into recession brought on by the Asian financial crisis, the Sept. 11 terrorist attacks and the SARS epidemic. Since 2004, prices have recovered while loans drawn down from the HKMC rose for four straight years from 2007 to a record HK$41 billion in 2010.

The government’s mortgage insurance program has been “the way many first-time buyers managed to get into what is an extremely expensive market,” said Lawrence. The next group to be affected will be “the equity-rich, first-time buyers who are going to get priced out of the market.”
‘Determined’

Lawrence forecast in April that home prices might drop because of rising mortgage rates.

To temper surging housing demand, the government has imposed extra stamp duties since 2010 on all homes sold within two years of the date of purchase, while raising minimum down- payment requirements on some property transactions. It has also increased land supply for private housing, and pledged to build more subsidized homes and ensure the supply of land for private housing.

The government is “determined” to increase land supply and will make available at least 47 residential sites for auctions, Financial Secretary Tsang said today. The sites will provide about 13,500 homes, he said.
Buyers Sidelined

“At a time like this, most buyers are staying on the sideline,” said Simon Lo, head of Asia research and advisory for property broker Colliers International. “The general expectation is that home prices will drop further so they are all postponing their homebuyer plans.”

Home prices are also stalling because of the threat of a slowdown in wage increases, Lo said. About 13 percent of Hong Kong firms plan staff cuts in the first quarter, exceeding the previous quarter’s 8 percent, according to a report by New York- based headhunter Hudson Highland Group Inc.

Home prices may need to fall at least 10 percent in 2012 before buyers are lured back, Benjamin Hung, chief executive officer of Standard Chartered Plc (STAN)’s local unit, Hong Kong’s fourth-biggest mortgage lender, said in an interview on Dec. 13.


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PostPosted: Sat Feb 04, 2012 7:11 pm 
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Wishful thinking. Property prices here are being driven by a different phenomenon than you observe in the West. In the US and UK, price rises were driven by credit expansion which has now collapsed. In Hong Kong prices are being driven by hot money coming in from China. A lot of this money is from dubious sources, and no doubt a good deal of it has been borrowed or leveraged in ingenious ways. However the main point is that it is not mortgaged money. The money that is used to buy a lot of property in Hong Kong is cash on the nail and so property holdings are not in jeopardy of repossession if the owner losses his shirt. In fact, Hong Kong property is a safe haven for all sorts of illgotten gains and this ensures that prices can only move in one direction unless there is some change in the law which puts such investment at risk.

So rejoicing at a pundits prediction of a 25% drop may be a little premature. A change in the law is unlikely. The only other scenario that would bring it to fruition is a major global upset, like war with Iran. But this could never happen when the leader of the free world is holding a Nobel Peace Prize.


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PostPosted: Sat Feb 04, 2012 11:55 pm 
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shapogung wrote:
In fact, Hong Kong property is a safe haven for all sorts of illgotten gains and this ensures that prices can only move in one direction.


That's what they said in 1997. And 2003.
That's what people say in every rising market, until the day it stops.

Anyway, it's getting easier for Chinese to travel and invest in other countries. Hong Kong isn't so special in that regard any more.

In the long run, decades, prices go up, as they do everywhere. In the short term, they can and do go either way.


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PostPosted: Sun Feb 05, 2012 1:21 pm 
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Alan

True up to a point. It would be a brave man who said property would only go up without any riders. I put two riders on it.

1997 was a little different as mainland money wasn't so obviously in play. That event was caused by overseas fund managers dumping their Hong Kong shares and causing a panic. In 2003 it was another panic caused by the dot com bubble bursting. Both events were triggered by volatile western investment algorithms. It could happen again, and mainland investors are as apt to panic as anyone else - but in a downturn they would be locked in (to property) and so would hold, since they wouldn't be under mortgage pressure.

Not all property is held my mainlanders of course, but there are now enough of them, together with rich Hong Kongers who own several properties each outright, to ensure that prices will hold rather than drop significantly in a downturn. Something has to give of course - that will be the currency.


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PostPosted: Sun Feb 05, 2012 1:54 pm 
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shapogung wrote:
Not all property is held my mainlanders of course, but there are now enough of them, together with rich Hong Kongers who own several properties each outright, to ensure that prices will hold rather than drop significantly in a downturn. Something has to give of course - that will be the currency.


"Ensure that prices will hold"?
"Desperately want to believe", not "ensure".

shapogung wrote:
1997 was a little different as mainland money wasn't so obviously in play. That event was caused by overseas fund managers...

In 2003 it was another panic caused by the dot com bubble bursting. Both events were triggered by volatile western investment algorithms.

1997 was the "Asian debt crisis", caused by Thai and Indonesian companies taking out huge loans in cheap US dollars, then when their currencies fell, they were screwed. Pretty much the same as happened to Ireland and Iceland more recently.
2003 was SARS, and that was home grown.

