Hong Kong Residential: Another
20% Up and Pop?
Real Estate Analysis Limited
Notwithstanding all the recent sale and transaction measures to regulate the
most experts believe these will do little to alter the current market price
trend which is up. And as long as liquidity is abundant, evidenced by the
still historically low rates, doing away with confirmor deals, lowering the
leverage to 60%, and the like are barking up the wrong tree.
your humble author thinks:
The Hong Kong
private residential real estate market is getting more dangerous
risky but dangerous sounds more appropriate, urgent, and threatening. Also,
dynamites, being explosives which make things ”„pop”¦, are usually marked
”„danger”¦. I have not seen boxes of fire-crackers, let alone dynamites,
The return to
risk ratio is getting less and less appealing, probably approaching no
higher than 1 to 1
That is, for
every dollar profit expected to be gained, there is a corresponding chance
to lose one dollar. One can easily obtain more or less a 1 to 1 ratio by
going to the casinos in neighboring Macau e.g. playing the red-black colors
on roulette. There is no need to hire real estate agents, spend time
inspecting and negotiating, and endure all the fuss attached to property
typical market price goes up another 20%, the chance of popping will become
the current market situation is like 1996 AND 1997!
Here are the elaborations [data sources include government websites and
departments such as the Ratings and Valuation Department-R&V]:
= our analyses on various occasions suggest that the GDP per capita, which
reflects liquidity, earning power, economic performance etc, tends to show a
strong and consistent correlation with residential prices. Other factors
such as supply, demand, interest rates and so on, tend to pale compared to
GDP / capita and are even at times NOT factors at all. People think they are
owing to intuitive illusions ingrained in our brains.
= we compare the long term relation between GDP / capita and typical private
residential prices and use this as a benchmark for the current observation.
= we index the nominal GDP / capita and typical residential price from 1980
to now and find the average of the former is 5.16 and that of the latter is
4.03, i.e. a long term gap of 1.13 [refer to the gap between the two
consistent lines straight across the first chart below].
closely, one finds a) the GDP / capita index is usually above the
residential price index except in 1997 when the market peaked; b) the
current gap between the two is 0.55, which is similar to the 0.50 seen in
1996, and this means the ”„purchasing power”¦ is ”„lower than usual”¦.
If not for
the fact that mortgage rates being at one of the, if not the, historical
lows, your humble author wonders if the affordability measures could still
suggest homes to be affordable. That is to say, the rise in residential
prices has been offset, or masked, by lower rates.
= we have also investigated how the picture would look like if we were to
start after 2003, the SARS year and we also compare this to the eight years
prior to 1997 [refer to the second chart below].
the residential price indexes in both periods are higher than the GDP /
capita indexes, just the opposite of the 30-year long term trend seen above.
This may have to do with the residential price indexes starting at low
points, especially for the 2003 to 2011 period.
Also, in a
very coincidental way, the 2010 residential index is 1.88 times the GDP /
capita index, which is almost the same for the 1997 residential to GDP /
capita index ratio. However, 1997 is the 9th and last year in the
period while 2010 is only the 8th and second last within the
Thus, IF we
were to assume the 2010 trend to extend into 2011, the residential index
would have gone up close to 20% while the GDP / capita would have stayed
nearly flat. The ratio between them would have become 2.19 which is higher
than that in 1997.
By no means
is this a prediction, a projection, or even an estimate, we are just curious
to find out what it is like should the market march further up.
picture suggests a dynamitic danger and perhaps a pop too.
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and are not meant to substitute proper professional advice and/or due
diligence. The author(s) and Zeppelin, including its staff, associates,
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