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Hong Kong Property Index - A look Ahead?

 

Having Called the Peak reasonable accurately (or even precisely*) almost two years ago,
I will now call the LOW in HK property in 2020 +/- 1 year (actually: 2019-2021)

 

The HK Property index is often a bellwether for HK property prices (and the Centaline Index).

If it follows the 18 year cycle, with a Low in 2019-2021, it might show a pattern something like the following

 

HSI Prop / HK:110003 ... update: http://www.aastocks.com/en/stock/detailchart.aspx?symbol=110003&hb=0#GTopHKProp2_zpsnyhi616y.gif

(Note: the above shows one of several possible pathways) : Below is the Historical Centaline's CCLI vs. HSI Prop index

 

HKProp3_zpsvjcsdv6j.gif

 

*Here's a link to the prior thread on Calling the Peak:

http://hongkong.asiaxpat.com/forums/hong-kong-property-finance/threads/26777a7e-c2b6-4305-86c0-cc776e3fc5ea/is+it+possible+to+call+the+peak+3f/

You can read it and see how good you think the Call was

New thread on AX: Is it possible to call the Low?

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Hong Kong Property's "Double Top" may now be in place

Taikoo_zpsbalm4kcv.png

===

Last (announced 01/06/17): $14,595 psf - 0.51% in the latest week.

Could bottom below $10,000 psf in 2019-20

 

THe HSI Property Index ( update ) - gave an early warning of the Double Top

 

HSIpropShs_zpsyahjrg2k.gif

=

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Posted 04 March 2016 - 09:47 AM

Bounce seems to be happening/coming in HK property. I base this on

 

- Sizeable bounce in HK developer stocks such as HK12 Henderson which seems to have retraced around half of its falls since the market started heading down in August 2015

- Signs from China that monetary policy has got considerably looser again - and that has spilled over into property eg Shenzen market reportedly up 50%

- Stabilization and modest rises in HK centadata coming in last two weeks after CNY

- Overwhelmingly bearish sentiment in commentary pieces etc in the press and on forums such as Asia Expat and Geoexpat

 

To draw a parallel with the London market I know well I think we are at the March 2009 moment for HK property - does the money printing in China put a floor under the market as govt intervention did then in London {see the call made by the Berkeley Homes Chairman in early 2009 at the time where he was a lone voice calling the bottom against almost every other commentator calling for further falls} or does the market continue downwards after a dead cat bounce.

 

The contrarian in me is calling for a sizeable bounce now based on a London 2009 onwards repeat {ie HK is half an 18 year cycle behind London} and the Chinese have plenty of scope still to ease monetary policy probably through interest rate reductions and easy money some of which will find it into HK property market like 2009.

 

Any which way this is either bull trap time on the bubble diagram before a full on crash comes or its a London 2009 redux where authorities propel prices further into the stratosphere to multiples that become harder and harder to reconcile.

 

I'm sticking with my HK property because its easy to manage from afar, in a market with good tenants and tenancy agreements, its a secure jurisdiction to invest in, its in a strong currency and the debt is now paid off. If I did sell then I think I would invest mainly in oil shares given we are getting close to historical inflation adjusted lows in the oil price

 

But equally I may just be about to miss the last chance to get out - we should know within a couple of months

 

_____________________________________________________________________________________________________________

I wrote the above approximately one year ago calling for a sizable bounce in Hong Kong property. I now think we may be about to see prices go vertical as we head into a blow off top phase. Why?

 

- Developers shares are outperforming the physical market this year indicating further strength for HK property

- Money is leaking out of China via companies outbidding HK companies for auctioned plots

- Latest property cooling measures mean sellers must be really confident that they wont want to buy back in at a later date hence reducing supply in the secondary market

- HK is following London about half a cycle behind IMO (2009 in London mirrors 2016 in HK - similar falls turned around then)

 

I now expect prices to rise 30-50% as we head into a blow off top. Prime London has been falling since late 2014 so we may have a further five years (2016-2021?) to go in Hong Kong as valuations get really stretched. I expect this to confound nearly all market participants just as London did post 2009 and the only lever available to slow price rises remains govt cooling measures which until IR's normalise has proved a blunt instrument.
Lev
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The continued rise in prices does not surprise me at all. There is a combination of factors driving the market:

 

1. a cash rich economy and populace (see HKMA data)

2. very low unemployment and high job security among the middle/upper income groups (lower income groups have access to publicly subsidised flats)

3. the government cooling measures acting as a massive deterrent to selling in the secondary market

4. low interest rates (around 2.25% for a new mortgage with legacy mortgages around 1.2% after the rate hike)

5. very limited use of revolving or interest only facilities in residential lending + high LTV ratios mean there are a lot of owners with either very low or nil mortgage balance

6. cash still coming in from China

 

I have no plans to sell any of our properties. I'm happy to let the rents come in, watch the mortgages slowly amortise and hope that some buying opportunities come up in a few year's time when the mortgage on our home is paid off.

