October 16, 2009
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<HK Home Price – Quick facts>
1. “4,000蚊一呎嘅 (樓宇) 仲有好多”
According to 中原地產, there are a couple of observations— Don’t expect to get a flat on Hong Kong Island (the cheapest is 香港仔中心, $4,900 sq. ft)
— Only 2nd tier estate in Kowloon (黃埔新村 – NOT 黃埔花園; 九龍灣得寶花園; 將軍澳新都城)
— Marginally, you can also get some large but old estate in Kowloon (about $4,200 in 美孚新村 and 淘大花園)
— If you go north into the NT, you get more choices (from 銀禧花園 to 元朗 YoHo Town). Indeed, if you choose 綜援山莊 嘉湖山莊, it’s only $2,000 or 50% of $4,000
2. Bubble of high-end flats
This is a very risky subject, because no one ever gives a concluding definition of bubble. A bubble, I think, can at best be observed after it bursts. This is miserable.
With reference to wiki, I think the “bubble” in general has several characteristics
— Bubble can develop over a long period of time; i.e. this is not necessarily a short-term phenomenon (e.g. Irish housing bubble in 2000-2006; HK’s real estate bubble during 1990-1997)— In the late stage of bubble, price could surge rapidly in a relatively short period of time (e.g. in the famous Tulip Mania, the price for Tulip rose more than 1000% in a month time)
— Apparent fundamentals has no strong support for the price; prices are realistically high (Reportedly, Paul Krugman said land price for a small piece of land in front of imperial palace in Tokyo = land price for whole California; see other about land price in Japan here)
— Not only large trading volume, bubble involves the active participation of the general public (e.g. the global tech-bubble in 2000s)
— People purchase the asset, mostly in expectation of further price increase (like the ponzi scheme, or 接火棒遊戲). This is the difficult part to ascertain because expectations are not observable.
Note that all these 5 points are interrelated.
Another related point about bubble is, retrospectively, maybe those burst bubble has these common characteristics; but there are other un-burst bubble that have the same characteristics but are never burst. This, I think, is the most difficult part of identifying bubble.
(this is just like after earthquake, people will say dogs and cats running around before that; but there are instances where dogs and cats running around, but there is no subsequent earthquake)
Basing on the above 5 criteria, I tried to look for the evidence for any bubble in high-end market
1. Magitude and duration of increase : According to rating and valuation department, luxury flat (class D and E) registered a 26% rise in home price in 8-month time (up to Aug-09). Other relevant history : in 1996-97 (a bubble) and in 2003-04 (not a bubble).
So the time span for price surge is relatively short so far; price increase is not substantial.
2. Fundamental : Surprisingly, in 1996 price has been on the rise but rent was stagnant; in 2003 (no a bubble), price rose but rent dropped.
This time? Price rise, but rent fell sharply. (it’s like the stock where price goes up but earnings go down, you have higher P/E ratio). Rent for high-end flat is off some 40% from the peak, but showed signs of pick-up.
3. Participation for large portion of general public. Yes, but the general public is not only HK residents but Mainland ones.
I look for other signs of speculation.
— Confirm-transaction (rough indicator of “Ponzi-like” activities) is only 2% for the whole property market (no separate percentage for luxury flats). The ratio is rising, but still far from the alarming 5% ratio— Overall transcation volume for luxury flat is not particularly large.
4. Note : I don’t look that the affordability ratio, because, basically people purchasing luxury flats are mainland residents (HK income does not apply), they do little or even no mortgage (mortgage rate and payment does not matter).
Bottom line : i don’t see any strong bubble in the luxury flat market.
But there are signs that it is developing, their price increases lack of apparent rental rise to support (so far), and most investors are trying to invest in expectation of further increase.
