Hong Kong Property: Nam Cheong Site Tender And Mortgage Tightening20 October, 2011, 15:07. Posted by Zarathustra
Tags: Hong Kong, Mortgage, Property
Yesterday, Sun Hung Kai Properties (16.HK) won the tender for the Nam Cheong station residential project for HK$11.8 billion, way below market expectation. The price paid implies an accommodation value of HK$4,468 per sq. ft., below the market expectation of about HK$5,500 per sq. ft. Some of the property guys and surveyors are living in a la-la land, still bizarrely believing that the completed properties of this site will be prices at HK$10,000 per sq. ft.
The reality about this underwhelming land sale is that the property market has been cooling for quite some time now. For the past 6 months, the market as been holding up on very thin transaction volume. Meanwhile, the monetary tightening in China has an unintended but foreseeable consequence of tightening monetary condition in Hong Kong. As a result of that, mortgages are harder to come by, and banks are now fighting for deposits, offering fixed deposit rates that are more attractive than buying a piece of property as a store of value and for rental income (and for that matter, if you have been in cash or fixed deposits since early this year, you are also beating the stock market). The latest bad news on that front is that Citibank and Bank of Communication (3328.HK) are both withdrawing partially from the Hong Kong mortgage lending market according to Apple Daily, a manifestation of the trend of unintentional monetary tightening, which as I have stressed over and over again. In fact, the worst case of seeing HIBOR shooting up, which would be the bulls’ worst nightmare, has not even happened, but monetary condition has been tightened very significantly.
And now on the policy front, the risks of seemingly over-doing things appear to be rising (do note that I don’t really care too much about that, as I explained in the past that government measures in both cooling and supporting the property market have not stopped the big trend). The latest policy address had no dramatic measures, but the promise to resume HOS is triggering a wave of criticism from the beneficiaries of high property prices, while in reality they have just been wrong about the property market (I do note that those who invariably think that government’s measures are useless are pretty the same group of people who are now opposing government’s measures). Additionally, CY Leung, who allegedly designed the 85,000-policy (which was then blamed for causing property market crash in 1997), becomes a frontrunner in the next Chief Executive race, and has been on the bandwagon of demanding more land supply.
With the Chinese economy cooling and with uncertainties escalating in the global economy, with increasingly tight monetary condition, this isn’t unforeseeable that the property market should cool down. In fact, these all are too predictable.