The Case for an 18 Year Cycle in Hong Kong
Does Hong Kong Property follow Harrison's 18 Year Pattern ? ("HK18yr")
======================================================

I want to use this thread to make the case that there IS an 18 year property cycle in Hong Kong.

Peter Churchhouse was asked this question by Bernie Lo on Bloomberg today:
"Do you believe in 18 year cycles in Property?
If so, can you see the current upswing in Hong Kong continuing into 2015?"
(I emailed the question in)



Peter does not use the 18 year cycle in his investing. And he could be missing a useful timing tool.

His answer was that HK has a more rapid cycle, of "maybe 3-5 years" (from memory),
and is "much more prone to booms and busts" than property elsewhere. He also felt
that the peg (of the HK dollar to the US$) was also a special factor, since it meant that
HK was implementing "cheap money" at the time when the US was in recession, and
that would often cause a boom in HK property. Indeed that is what is happening now.

I totally agree with his comment about HK's market being driven by US interest rate policy. In fact, that is one reason I bought so many properties in 2007-8, after I moved here. I saw that HK property tends to be countercyclical to property in the US. When the US is coping with its own property bust by lowering rates, it is creating a boom across the globe in Hong Kong. Assuming this is consistent enough a pattern, then perhaps an 18 year cycle in the US, has helped to create, or exaggerate an 18 year "counter-cycle" in HK. That's my view.

Nevertheless, I take Peter's point about greater volatiility in HK, and wonder what will happen if the Dollar peg is removed and the counter-cyclical relationship began to unravel? That is another question that I want to discuss on this thread.

...
Above: Centaline's HK Property Index : Hibor-to2007


China's Bubble, worse than HK's, as bad as Japan's / see: post #678

BTW, I want to be honest here:
Personally, I find it very hard to comprehend how the current upswing in HK could continue into 2015-17. I could see it fading within a few months. However, maybe after a dip in 2011 or so, the rally will resume, and the market will find a way to rise for another several years into 2015-15. Having done a large amount of research, and finding these cycles in other countries, I think that the case for a 18 year cycle in HK to be very compelling.

One thought I have had is that a removal of the peg, say within the next 1-3 years, could actually touch off a boom in HK, as investment money floods in from around the world. I could see how that might bring a boom in 2013-2017, when projects like the Bridge to Macau, the fast rail connection to Guangzhou, and the new island MTR line will be completed. No guarantees we will see a upwards thrust like that - just a thought, requiring more research.

= = =
SOME INTERESTING MACRO DATA was reported in Today's Standard (2-June-10):

+ Households in Hong Kong : 2.3 Million (100%)
.. In Privately owned flats.. : 1.2 Million ( 52%)*
.. In Public rental housing.. : 0.7 Million ( 30%)
.. In Subsidised HOS flats.. : 0.4 Million ( 18%)

*(Of these, 1.2 million):
.. Owner-occupied flats..... : 0.84 Million ( 70% of above)

/source was reported as: "Government Consultation Paper on Homeownership"

== ==
Let's assume they are worth $4,000psf x 500sf :
Then the average flat is worth HK$ 2 milion

And so 2.0mn x 1.2mn = HK$2.4 Trillion Value

= = = = =
LINKS:
Short Link to this thread. :: http://tinyurl.com/hk18yr
GEI's HK Property thread :: http://www.greenenergyinvestors.com/index.php?showtopic=920
Advfn's HPI in HK thread. :: http://www.advfn.com/cmn/fbb/thread.php3?id=18569372
HK's cycle versus the US :: http://www.advfn.com/cmn/fbb/thread.php3?id=20343851
AsiaXpat Property thread :: http://www.greenenergyinvestors.com/index.php?showtopic=942 : Newer one

Tags : "HK 18 years", Long cycle Hong Kong Property,

A Brief Summary of the 18 year Property Cycle:

+ Total period is about 18 years,
+ Up-phase is usually 14 years, with an important correction halfway through.
+ The second half, he calls "the explosive phase", and that contains most of the gains
+ The very last part (2 years) of that are the "winner's curse" period, with bidding wars and bubble prices
+ Down-phase is usually 3-5 years