 

I don't know how much further prices have to run, but it is nice to see the developers playing catch up with the market.

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"- Overwhelmingly bearish sentiment in commentary pieces etc in the press and on forums such as Asia Expat and Geoexpat"

- came on last year's Low

- now some property pundits are predicting a gain of over 10% in property prices in 2017, and

"- Developers shares are outperforming the physical market this year indicating further strength for HK property"

- per Lev.

 

The peak in sentiment often comes with, or a little before the peak in prices, here's an update on the Long Term chart of HPI - the Hong Kong Property index

HPI-8yr_zpsrmi3eslc.gif

 

I met well-known investor, David Webb, at a M--- event on Friday night. We spoke about property with some young Hong Kong people.

His view is that now is NOT the right time to be buying. He says, if you can manage it, it might be a good time to sell.

He expects trouble in China to come, and thinks many Chinese bank now have problems with their loan portfolios, and doubts the

Chinese government will be as willing to take over the problem loans as they were the last time.

 

Even so, he now holds "reportable interests" (over 5%) in 16 Hong Kong traded companies, and says it is not easy to sell.

He would like to have plenty of cash the next time the market drops

 

Obviously, there is no guarantee that this thinking will prove accurate

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Trainee Investor - share you point abut developers playing catch up with the market. Think this explains why Centaline Index is now making new highs above September 2015 even if HK developer shares are not yet. Better value is most likely with the HK developer shares as their land banks are now becoming more valuable.

 

Dr Bubb - Agree the sentiment is now more neutral a mix of commentators calling for price rises and falls by year end whereas this was overwhelmingly bearish this time last year. However, in the mass market I think there are still more bears than bulls probably due to affordability metrics. Some of these bears will become forced purchasers IMO as they reluctantly chase the market up tapping into Bank of Mum and Dad and other funding routes

 

My tenant has just given notice so I will put on to rent and sell at the same time - I expect this will lead to a new tenant but we'll see.

 

Lev

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The average price per square meter for Hong Kong city inner city regions is around USD34.500 per square meter.

That means a tiny 40 square meter condo will cost 1,376,000 USD.

Housing is now deemed as extremely unaffordable

 

 

"I would only buy if prices were 40 to 50pct lower than what they are now"

I expect that HK property prices will decline in 2017"

 

According to this youtube blogger...

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Well today's announcement of a $10,000,000 hkd (approx $1.3mil usd) for a 1 bedroom apartment in the suburbs (Tsuen Wan) is definitely worth watching. Clearly the market is favouring developers stock with their financing programmes available. Question is at what price will the market stop rushing into these units?

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Still looks like it is rolling over to me
HPI-15yr_zpsxv4vlst2.gif

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The Chinese Yuan may come under pressure...

With all the banking problems and bad loans, Kyle Bass expects the Yuan to be the "arbiter"

or what Axel Merk calls "the valve"

 

If a big devaluation in the Yuan is coming, it will impact HK and HK Property IMO

so this is something to watch,

 

https://www.bloomberg.com/news/videos/2017-05-02/hayman-s-kyle-bass-on-china-s-economy-global-risks-video

 

For those of you who haven't seen the growth in private debt for China (and HK), it is alarming. Here is the chart.

 

https://www.ceicdata.com/en/indicator/china/household-debt

 

Household debt rose 1000pct in 10 years. It is a bubble on steriods, and it will not end well.

 

China -- and probably HK -- will never recover from this disaster IMO.

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The HK Property "peak" - delayed again?

 

(From AXP):

D.C. :

Seems like prices r blowing through the roof bro. Tht peak making higher highs... Probably better idea to just buy if u need to rent cuz no point speculating where the trough is. Just dun overextend budget n save capital so u hv ammo when there will be a correction
S.D. :
....there were some very well researched and sound views on property prices the last time I was on this site. I wonder if these views still hold? I am currently renting in Mid-Levels (and have been doing so for quite a number of years now) while waiting for the right moment (not that there really is a "right" moment) to buy. I apologise for reaching out this way and would really appreciate any thoughts anyone might have.

=========

I do realize that the Centaline property index show price making record highs

ccli_chart_zps0uaolj7b.png

 

For me:
The 18 years cycle operates in most countries, and is normally : about 14 years Up, and 3-5 years down.