Doesn't matter, the only thing you can predict is that there will be something unpredictable.

In Macau 15 or so years ago there was a property boom, mainlanders and Hongkongers bought and built flats like crazy. They all thought there was no risk. Then there were huge empty apartment buildings all over, and prices went through the floor.

They recovered, eventually, after the new casinos were built. But a lot of people lost a lot of money in the interim.

Under your scenario, if there is no crash, all the private housing will end up in the hands of speculators, 90% of the houses will be empty as no one can afford the rent and they are just traded like monopoly pieces at increasingly inflated prices. Meanwhile the working class live in decaying government housing, and emigrate at the first opportunity to somewhere they can afford to put a roof over their head with room to swing a cat.


Last edited by Alan on Mon Feb 06, 2012 1:18 pm, edited 1 time in total.

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PostPosted: Mon Feb 06, 2012 11:09 am 
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I'll add a few other observations on this:

1. Prices are not holding steady - they have dropped, though not as quickly as some analysts predicted.

2. Most of the mainland money has been targeted at the luxury end of the market, which doesn't necessarily have a direct impact on prices at the lower end.

3. The main reason why prices haven't tumbled fast (as would normally have been the case following a bubble) is that interest rates are still abnormally low - so mortage repayments are comparatively low. But bank rates are rising.

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PostPosted: Tue Feb 07, 2012 4:18 pm 
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Don't forget the King Wong/Agile effect - from the Town Planning rejection it appears that most of the property they own on Lamma is on the North end!


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PostPosted: Tue Feb 07, 2012 5:07 pm 
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deviant wrote:
Don't forget the King Wong/Agile effect - from the Town Planning rejection it appears that most of the property they own on Lamma is on the North end!


What effect does a block of flats that's been under construction and vacant for 15 years have?


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PostPosted: Fri Mar 23, 2012 6:57 pm 
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Alan wrote:
Under your scenario, if there is no crash, all the private housing will end up in the hands of speculators, 90% of the houses will be empty as no one can afford the rent and they are just traded like monopoly pieces at increasingly inflated prices. Meanwhile the working class live in decaying government housing, and emigrate at the first opportunity to somewhere they can afford to put a roof over their head with room to swing a cat.


Yes, exactly. That is how capitalism works. Eventually someone becomes powerful enough to monopolise everything. Hong Kong is already quite far down that route. Of course even monopolists must have some rules if they do not want a revolution, so the masses are allowed some small victories.

In the case of Lamma, the monopolists are the small groups of indigenous villagers who own pretty much everything. They don't have to lower their prices if they dont want to, but every now and again they might behave magnaminously to keep a modicum of goodwill - but it doesn't last, as LG can tell you.


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PostPosted: Fri Mar 23, 2012 10:51 pm 
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Well Done, Lamma-Gung!

Now even the Lamma Forum has its own 'state of the property market in HK' thread. I thought this belonged on Asiaxpat. Always an amusing thread to read when bored.

Still in Ko Long village property is selling for at least 500K HKD premium than what that place deserves.

Also all the new houses being built have already been bought. Rents are still high. If it is going down it only means it will go up even faster to catch up wtih the perceived losses from the previous downturn...


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PostPosted: Mon Jan 21, 2013 11:28 am 
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A year later, still waiting for the crash. But it is coming...


SCMP wrote:
When the slump finally comes, home prices could fall by half

Putting a fair value on housing is no easy task but there are some worrying property numbers in terms of average real interest rates
Tom Holland
Monday, 21 January, 2013
As the writer of the South China Morning Post’s Monitor column, Tom Holland attempts each day to make sense of the latest developments in business, finance and economic affairs in Hong Kong and mainland China.

I know this column has banged on ad nauseam about Hong Kong property prices recently.

But there's a couple of big topics we haven't tackled: how much Hong Kong homes are overvalued and how far prices can fall, and the major structural changes the government needs to make to ensure the market's long-term health.

The structural changes can wait for another day. But given the government's pledge to ramp up housing supply, it's worth asking now how overpriced Hong Kong homes really are, and how deep any eventual correction is likely to be.

Unfortunately, putting a fair value on housing is tricky. On the face of it, property looks eye-wateringly expensive. The average Hong Kong family would have to put aside every penny it earned for almost 13 years to save enough to buy a typical flat in the city. That's four times as long as the average American family would have to save.

But high prices alone don't mean the market is overvalued. Other measures indicate that Hong Kong's property prices are more or less in line with what you would expect.

Certainly there is no credit-fuelled housing bubble. The levels of both residential mortgages and overall property loans are slightly below their 10-year average relative to total Hong Kong dollar loans, and both are falling as a proportion of overall bank lending.

And if you attempt to value property purely as an asset, then current prices look about right.

