Congratulations: Hong Kong Home Prices are the most expensive on earth24 January, 2011, 18:54. Posted by Zarathustra
Tags: Hong Kong, Property, Real Estate
There aren’t many things that a city would like to be the No. 1 on earth. Today, the Economist Intelligence Unit and Ernst & Young announced that Hong Kong tops the table of being the most “globalised” in the 2010 Globalisation Index. Not something I find particularly fond of, especially it means very little to the overall culture and mentality of Hong Kong people in general. But if you think it is something good, you can absolutely be cheerful on that.
On a more negative note, Hong Kong property prices are now THE most expensive, according to market research company Demographia. Of course, the rankings should not be taken at face value, as the survey did not include other cities in China, but there is very little wonder to me, as I have written on why Hong Kong property prices can be that expensive. Because of quantitative easing and increasing interests from buyers from China, strong money flow into the city drove property prices to only some 10% shy of the peak of 1997. In my own forecast, my bull case scenario states that property prices can go up 10-15% further in 2011 if money flow remains favourable, that means the peak of 1997 will be reached at some point this year if everything is going fine.
That’s a big if, however, as you have to realise that money flow can be unpredictable and fast. This chart has appeared here for a few times now, which shows the year-on-year change in M1 money supply vs. year-on-year change in home prices. Please note that despite the rise since August after the market started talking about quantitative easing, in November when the Fed did start the quantitative easing, the year-on-year change has dropped slightly, and even more noteworthy, when you look at the numbers, money supply dropped in November on a month-on-month basis.
Source: Hong Kong Monetary Authority, Centaline
It is uncertain if this is a sign for caution. After all, we see inflation edging up while interest rates are still at record low, and sentiments in the property market has been very positive despite the special stamp duty. I will certainly look at the numbers closely, and if the trend of money flow continues, the end of Hong Kong property bull market will come just as the matter of time.
Another related question is whether the Hong Kong government should do more to curb real estate prices. The answer can be found in my on-going edits and revisions of the 30-year history of Hong Kong property market chart. Historically, government actions have limited effect on real estate prices no matter which way you are referring to. When prices were going up, government failed to curb; when prices were going down (like post-1997 bear market), government failed to support home prices. The reason is that the government has never been attacking the root cause of the problem (with good reasons, perhaps): currency peg. Administrative measures like special stamp duty will not work, and increasing land supply now will only create excessive supply later as the market go bust. So the short answer to the question of whether the government should do more is simple and straightforward: No.
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