"Expected" peak depends on where you start:
1997 Peak+ 18 = 2015
2001 Low + 14 = 2015 (from the notional Low we "should have had" without SARS
2003 Low + 14 = 2017 (from the Actual low, brought by SARS)

I used to say: Expected peak is "2016 +/- One Year"

Looks like 2017 is now the preferred case, helped on by continuing big buying from mainlanders

 

Even so, when I look at the actual prices of the HK Property share Index ... update

 

HK-propertyShs_zpsq2sms7dz.gif

 

... I am left with the belief that an important Top is being formed

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China's Wealth Mgmt Products wobbling

 

https://dailyreckoning.com/greatest-ponzi-scheme-history/

 

Another warning from James Richards

 

Now China is about to set the world record with a $9 trillion Ponzi. Here’s how it works…

The Chinese have a middle-class of several hundred million people with a high propensity to save. Most Chinese don’t get to invest overseas, so they are limited to real estate, gold and local investment products, mostly sold through banks.

When customers go into a bank, they are offered a standard bank deposit paying about 2%, or a “wealth management product,” (WMP) that pays about 8%.

WMPs are something like the collateralized debt obligations (CDOs) that brought down Lehman Brothers.

Many customers naturally take the 8% return and invest in bank-managed WMPs. Customers believe the WMPs are guaranteed by the bank or the government. They’re not — WMPs are just unsecured investments.

WMP’s have been described by the former Chairman of the Bank of China as the greatest Ponzi scheme in history.

It gets worse…

The banks use sales of WMPs to invest in the riskiest development projects and state-owned enterprises (SOEs) on the edge of bankruptcy.

These institutions behind these projects, financed by the original WMPs, cannot repay them. So most of the WMPs will never be repaid.

Banks rely on sales of new WMPs to redeem the old ones at maturity. Today, when a customer wants his money back, the bank sells a new WMP, and uses that money to cash out the redeeming customer. The new investor steps into the shoes of the old with the same bad underlying investment.

What happens when everyone wants his money back at once, or new customers just stop investing?

That’s what happened to Madoff, and that’s what will happen in China. Even China’s $3 trillion in hard currency reserves won’t be enough to cover a $9 trillion panic.

==

> more - see link, above

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EXCELLENT Report - from MDS and UBS !

 

Summary

=======

UBS's View, 25 April 2017
.

: HK : We assume three Fed rate hikes in each of 2017 and 2018, in line with our US economists' revised view. We have assumed the Fed hikes are passed through into higher HK mortgage rates... We estimate absorbing two further hikes ... Our multivariate regression model suggests HK residential price growth of +1% in 2017 and -3.4% in 2018. We note our country team is more conservative, assuming Hong Kong residential prices decline 5-7% in 2017..

.

: Singapore residential prices have fallen 11.7% from their Q3'13 peak.
We expect the downtrend in Singapore residential prices to continue, given rising interest rates, elevated vacancy rates and slower economic growth. Our multivariate regression model ... is pointing towards a 4.5% fall in Singapore residential prices in 2017, fairly close to our country team's estimate of a 6% drop.

.

: Manila, PH :

Launches in Metro Manila declined 12% in 2016 but take-up improved (+25%) according to Colliers, resulting in a decline in inventory levels from a peak of 2.6 years to 1.7 years. We expect the developers to respond with a pick-up in launches and capex this year. Residential supply is forecast by Colliers to grow by 54% over the next five years, putting downward pressure on rental rates. A decline in rental yields from 6% to 5% may put into question the ability of residential prices to hold in 2018...

.

: Bangkok, TH :

We expect 2017 to be a better year than last for Thai property given more favourable demand-supply dynamics in the condo segment. House prices are expected to rise moderately on the back of land price appreciation and an increase in the proportion of new condo launches in the high-end segment; ... a short-term strategy employed by a number of big developers to navigate through rising rejection rates in the low-end segment. In 2017, we expect moderately positive house prices growth for the primary market, given rising land prices, and an increase in the proportion of new condo launches in the high-end segment: 85% of the buyers are Thais and the remaining 15% are foreigners. For the secondary market, we expect prices to be flat. In Bangkok there can be a ~30% price difference between primary and secondary pricing, with local consumers strongly favouring primary over secondary property for purchase.

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It is good to see some diversity of views.

If everyone has the same view, they are probably ALL wrong. haha

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And JLL is even more bullish, -- they have "upgraded" their forecasts for HK Residential Prices,

now expected to rise 10 to 15pct this year.

 

It seems to me that the property agencies, everywhere, -- JLL / Knight Santos / Colliers -- are way

more bullish than the - perhaps more independent - research analysts from the banks and brokerage houses.

Maybe there's a conflict of interest?????????????