Latest Peaks .. :: Hong Kong (1997), US (Mid-2006), UK (Mid-2007)
Low/ Next Low :: Hong Kong (2001*), US (due 2009-11), UK (due 2010-12)

*In my analysis for HK: 2001 was the "official low", while the 2003 level brought lower lows,
but was driven by the disruptions caused by SARS


MORE, Videos On YouTube :
BubbfromGEI :: "Introduction to Harrison's 18 year Cycle"
Bubb ..... GEI :: "Property Bust after 14 year Boom- Fred Harrison, part 1"
Bubb ..... GEI :: "Property Bust after 14 year Boom- Fred Harrison, part 2"
Text version.. :: http://www.greenenergyinvestors.com/index.php?showtopic=3671

CHARTS - showing HK's historical Property Cycles.

The current up-phase started in 2001


Previous cycle in HK:
It was not easy to find price data for the previous cycle, so I note this:

+ The last two years (1995-97) at the beginning of the chart do reflect the euphoria and bubble pricing that Fred Harrison talks about during his so-called two year "Winner Curse" period which comes at the end of the 14 year up-phase of the cycle

+ I did find price data (in US$) for Cheung Kong (CHEUY) as quoted on the US otc market. This data shows a very clear 18 year cyclical pattern

Cheung Kong (CHEUY) ... Larger Image : update-Monthly : Weekly-4years


+ CHEUY did not make much of a Low during 2001. A lower low finally came in 2003, along with Sars

+ For the prior cycle, CHEUY's price was collapsing into the late 1983 Low. Given the sharpness of that drop, there must have been quite a good rally (and good HK property market! in 1981-1982.) I am seeking more data on that period, and 1979 when the 18 year cycle would have predicted a peak.

+ It would also be interesting to see what data, or historical accounts might exist for a low back in 1965.

== ==
1979: Li Ka-shing warned shareholders that continuing high interest rates in the colony, and emerging rent control restriction, led him to believe that the local property market was showing signs of leveling off. Continuing economic difficulties in the Hong Kong economy continued to color the business climate for Cheung Kong in 1980. Li Kashing, nevertheless, maintained an optimistic air. "There is a slight slackening in the property market," he told shareholders. "But this phase will pass with a lowering of interest rates and an upturn in trade. I am, therefore, cautiously optimistic about the future of the Hong Kong property market."

The 1980 profit rise of 176 percent, to HK$701.3 million, gave grounds for this optimism, but also reflected first-time profit contributions from Hutchison Whampoa and Green Island Cement. In addition, the Hong Kong Hilton Hotel increased its profits for 1980 by 34 percent, compared with the previous year.

During 1981 Cheung Kong began amassing an overseas portfolio that would grow over the coming years. Overseas investments totaled HK$125 million in value, or 3 percent of the group's total assets. These included a number of commercial buildings in the United States with 950,000 square feet of space, and a shopping center with over 370,000 square feet of freehold space. This growing overseas portfolio was motivated by continuing recessionary conditions in the Hong Kong property market, and anxiety about any fallout from fears of 1997, when control of the colony would revert to China.
At the time, Li Ka-shing signaled to shareholders that it would be difficult, given the current trading conditions, to maintain in 1982 the same high level of profit recorded in 1981. In that year, profits were raised 97 percent from the previous year's level, to HK$1.38 billion.

Li Ka-shing's profit warning turned out to be timely. A decline was suffered across the board by the company at the end of 1982. Overall profits declined by 62 percent to HK$525.6 million. Profits at the Green Island Cement company tumbled by 65 percent, and were affected, according to the company, by a slowdown in the colony's construction industry, bad weather, and large imports of Japanese cement. Even more difficult problems were projected for 1983.

