Tuesday, November 11, 2008

HK Property Confidential

  • Hong Kong's home sales fell 58% y/y in volume and 63% in value transacted in October as local lenders tightened mortgage lending amid a slowdown in the economy - this is the largest drop since 1999 and the fourth consecutive monthly decline. Bank lending rose 13% in September, the slowest in over a year, and almost half the 24% increase in August. Office rents in Hong Kong may experience a 20% drop by the end of 2009.
  • Banks have not lowered their prime rates along with the 0.5% cut in the US interest rate and are adopting more conservative mortgage lending policies (loaning less and scrutinizing borrowers more).
  • Prices have been sticky downwards in HK (even stickier in Malaysia as many sellers are waiting for firmer prices with arrogance) as many home-owners have only just
    woken up to the fact that the market is heading into a protracted downturn as
    opposed to a brief correction. Average prices have only fallen 14% from the peak (Prices have already fallen 14% in HK and probably the same in Singapore... in Malaysia, it has not budged much yet... watch for first out best dressed action soon..). The high-end segment is still outperforming and faces more downside risk. home-buyers may be canceling transactions by forfeiting the deposits and delaying completion date of the transactions.Equity prices remain above their historical lows.
  • Citigroup: downward spiral in the Hong Kong property market will continue for the next 12 months - potential push back in completions and the lack of new land sales by the government will result in further declines in construction activities, leading to rising unemployment in the sector, and deal a further blow to the economy (through other industries like property agency, interior decorations, furniture and fittings, consumer electronics) which in turn will adversely affect housing demand.
  • Hong Kong's prime office rents surged 33% in the 12 months ended May 2008 (Colliers) but most assume that their growth will slow over the next year
  • During the 2nd quarter of 2008, prices fell in several segments of Hong Kong’s property market. Smaller sized apartments were especially hit badly but property prices were strongly up over the year. The overall index rose 25.4% (19.4% in real terms) to end Q2 2008.
  • Strong consumption growth has been propelling residential and commercial property prices upward while negative real interest rates have been supporting the creation of new development.Robust labor market has kept demand for commercial space tight (PREI) But with credit costs rising and slowing economic growth, Hong Kong's property market could be vulnerable.
  • PREI: total housing transaction value in the second quarter fell by 4.6% from that of a year before.
  • Decline in global shipping on higher costs/slower demand for raw materials might have negative effect on warehousing demand which has been a driver of retail property demand.
  • Jones Lasalle: despite slowing consumption growth, leasing costs have been rising. Sales volumes have fallen but so far prices are holding up so far (through mid Q3).
  • Residential property prices were accelerating early in 2008, from 10.1% yoy increase in June 2007 to 27.7% in January 2008. Prices at the luxury end of the market are already back at 1997 levels. Low borrowing cost at 2.5%, high property yields at 4%-5% made property investment more attractive.
p/s photos: Fala Chen Fat Lai (Men love fast powerful cars like Lambros, Ferraris, Aston Martins and Porsches... not because they really appreciate the engine specs and mechanics... but because they have never seen an ugly woman get out of one)


solomon said...

Over the longer run, HK properties price will rise as the land is limited. While now when everyone is panic for recession fear, there are always a good buy.

If jobs are secured, then it is worth to invest. I don't favour job cut but the fat pays for financial exec over the years could be overdone. Not becoz everyone chasing a higher incentives, we might not be ended in this hot soup.

We must stop to have the recession fears as everyone think. We need to restructure the system and recreate a sustainable biz model for everyone to feel secure. Then, the house mkt will be more robust.

john said...

fairly contradictory information on the state of real estate in HK.on one hand it was mentioned that prices has fallen a miniscule 14% from her peak and in the same breath it claimed that prices has plummeted to 1999 levels!!
which is which? -a lot of confusion and conflicting remarks that reflects the ignorance of the writer
a yardstick or reference point to gauge HK luxury sector will inevitably refer to apartments(HK does not use the word condominium-all high rise building are referred to as FLATS)situate in the midlevels-presumably from magazine gap road to caine road and possibly encroaching onto bonham road area near the campus of the university of hong kong plus the old peak road,the traditional super rich areas in the peak and southern HK island fronting the beach in repulse bay

the midlevel flats are probably going for between 15000-20000 per square feet which cannot be 1999 levels which was then hovering around the benchmark 7000-10000/sq feet

in fact property prices and wages in HK over the last 30 years provides valuable teaching materials in economics for malaysia and the rest of asean and by extension the world

in 1976 when i was a rookie new graduate working in HK the pay was 2000 ringgit(4500HK)-similar to KL's average salary.fast forward 30years in 2006-the starting pay of a new graduate in HK is around 8000-10000ringgit and the pay remains abysmally 'static' at 2000 ringgit in malaysia
a 1200 sq feet flat at mid levels in 1976 was about 100k ringgit and double storey house in taman desa -considered a prime area then was 80000 ringgit-small difference of 20k

in 2006 the same HK flat will cost you 6 million ringgit-yes 6 million ringgit and the house in taman desa is only a measly 450K in other words if one has invested in HK vis avis Kl the gains were phenomenal

where would you put your money in the asia pacific region?

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