 

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Same article, different link

 

Hot hot hot, and why property is still cheap in Hong Kong

Its pretty damn hot in HK right now, And I mean both the weather AND the property market.
People are making good use of the pools on Park Island and the ocean and beachs at Ma Wan, and agents are doing well for themselves selling to property to eager buyers who seem to be of the view that demand for property in HK is going to rise in the coming months and years ahead.
Property prices are at record historical prices, but this is of course also the case in many other major cities in the world, whether Sydney, London, Berlin, New York, Shanghai.
Many experienced property analysts who have seen prior cycles believe that the fundamental conditions need to support a new boom over the next few years are firmly in place. Looking at the Centadata property graph below, many are expecting a new peak to get up to 200 on their price graph by the end of 2018 as the market starts to accelerate.

HK%2Bproperty%2Bprice%2Bgraph%2B2017.JPG

> more: http://parkislandhongkong.blogspot.com.es/2017/06/hot-hot-hot-and-why-property-is-still.html

 

200? I doubt that somehow

Neverrtheless, The Prop Shares are pushing back towards Highs

> http://charts.aastocks.com/servlet/Charts?fontsize=12&15MinDelay=T&lang=0&titlestyle=1&vol=1&Indicator=1&indpara1=18&indpara2=52&indpara3=200&indpara4=330&indpara5=530&subChart1=2&ref1para1=14&ref1para2=0&ref1para3=0&subChart2=3&ref2para1=12&ref2para2=26&ref2para3=9&subChart3=12&ref3para1=0&ref3para2=0&ref3para3=0&scheme=1&com=100&chartwidth=673&chartheight=690&stockid=110003.HK&period=2061&type=1&logoStyle=1&

 

Most Unaffordable Cities
Honk Kong : 18X incomes
Sydney-- : 12.2X
Vancouver: 11.8X
London-- : 8.5X
New York : 5.9X

 

Why is Hong Kong housing so expensive? | CNBC Explains

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Micro flats not a full solution to HK's housing crisis

 

Micro flats tackle Hong Kong's high housing prices

 

/ 2 /

Keeping good humor about a very tight situation

We girls in the Ridiculously tiny flat in Hong Kong

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Deutsche Bank continues with its bearish predictions on the HK property market

- basic expectation is that property prices will halve over the next ten years

http://www.scmp.com/property/hong-kong-china/article/2097546/hong-kong-home-prices-seen-falling-half-10-years-says#comments

 

They may well be right (or not), but as is mentioned in some of the comments, Deutsche Bank's track record on this subject is poor.

 

And mine isn't much better - I've been saying that HK property is too expensive to represent good value for a few years now, and it's kept going up. Fortunately, I didn't sell but as things stand right now, the double stamp duty is a huge impediment to cashing out.

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VALUES WILL HALVE?

 

Deutsche Bank continues with its bearish predictions on the HK property market - basic expectation is that property prices will halve over the next ten years http://www.scmp.com/property/hong-kong-china/article/2097546/hong-kong-home-prices-seen-falling-half-10-years-says#comments

 

They may well be right (or not), but as is mentioned in some of the comments, Deutsche Bank's track record on this subject is poor.

 

That is truly dramatic... a halving of values.

I suppose it could happen if rents are stagnant and HK mortgage interest rates double

 

(in edit):

DB are looking at something different from rising rates - shorter maturities

 

Home prices in Hong Kong could fall by nearly half over the next 10 years as a rapidly ageing population coupled with rising supply of new flats will dent demand, according to a report by Deutsche Bank.

“We expect vacancy to surge to 9 per cent, from 4 per cent now, and average selling price to slide 48 per cent by 2026 from current level,” wrote property analyst Jason Ching.

As the population ages, fewer households will be able to stretch their mortgages to the maximum tenure of 30 years, the report said.

 

I don't totally but the shorter maturities argument -

Paying more principle inside a mortgage payment is not the same thing as paying more interest.

The interest is lost and gone forever. The principle payments you will get back if/when you sell for more than the mortgage balance.

But there does seem to be a real shift in the supply/ demand balance coming:

 

Deutsche Bank said overall housing take-up has declined markedly in the past decade,

mirroring the deceleration in population growth.

“We estimate total housing demand of 338,314 in 2017 to 2026. This compares with new supply of 429,296 over the same period. We expect a private housing supply surplus of 93,781 in 2017-26,” it said.

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  • 2 months later...

(HK's Property-related Meet-ups, etc):

 

Real Estate Investors and Professionals Group

500 Professional Members

@HK Overseas Property Discovery

183 Overseas Property Investors

 

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  • 4 months later...

I don't know whether to utter a Homer Simponesque "Duh" at the fact that rapidly rising property prices result in zero negative equity cases in Hong Kong or cringe at the appalling journalism that produced a headline and an entire article that conveniently demotes to the last paragraph the inconvenient fact that the claim that there are zero negative equity cases in HK excludes developer second mortgages up to 120 percent of property value. In either case it says more about shoddy journalism than the HK property market.

https://www.bloomberg.com/news/articles/2018-02-01/hong-kong-homeowners-have-zero-negative-equity-as-prices-soar

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