HK propert bubble, does anyone ever learn?

Discussion in 'Economics' started by S2007S, Oct 25, 2010.

  1. S2007S

    S2007S

    Check out the rise in real estate prices in 3 years, 50% in 2008, 30% in 2009 and 15% in 2010. Talk about a bubble waiting to pop, as I said before there is a real estate bubble in China and other countries getting ready to pop. No one has thought about the consequences of the next downturn in these countries nor do they even care as people continue to bid prices higher and higher. HK real estate prices are going for as much as $1600 a square foot, does this not set off the idea that this bubble is ready to show huge signs of falling apart just like it did in the US. Lets be reasonable here, these kind of numbers are not sustainable going forward. From the falling dollar to rising commodities to real estate bubbles around the world how can anyone possibly continue to think this is going to last another decade let alone another year or two. As I continue to repeat myself all bubble ben bernanke is doing is inflating asset bubbles not only here in the US, but everywhere around the world.


    Property Bubble in Hong Kong? Blame the Fed
    Published: Sunday, 24 Oct 2010 | 9:37 PM ET
    Text Size
    By: Connie Tan & Deepanshu Bagchee
    CNBC Asia Pacific

    The Hong Kong property market has seen a spectacular rebound since the global financial crisis. Real estate prices in the territory have risen 50 percent since the end of 2008: 30 percent in 2009 and 15 percent this year, compounded.

    But many are warning that the increase is unsustainable. HSBC's CEO for the Asia Pacific region, Peter Wong, cautioned in early August that Hong Kong could soon be facing a property bubble. Mark Matthews, an equity strategist at Macquarie, says the bubble is already here.

    "If you had $3 million, would you buy one condominium on Conduit Road, Hong Kong, or five (properties) in Miami?" Matthews noted, drawing comparisons between the sizzling market in the territory and the plummeting property prices in the South Florida city.

    High-end property prices in Hong Kong have hit new highs and homes are now going for an average an $1,600 per square foot. Prices for Miami properties, on the other hand, have halved over the past three years to just $320 per square foot.

    While comparing Miami 's real estate to Hong Kong 's may be a bit of a stretch, Matthews says it illustrates of how outrageous prices have become in the territory. Hong Kong's residential value is now hovering at its all-time high, which translates to 320 percent of the territory's gross domestic product, according to research data from Morgan Stanley.

    But the recent cooling measures announced by the Hong Kong government and China's move to hike rates may moderate prices somewhat, because Hong Kong's current property cycle, unlike those in the past, is driven almost solely by capital flowing from the mainland, according to Morgan Stanley's China strategist Jerry Lou.


    "While the recent rate hike in China should not constrain the mainland's economic growth, we do expect it to start draining the liquidity overflow into Hong Kong's property market," Lou said. "The drying of liquidity would hurt property prices and also cap the performance of property stocks."

    "China is not fighting inflation, China is fighting QE. What they're doing with the rate hike is to show the world that they're prepared to tighten, to stave off inflationary pressures from the Fed's easing moves," says Lou.

    Still Beijing's move to quell inflation may not be enough to curb Hong Kong's property prices. According to Shane Oliver of AMP Capital Investors, countries that maintain fixed currency pegs to the U.S., like Hong Kong, will be importing the Fed's easy monetary policy for years to come. This is the ideal condition for the inflation of asset bubbles, he notes.

    "I think we've got a long way to go yet over the next two-three years as these bubbles form and therefore it's incumbent upon investors, at least at this stage, to remain exposed to that and use any pullbacks to add to that exposure," says Oliver.

    Mark Matthews says even if you add up the Fed's QE and the asset bubbles that it's creating - he would still want to ride the Hong Kong property market. His strategy to make money, without putting down too much money, is to invest in call options on the Hang Seng property index. "Call options on this index are relatively cheaper compared to those of large Hong Kong's property companies such as Cheung Kong or Sun Hung Kai Properties," says Matthews.