/Cheung Kong's history : http://www.fundinguniverse.com/company-his...ny-History.html

BRIEF EVIDENCE and Charts from the US

Let's start with some charts and some dates for the US cycles, where there is plenty of long term data available. (note: it seems to be very difficult to get any data for the UK prior to World War II:
The cycles can slide around a bit, as this history from the US shows:

Idealised 18 1/3-Year U.S. Real Estate Cycle, 1870-1955 : Larger image



TURN: -19th Cent- : -----------20th Century----------- : --21st Cent--
High: 1871 , 1889 , 1908 , 1926 , 1945 , 1964 , 1982 , 2000 , 2019 ,
Act. : 1871 , 1887 , 1905 , 1925 , 1946 , ????? , ???? , 2005?, 2020?,
Low : 1880 , 1898 , 1917 , 1935 , 1954 , 1971 , 1991 , 2009 , 2028 ,
Act. : 1877 , 1897 , 1917 , 1933 , 1958 , Oct70 , Dec90 , 2010?

Median US House prices .. Larger image


HISTORICAL CYCLES (per Northern Trust)
Recession ===== : Peak of Median Price : Trough, Median Price : P-to-Tr.
=============== : -Date- : Price $ ... : -Date- : Price $ ... : Change
Dec.69 - Nov.70 : Jul-70 : $ 23,700 .. : Oct-70 : $ 22,700 .. : - 4.22%
Nov.73 - Mar.75 : Jul-74 : $ 33,000 .. : Oct-74 : $ 31,900 .. : - 3.33%
Jan. 80 - Jul.80 : Jun-79 : $ 56,800 .. : Nov-79 : $ 55,600 .. : - 2.11%
July.81 - Nov.82 : Jun-82 : $ 69,400 .. : Oct-82 : $ 66,900 .. : - 3.60%
July.90 - Mar.91 : Jun-90 : $101,200 .. : Dec-90 : $ 94,200 .. : - 6.92%
Mar.01 - Nov.01 : Jun-01 : $160,800 .. : Oct-01 : $153,800 .. : - 4.35%

Current Cycle.. : Jul-06 : $230,900 .. : Oct-08 : $181,800 .. : -21.26%

. . . . . . . : U.S. Property Prices are out of phase with Hong Kong prices

NYC low was 1991, as per Historical table for 18 1/3 year cycle : Lg.Image

Since 2000, we have the Case-Schiller data :: website / data saved

But prior to that, it is difficult to obtain House price data, so I use Builder stock prices.

I like to use Texas-builder Centex (CTX) as my bellwether, and produced this chart years ago (2007)

Here's what subsequently happened to Centex:


I dont think that we have seen the lows yet, although a bounce is currently underway in the US.
I presently expect fresh lows in 2010-11, driven by what I think will be a double dip W-shaped recovery

BRIEF EVIDENCE and Charts from the UK

Here are some charts and some dates



Highs: 1971, 1989 + 18 = 2007
Lows : 1976, 1994 + 18 = 2012

AS in the US, the UK Builder shares gave an early warning of an approaching peak in UK property prices. An index of builder shares (which I invented and is called the "Builder Bellwether index" peaked at the end of 2006. And the UK property indices (average of Halifax and Nationwide) peaked 8 months later in August 2007.

The early warning is shown in this chart:


And can also be heard in this podcast from July 2007, a few weeks before the peak occurred.

Are these real or nominal prices?

NOMINAL PRICES.
Personally, I think the so-called "real prices" are useless for this type of analysis.
You want to know the actual historical support and resistance levels, not some figure which has
been manipulated by fictional government inflation indices. People who buy property will recall the
price they actually paid, and not adjust that for an inflation index. And whether they are in profit
or not, and how much actual profit, will have a bearing on where they are willing to sell.

Notice that property prices now in HK are below 1997 prices, and about the same level as 1994.
Imagine if you saw that in the UK, where prices continue to be ridiculously overvalued in relation
to spendable, after-tax incomes

HK property normally trades at a higher multiple to Incomes, than does property in the US or the UK, and there are some excellent reasons for that:

+ Hong Kong island, Kowloon, and the New territories is a small place, with a limited amount of flat land on which properties can be built, and suitable transport arranged.

+ Hong Kong people work long hours, and like quick and easy commutes, so as to retain at least some time for personal lives. Consequently, nice properties within 15-30 minutes commuting time of Central Business Districts tend to trade at much higher prices than similar quality properties further away (such as in the New Territories, where land is much cheaper.)