In its latest Article IV consultation with the Hong Kong government, the International Monetary Fund tried to do just that.

The fund's researchers worked from the basis that in an efficient market the cost of owning a home should be the same as renting one over the same period. If the cost of owning is higher, then property prices are overvalued.

Factoring in mortgage rates, taxes, maintenance charges and a clutch of other costs, they found that smaller flats are currently priced about 7 per cent above fair value, while big flats are a touch below.

Overall, they concluded, "prices are broadly consistent with fundamentals".

Not satisfied with that result, the IMF's boffins also tried valuing Hong Kong's property market using a range of macroeconomic factors, including land supply, construction costs, per capita income, credit availability and interest rates.

This time they found that as of June last year Hong Kong homes were just 10 per cent overpriced relative to their fundamental value.

But as the researchers pointed out, the trouble with their assessment is that although prices may currently appear more or less in line with economic fundamentals, right now the economic fundamentals themselves are abnormal. The main driver of home prices is interest rates, and at the moment interest rates are exceptionally low.

To correct for this, the fund's researchers ran their model again, this time using Hong Kong's average real interest rate between 2003 and 2007.

The results were sobering. In the middle of last year housing prices in Hong Kong were almost 30 per cent higher than they would have been if the city's real interest rates had been in line with their pre-crisis average. Since then, home prices have climbed by another 10 per cent. That implies prices will have even further to fall - roughly 40 per cent - in two or three years when interest rates finally begin to rise again.

Except that price swings generally overshoot. And then there is the prospect of ramped-up supply, with some 25,000 extra new flats a year reaching the market just as rates go up.

The results will not be pretty. The fall won't be as severe as the property crash that followed the 1997 bubble. But even so, when the slump finally comes, Hong Kong properties could end up losing almost half their value.


But unfortunately for me, my lease is up soon, so it'll probably crash just after a I sign a new lease for an older, remote house for 60% more than I pay now.


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PostPosted: Sat Feb 16, 2013 4:43 pm 
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Have to agree with Alan that a crash is coming.

I've spent the past two years fretting over the state of the property market on Lamma, as I have a huge menagerie of pets, and an affordable 350 sq foot flat is not an option. (My pets would make my life hell!!) Yet 2nd floor dwellings,.. in fact all property prices have gone mad for what you get!!

I ALWAYS look at the estate agents boards when I pass.

For the past two months I have noticed a huge increase in available flats. for example, last year, there were only two to five flats for rent, at extortionate prices. Now at the beginning of Jan and also february,.. there were 14 flats for rent. Prices ARE slowly dropping.

is the ferry collision? Pet owners tired of the dog poisoner and villagers that support this sick bastard? Construction everywhere? Dumping everywhere? Stupid prices for what you get? Weekends being gridlocked with tourists?

Who knows?

But there are a lot more flats available now, and the prices are dropping.


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PostPosted: Thu Feb 21, 2013 2:28 pm 
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And it is still wishfull thinking. In the West prices fell rapidly because of distresed sellers who could no longer afford their mortgages. The speculators on Lamma can afford to hold on because most own 50% equity or more. A break in the currency peg would actually make property more expensive - and this is on the cards. For instance, if outside investors perceived that the HKD was strengthening,it would encourage more of them to enter the market to leverage both property and forex gains. In turn, the Government would have to keep interest rates low to prevent the dollar strenghening too much. This in turn would drive more property speculation.


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PostPosted: Fri Feb 22, 2013 10:40 am 
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Hong Kong is basically a shit hole and the only reason I am here is that I can earn decent money and save, ok it is a better shit hole than London but is still a shit hole. It always surprises me that people choose to live here who don't need to work when there are much better places in the world to live. Lamma is literally a just a more laid back shit hole with the open sewers and dog shit everywhere.


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PostPosted: Fri Feb 22, 2013 11:51 am 
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Not quite as easy to just move wherever you like though is it?!

It surprises me more that you would rather live in a `shit hole' as you call it just to make more money than it does that people actually enjoy living in HK and Lamma.

Each to their own.


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It surprises me that people don't see a shit hole for what it is and delude themselves into thinking they are living in some sort idyllic setting.

Yep I have some mercenary tendancies and don't delude myself or pretend otherwise.


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PostPosted: Fri Feb 22, 2013 12:29 pm 
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It surprises me that you think many people think lamma is idyllic. It is far from it but it is better than living in most places on the island or Kowloon unless you want to pay more than $50,000 a month for something good. Lamma is not the best spot but is far from the worst.


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PostPosted: Fri Feb 22, 2013 12:37 pm 
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Lamma is cheap and has a good bar scene.


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PostPosted: Fri Feb 22, 2013 1:05 pm 
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I guess the earning 'decent money' part of your plan isn't going so well then is it.


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