For years, Hong Kong’s economy has been influenced by two major external forces. One is huge and booming China next door, which makes the city a prime location for trade- and investment-related financial and other services. The other is the US, whose currency we essentially use, and which has been recovering painfully from the 2008 financial crisis with the help of ultra-low interest rates set by the Federal Reserve. So we have had the economic performance of a fast-growing powerhouse with a strengthening Renminbi, but a monetary framework tailored to fit a collapsing has-been of a country printing money like crazy to avert deflation.
This mismatch has been a recipe for inflation, not least in property prices. Further distortions have exaggerated this. Hong Kong’s land supply is tightly limited, partly artificially. Its consumer goods are cheaper and better than those across the increasingly open border, attracting shoppers in volumes too large to be accommodated. It goes on: cartels that are legally entitled to conspire to rip off consumers, or public investment in big pointless infrastructure projects that pushes up construction and other costs.
There have been winners and losers. Landlords have enjoyed huge increases in both rental income and the paper value of their assets. Non-owners of property who need somewhere to live and do not qualify for public housing have suffered. The gap between local and overseas housing costs is enough to make people think ‘Why stay here?’ Looking at a real-estate agent’s window in Taipei last week, I thought the prices seemed a bit steep, and the apartments rather small, until I found that what I thought was square metres were ping, a Japanese measurement equivalent to 3.3 sq m or 35 sq ft (based charmingly on the size of two tatami mats).
Hong Kong officials and other residents are virtually conditioned to think that a rising property market creates wealth (it makes some people richer, some poorer – no net impact on GDP). The person who made a 48% gain in a couple of years from selling a unit in City One Shatin is seen as clever. Hong Kong is not alone in having this mentality, but it is extreme here and the place is small; its people are mostly stuck within its confines and at the mercy of these economic forces. Little wonder that the young in particular are angry.
Could relief be on the way? Bloomberg foresees a reversal of Hong Kong’s Chinese boom-American interest rates mismatch coming next year. People were predicting a Federal Reserve tightening this time 12 months ago and 24 months ago, but this year it might actually happen, and the idea of a simultaneous slowdown in China adds a newer twist. Among the possible prospects: a 20% fall in property prices and a permanent reversal in the wretched luxury-garbage retail pestilence, helped by Beijing’s anti-corruption purge. The really cool bit is that US recovery partly compensates for China’s slowdown in terms of our underlying economic growth.
An economy that rewards rent-seeking and arbitrage and penalizes entrepreneurship and innovation can’t last forever. Can it?
I declare the weekend open with the additional joyous thought, alluded to in the Bloomberg article, that more Occupy-Umbrella protests next year could deliver yet further carnage and mutilation to the watches-handbags-crap retail sector. We can but hope.
President Xi Jinping arrived this morning in Macau to celebrate the 15th anniversary of its handover.
Journalists waiting for him on the tarmac at Macau airport were not allowed to use umbrellas. Instead they were all supplied with a plastic mac.
My impression is that property prices are unlikely to drop just 20 per cent, since, if they do, people may panic and we’ll be in for a prolonged slide, as in 1997.
And actually, significantly beating the market like the Sha Tin-er, is not that easy.
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Hong Kong property is due a correction, everybody know’s it’s coming, so Bloomberg are hardly risking much by predicting it will come in 2015
But Hong Kong is so resilient it won’t be a major downside. There’s too many scalpers and too much corrupt money waiting for another 1998 or 2003 or 2008 to get into the market at discount prices.
The inflated Hong Kong market is even affecting us on this side of the pond. There’s a property in Richmond BC Canada about 2000 square feet for over 2 million CanadIann dollars
I don’t gave a hoot re:property cartels and their rents. I hope these real estate billionaires clans all rot in hell…like Scotty said, HK property market due for a correction, hopefully the 2003 variety in 2015…but sadly, a lot of people in HK in 2003 decided to learn how to fly…
HK is resilient…but will take time to recover…but problems today (with Occupy and real estate) are structural in nature, just like at the other extreme with Chinese real estate market where there are multiple ghost cities of full of real estate..
Hemmers, what hope?
China just decided to void the Joint Sino-British Declaration (UN Treaty) according to local HK newspapers on 12/18 (or 12/19)
Plus HK Gov changed from “HK people ruling HK” to “HK people administrators HK” meaning the ruling goes to the CCP/Beijing…
A property slump will either give the government some breathing room to address the structural problems in the economy, or they will use it as an excuse to kick the can down the road again. I won’t hold my breath for the former.
Exhibit A: The wumao appear to be under instruction to blame the Thomas Kwok/Rafael Hui conviction on
a) The Kwok brothers’ Christianity (because that’s the most salient thing here), and
b) Corruption among the democrats (what??)
c) A political economy reliant on the generation of speculative bubbles for the sake of semi-feudal tax farming resulting in rampant collusion between officials and the owners of large tracts of land, why no that has nothing to do with it at all.