+ The HK government derives a large part of its revenues from property, and saw how much pain was caused by the 1997-2003 property crash, so they restrict the supply of land into the market, in order to help maintain prices, and not allow another crash like 1997-2003, which was partly driven by the Tung government releasing unprecedented amounts of cheap land for development.

+ In HK, taxes are low, with a maximum tax rate of 16% of income, this leaves more spendable income to pay rent or to make mortgage payments. Also, because of HK's high savings rate and the consequent large deposit base of HK's banks, interest rates have tended to be lower than in the US or the UK. HK people have enormous savings, and loads of equity in their properties. Average LTV is something like 30-35% in HK, versus about double that in the US. This means that they can put more cash into the purchases of new property.

+ HK's cheap and efficient transport system means that they "waste" less money on cars and gasoline, which again leaves them with more money to bid up property prices

Many cannot accept that HK might have an 18 year cycle, with an "explosive phase" ahead.
Here's a comment by SurfDude from another thread here:



That comment from SurfDude in Sept.2008 was Spot-on in one sense. The troubles in the global economy DID cause a big drop in HK property which had started to gather force already by the time the comment was written, and within only six months, HK property prices had fallen an astounding 23% (using the Centaline index, it as down from 73.38 at the end of June 2008, to 56.71 in mid-Dec.2009, that's a drop of 23%, and most of it occurred over 9 weeks from the end of September, when prices fell 16.5%, that's an average of 1.8% per week.) But the drop did not last long, fortunately.

Why the rapid fall in HK property?



Mostly, the cause of the drop was a spike in interest rates. As banks stopped lending to each other. 3 month Hibor rates more than doubled in under a month, rocketing up from 2.1% to 4.4%. To make matters worse, banks suddenly adjusted downwards their property valuations. These are the benchmark prices that banks use in deciding how much they will lend. And they will generally lend only 70% of the bank's own valuationf. This can have a big influence on prices that buyers are willing to pay.

For example, we had agreed that we would sell one of our properties for $2.05 million in December, and the buyer was willing to pay that. But when he approached his bank, they said they would only value it at $1.90 million, and were willing to lend only 70% of that. This mean that the buyer's deposit would have to be $675,000 (34% of our target price) and he wasn't willing to do that. The sale did not go through. With the market picking up, the same bank now values the property at $2.36 Million, that's 24% more.

I'm not so sure about that. For the UK prices adjusted for inflation (even imperfectly) brings out the cyclical character of the property market more clearly. This is especially so in times of high inflation like the 1970s when UK nominal prices did not register the fall in real prices and masked the cyclical character of the downturn (and in part engendered the myth that property only goes up and never comes down). It would at least be worth having a look to see whether a chart of real prices reveals anything new.

More generally on the question, doesn't FH say that the cycle is driven by the time it takes to pay off capital costs through an average 5% rental yield on property? (This is also in part why he thinks the 18 year cycle is universal). So any variation by HK might, other things being equal, be caused by a higher or lower yield.

I get your point, and I can see why home prices should rise along with long term rises in incomes, when you see that.

But in volatile markets, such as we have seen, sellers will be very aware of what the paid, and they ten not to adjust their "breakeven" calculations for inflation. It will be interesting to see if a pick up in inflation HELPS property prices, or HINDERS them, thanks to the possibility that higher inflation will push interest rates up more than incomes.

I'm not sure that I buy into Harrison's explanation of why we see 18 year cycles. Personally, I think it has more to do with how long memories persist, and after 18 years, people may have forgotten enough, to repeat the same stupid mistakes they made in the last cycle.

I want to park this chart here... Because rates help to drive Property cycles

... and say more about it later

/source: http://www.greenenergyinvestors.com/index.php?showtopic=4251

MISSING IT! - Why do Top Property Analysts get their timing wrong ??
==========

The Dec. 2008 low was in place, and for months, some "top" analysts were still getting it wrong.

