Hong Kong Property: Remarkable Decline Of Transaction Volume1 November, 2011, 2:56. Posted by Zarathustra
Tags: Hong Kong, Property, Real Estate
The latest monetary statistics have confirmed the view here about the unintentional monetary tightening within Hong Kong, as all money supply measures have dropped year-on-year on a non-seasonally adjusted basis.
As warned early on, the tightening in China is having a spill over into Hong Kong banking system. As a result, we have already seen monetary condition tightened considerably in Hong Kong without the Federal Reserve raising interest rates. In fact, they have committed to keep rates low for longer, and are probably contemplating more easing. But crucially, monetary condition in Hong Kong is not solely determined by Federal Reserve, and people are still not getting that. Monetary condition in Hong Kong, if measured in terms of mortgage rates, have risen by at least 200-225 basis points since the end of first quarter, and probably about 100-150 basis points if measured in terms of fixed deposit rates. This is a remarkably fast tightening of monetary condition.
As a result of that, we have seen a remarkably stagnant property market in terms of transaction volume, even though prices are still holding up for the time being.
Source: Centaline, Land Registry
Transaction volume was having a some hit after the announcement of the special stamp duty, while prices continued with the uptrend as expected despite minor setback. However, the last leg of the bull market has been completed on the back of declining volume. As the spill over effect tightening in China became apparent in spring this year and banks start raising mortgage rates (and subsequently also fixed deposit rates), transaction volume has gone worse in the months to come, while the prices uptrend has been halted as expected, and is now set to correct to the downside.
All else being equal, I am maintaining my bearish stance on the Hong Kong property market unless monetary condition can be meaningfully eased either by the premature monetary easing of the People’s Bank of China and/or very aggressive measures from the Federal Reserve (e.g. NGDP path targeting, which implies a possible commitment of unlimited asset purchases), which are both not very likely in the near-term.