Here's an example from Colliers Report, released in April 2009, for Q2-2009, and based on February data:

MARKET OUTLOOK (Q2-2009)
Without a near-term recovery in the external environment, the luxury residential market
will continue to face the challenge of sustained weakness of occupation demand and the
cost-cutting initiatives among multinational companies. Both rental and capital values are
anticipated to post further double-digit declines.

According to our research, luxury residential rents and capital values are predicted to fall by
another 12% and 15%, respectively, over the next 12 months.

/see: http://www.colliers.com/Content/Repositori...9-Knowledge.pdf

By July, they had (finally) changed their opinion to moderately Bullish

MARKET OUTLOOK (Q3-2009)
Looking ahead, the sales market is anticipated to stage further growth given the sustained volume
of liquidity in the system and, more importantly, expectations of a global economic recovery before
the end of 2009. Driven by the additional push of asset price inflation, Hong Kong luxury residential
property prices will remain volatile in the near term. According to our research, luxury residential
capital values are predicted to rise 5% over the next 12 months. However, rentals are likely to edge
down further by 3% during the same period.

/see: http://www.colliers.com/Content/Repositori...9-Knowledge.pdf

But by then (July) buyers would have missed much of the market move.

It is better to WATCH THE HPI - Hong Kong Property Index / Weekly : Daily : Monthly


By contrast with the late analyst calls, within a few days of the low (3 Dec.2008), the following thread was started on CC.org,
by a friend who follows the Property shares:

Would-be Buyers, Have you missed the Low? :
http://caribbeancoast.org/forum/index.php/topic,1110.0.html
Alot of the bad news is out, and the market seems to have stopped falling
HPI is firm again today

...approaching 19,000 with HSI near 16,000.
That's a rather big move for just one week. (posted Dec.11th, as the Centaline index low was printing)


Per Centaline's figures, the Low was near 57 in late Nov./Dec. By the end of March, the index was (60.20) 6% off its low, and (62.83) 11% off by the end of April. So waiting for the analysts "moderate buy" signal, you might already have missed half of what so far has been a 20% rally in HK property prices.

HK PROPERTY and the October 1983 Peg



The Historical data I have turned up more recently supports a somewhat later start to the prior cycle,
in the second half of 1984, based upon real prices.

/source: http://www.imf.org/external/pubs/ft/wp/2000/wp0002.pdf

"The Hong Kong dollar was “pegged” to the US dollar in October 1983
— after Hong Kong’s Money Panic almost destroyed the value of Hong Kong’s currency.":



(The drop in the exchange rate allowed Hong Kong property to recover from the slide.)

Hong Kong’s Money Panic

That was the week of Hong Kong’s Money Panic, the week that the people of Hong Kong started a run on the currency and headed for the exit doors en masse.

The latest round of Sino-British talks wasn’t going too well. On Friday, September 23rd, the Hong Kong dollar sank to $8.83 per US$. On Saturday, people were so desperate to get rid of their Hong Kong dollars, the banknote rate went as low as HK$10 per greenback — and by the middle of the morning most banks and currency dealers had completely run out of US dollars!

Enormous lines formed at gold dealers’ windows as people rushed to convert their Hong Kong money into real assets — anything would do.

Saturday’s close of business didn’t stop the Panic: people simply went to the supermarket. By Sunday afternoon all stores had been cleaned out of rice and cooking oil. Supermarkets had enormous gaps on their shelves as people stocked up on storable goods in anticipation of spiraling prices the following week.

While uncertainty about 1997 triggered the collapse of the Hong Kong dollar, the seeds had been planted much earlier: when Financial Secretary Sir Philip Haddon-Cave took the Hong Kong dollar off its peg to sterling. (That’s right, our currency used to be linked to sterling, just as it’s now linked to the US dollar.)

That happened in 1972, when most of the currency analysts whose names you see in the paper today were still pedaling their bikes to school.

/more: http://www.marktier.com/Articles/hong_kong_dollar.php

THE PRIOR PEAK ... was ... 1979-80 ... or 1981 ?

"When the Hong Kong property market started to subside in the summer of 1981,.."
/per:
Multinationals and the Restructuring of the World Economy: The ... - Google Books Result
by Michael Taylor, N. J. Thrift - 1986 - Business & Economics - 389 pages
When the Hong Kong property market started to subside in the summer of 1981, ... By March 1983 that loss had increased to $HK 500 million and in March 1984 ...
books.google.com.hk/books?isbn=0709924577...
/see: http://www.google.com.hk/search?q=1983+%22...art=10&sa=N

Another, older chart that I found, supports a 1981 top, and 1984 low:


/source: http://www.info.gov.hk/hkma/eng/public/qb9805/qbfa03e.htm

This later peak could be important since a 1981-top/1984-low, lines up with a 2002/3 low in the 18 1/3 cycle.
So maybe the peak (1997) came a year or two earlier than the ideal cycle, and 2003 was "spot on"?

- with Notes added

Looking Back : THE VIEW ... from 1995
(at the beginning of HK's "Winner's Curse" period, there were still "memories of 1983" price drop)

Middle-class Hongkongers who have scuttled off to Canada and Australia have returned deeply disillusioned by the falling value of properties bought in haste when they landed overseas. At the other end of the scale, some families of quite modest means gambled on property across the border in China and discovered a nightmare of problems with legal title, building quality and the provision of basic services. The Hong Kong market, on the other hand, looks relatively attractive: prices have risen almost threefold in the past four years and supply shortages are expected to create another boom when the colony reverts to Chinese sovereignty in 1997.

Poorer families club together to secure a toehold in the property market, while richer ones have started to sell more expensive properties so that they can buy smaller ones in Hong Kong and still have money left to invest overseas. Britain is popular with Hong Kong buyers, who see it as a land filled with bargains.

A civil servant explained the obsession with property as part of the immigrant mentality which still prevails. As most people arrived penniless from China, she said, they are anxious to own tangible assets which provide a material expression of their new-found prosperity.

But what if everything goes horribly wrong after 1997?
This question seems not to bother most property buyers, who shrug off the memory of 1983, when the last price crash carried a great many people into the bankruptcy courts. Nowadays the banks have better security on their loans, the general level of wealth is higher and there is an unshakeable belief that property is the ultimate investment. Hong Kong's new masters clearly share this belief - Chinese companies have been among the biggest buyers of commercial property in the territory.

/see, Stephen Vines : http://www.independent.co.uk/news/world/ho...ty-1614232.html

POSSIBLE EARLIER LOW ... about 1948 ? - Did it Kick-off the Cycle

By the end of 1948, it was becoming increasingly apparent that Mao’s Communists were positioning to seize power. Concerns among the Chinese population were fuelled and, as a result, Hong Kong experienced an influx of political refugees unparalleled in its history.

Hundreds of thousands of people, mainly from Guangdong province, Shanghai and other commercial centers, flooded into the territory during 1949 and the spring of 1950, swelling the population to an estimated 2.2 million. The population today stands at just over seven million.

/see: http://www.hongkongpropertyman.com/hkpropm...catname=History

QUESTION:
Did this population surge, bring a jump off a Low, and kick start an 18 year cycle??

LOWS? ::
1948? + 18 1/3 = 1966 + 18 1/3 = 1984? + 18 1/3 = 2002, or 2003 + 18 = 2020/21

PEAKS? ::
(Pre-war, pre-1944??) + 18 1/3 = 1962 + 18 1/3 = 1981 + 18 1/3 = 1999, earlier in 1997 + 18 = 2015-17?
== ==

"Late Sixties" HK PROPERTY SLUMP... bottomed in 1966 (or 1967) ?

[PDF] Hong Kong
File Format: PDF/Adobe Acrobat - View as HTML
Source: Rating and Valuation Department, Hong Kong Property Review .....
Hong Kong due to the Cultural Revolution in 1966 causing property prices to slump. ...
http://www.dnbcountryrisk.com/FreeSamples/...iles/Sample.pdf

/see: http://www.google.com.hk/search?q=1966+%22...art=30&sa=N

From the Jardines history:
In 1966 China embarked on its second campaign to form a nation of communes. During this campaign, called the "Cultural Revolution," China ceased virtually all trade with Hong Kong. Although Jardine Matheson lost a significant amount of trade with the Chinese, its association of textile companies in Hong Kong continued to generate large profits from exports to the United States.
/see: http://www.fundinguniverse.com/company-his...ny-History.html

They BLAME IT ON THE RIOTS - but prices were "cyclically ready" to fall in the mid-to-late-sixties

"During this economic hardship, HK's property tycoons learned some lessons from the last downturns. First lean on the HK government to turn off the flow of land on to the market in HK. This will ensure the market can be "properly" constrained by the tycoons to avoid a drop in land prices as per the late 1960s riots, which might allow new competition to enter the HK property market."
/see: http://www.the-eleven.com/~tjlegg/

More evidence of a 1966-67 (& maybe into 1968) property slump:

"Figure 1 shows the annual changes in the growth of real GDP per capita. In the period from 1962 until the onset of the oil crisis in 1973, the average growth rate was 6.5% per year. From 1976 to 1996 GDP grew at an average of 5.6% per year. There were negative shocks in 1967-68 as a result of local disturbances from the onset of the Cultural Revolution in the PRC, and again in 1973 to 1975 from the global oil crisis."
/see: http://eh.net/encyclopedia/article/schenk.HongKong

From a history of Li Kai Shing
Li was diligent in bidding for land, always making calculations to ensure his profit would be satisfactory and not get carried away by the heat of the moment. Li has a saying that "buying land is not like buying antique, it is not the only deal available." His big break came during the 1960s. When the 1967 riots inspired by the Cultural Revolution on the Mainland were in full swing, many fled Hong Kong. As a result, property prices plummeted. Li, believing that the political crisis would be temporary, and that property prices would eventually rise after that, started buying good parcels of land at rock-bottom prices.
/see: http://www.billdoll.com/dir/p/list/top/100/2006/lk/lk.html

Sorry. Maybe I wasnt clear
Let me try again. Maybe this diagram will help :



To illustrate the out-of-phase part, here are two Bellwether property shares for each market



As you can see, the peaks came at very different times:
1996 for HK's Henderson Properties (HK:12), and 2005 for US builder Centex (CTX).
In each case, the country's property market peaked within the calendar year following
the stock peak.

As property values slide down from an 18 year (long) cycle peak, then the economy is hit hard.
So one would expect the US economy to underperform the HK economy over the next few years.

In the past...


Hong Kong's stock market outperformed the US stock market in both property cycle peaks.

Another point is:
When a property market is headed into the madness near the 18 year peak, the property market
will outperform the local stock market by a substantial amount, and then crash harder.

Each of the graph show some information about the 18 years cycle in Hong Kong .It very informative...Thanks...



Regards


Albert

_______
Pret immobilier

Welcome and Thnx for the comment.
How'd you find GEI?

(Question for Ben P.)

Hi Bernie,

Your guest said he EXPECTS HK property to go on rising so long as rates stay low.

My question turns this thinking around:

QUESTION:
Doesn't it make sense to sell HK Property BEFORE rates rise, since a rise will hit sentiment.
A falling US dollar, will soon trigger a "surprise" rate rise, don't you think?

Best regards,

M... from Hong Kong
(I'm just back from Singapore, which saw the biggest Quarterly property price rise EVER)

Hong Kong's property prices - 2nd highest globally, says the Global Property Guide.

+ After New York, where a 120sm apartment goes for US$16,216 psm - highest of 90 markest surveyed
+ Hong kong equivalent is US$15,424 psm
Others:
+ Tokyo at US$13,814 psm
+ Mumbai: US$11,413 psm
+ Singapore US$10,723 psm

HK ranks poorly in terms of yield, at just 3.12%, vs. NY at 3.75%, Tokyo at 5.69%, Mumbai 4.02% & Sing. 3.97%

HK was the biggest gainer in 2009, up 20.8% in real terms, with Taiwan second at +18.3%

+++

Compound annual GDP growth rates
(1999-2009)
Indonesia... : 16.5% per annum
Beijing........ : 16.1%
Vietnam...... : 15.2%
Shangha.i... : 14.0%
India........... : 12.1%
Philippines. : 9.9%
Malaysia.... : 8.2%
Korea......... : 7.3%
Thailand.... : 6.9%
Singapore. : 6.3%
Taiwan....... : 2.6%
Hong Kong. : 2.6%
Japan......... : -0.5%

The big rises in HK property prices represent
a "disconnect" with stagnant growth in incomes.

Last time property prices spiked up, in 1997, interest rates were 10%

== == added:
Table, showing Japanese property is undervvalued versus HK, UK, etc:

Interesting to see that, and to consider that my 18 year cycle reading yields a projected 2015/16 peak
in Hong Kong property.

Before that peak, I think we may see a big selloff in HK as US rates rise, forcing HK rates up too.
My guess is, that at some point, the HK dollar will be repegged to the Rmb, and that may kick off the last rally

Macau Forecast:
Longer Term Projection
I am bullish out to 2015-16, when I think the 18 year cycle will peak. But first, we may see a very nasty correction as rates go back up.

My guess is, that we may see something like this.


But the correction may get more "stretched out" than I have pictured.

Evidence for the Long Term Cycle in Hong Kong Property

I wish I could read Chinese. I am going to have to get this translated:


Title added: "Cycles in Hong Kong Property Prices"
source, with text : http://img101.imageshack.us/img101/412/hkpropcycltsource.jpg

I was sitting in the waiting area at my lawyer's office earlier this week, and I started thumbing through a recent edition of the Hong Kong Economic Journal, which was written in Chinese. I recognised the dates in the chart (above) and thought the diagram must have something to do with property prices, so I had a copy made of the article. I hope to get it translated later.

Meantime, I see that these cycles line up rather well with my own:

My Previous work:
===========
PEAKS? ::
(Pre-war, 1940-44) + 18 1/3 = 1962 + 18 1/3 = 1981 + 18 1/3 = 1999 (1997?) + 18 = 2015-17?
LOWS? ::
1948? + 18 1/3 = 1966 + 18 1/3 = 1984? + 18 1/3 = 2002, or 2003 + 18 = 2020/21

HKEJ Cycles:
========
PEAKS? ::
(Pre-war, 1940) + 18 = 1958 + 21 = 1979 + 18 = 1997 + 18 = 2018 + 24 = 2042

LOWS? ::
1926 + 20 = 1946 +18 = 1964 + 21 = 1985 +19 = 2004 + 20 = 2024 + 30 = 2054

== ==

What I find interesting, is that we both expect the next peak in almost the same time period, 2015-17, or as the HKEJ article suggests, in 2018. In other words, the current Hk property "bubble" is not the peak of the Long Cycle. Although I do expect a good pullback starting in 2010, and it could be a deep one, there may be a nice powerful rally after that. Fred Harrison speaks about how a 2-3 year "Winner's Curse" rally comes at the end of his 18 year cycle. Perhaps that is what lies ahead, a powerful multi-year year rally after a downturn finishing in 2011-12 (or even later.)

Another interesting forecast, is what comes after that next big peak. My own 18 1/3 year cycle suggests a low in 2020/21. While HKEJ suggests 2024. But after that is a much slower cycle, with a peak not coming until 2042, that's 24 years after their 2018 peak. And then their next Long Cycle low is all the way out in 2054, a 30 year interval.

I will be looking forward to getting the article translated to see why the author expects the 18-20 year cycle to stretch out.

SOME INTERESTING MACRO DATA was reported in Today's Standard (2-June-10):

+ Households in Hong Kong : 2.3 Million (100%)
.. In Privately owned flats.. : 1.2 Million ( 52%)*
.. In Public rental housing.. : 0.7 Million ( 30%)
.. In Subsidised HOS flats.. : 0.4 Million ( 18%)

*(Of these, 1.2 million):
.. Owner-occupied flats..... : 0.84 Million ( 70% of above)

/source was reported as: "Government Consultation Paper on Homeownership"

== ==
Let's assume they are worth $4,000psf x 500sf :
Then the average flat is worth HK$ 2 milion

And so 2.0mn x 1.2mn = HK$2.4 Trillion Value

Just added to the Header here:

China's Bubble, worse than HK's, as bad as Japan's / see: post #678