To
be in fashion, one needs to embrace the wisdom of the crowd. And
chasing asset prices have been the vogue.
But
Hong Kong’s Financial Chief has chosen to against the crowd. Today,
for the second time in three months, he warned that Hong Kong’s
property market is in a “dangerous
situation”.
From
the Bloomberg
(September 12 2017): (bold mine)
Hong
Kong’s Financial Secretary Paul Chan warned potential buyers to be
careful buying property in the world’s
most expensive housing market,
as moves by the Federal Reserve to unwind
its balance sheet may shrink money supply.
Chan warned in
June that Hong Kong’s property market is in a “dangerous
situation” and vulnerable to a correction. Hong Kong Chief
Executive Carrie Lam describes housing as citizens’ No. 1 concern
and recently
set up a task force on increasing land supply as she tries to rein in
ever-escalating prices.
“One
has to be very careful if one really wants to buy a property in Hong
Kong,” Chan said in an interview on the sidelines of a Belt &
Road Forum in Hong Kong on Monday. Buyers need to assess their
ability to service mortgages as interest rates normalize, he said.
Hong
Kong home prices, the
least affordable in the world, have surged 21
percent in the 12 months through June 30, the
second-biggest gain globally after Iceland, according to a report
from broker Knight Frank LLP. The boom in global house prices may be
coming to an end as central banks worldwide step away from economic
stimulus, with a slowdown in growth already evident in Europe, the
broker said…
The
Hong Kong dollar is pegged to the US dollar through a
linked exchange system, managed by the currency board, the Hong
Kong Monetary Authority (HKMA). Though the HKMA does not actively
interfere in the foreign exchange market, it stabilizes the exchange
rate mechanism by requiring US dollar deposits, functioning as
reserves, from note issuing banks equivalent to their respective
issuance of banknotes. With the exception of the $10 notes, all
denominations of the Hong Kong dollar emanates from three private
banks, specifically, the
Hongkong and Shanghai Banking Corporation Limited,
the Standard
Chartered Bank (Hong Kong) Limited
and the Bank
of China (Hong Kong) Limited.
And
because the Hong Kong dollar is pegged to the US dollar, Hong Kong’s
economy essentially imports the US Fed’s policies. Thus, the HK
Finance chief takes emphasis in the direction of the US Fed’s
policies.
Hong
Kong’s property market has been blazing. It holds the distinction
as the world’s most expensive housing market. Last May, a
car parking lot was sold for a record HK$23.3 billion ($3 billion).
Raging speculation has even spread to public
housing properties. Tesla sized micro-apartments,
with a floor area of 161 square feet (15 square metres) sold at US
$500,000, have been booming!
Of
course, frenzied speculations have not just been in properties, Hong
Kong’s major equity benchmark, the Hang
Seng Index (HSI), has rocketed to close to its 2015 high of
28,060. The HSI
closed today (September 12) at 27,972.24
The
HK Finance Chief has been worried about the effect of the FED’s
money supply to Hong Kong.
The
Fed’s easy money policy has fueled the almost tripling of Hong
Kong’s loans
to the private sector which has been manifested in the balance
sheet of the banking system and in money supply growth (nominal
and yoy).
The
recent acceleration of loans embodied in the M2
yoy has powered the all-time highs of property and near record
stock market prices
Like
everywhere else, such frantic yield chasing phenomenon had obviously
been enabled and facilitated by negative real rates policies.
Hong
Kong’s assimilation of the Fed’s policies has led to about 9
years of negative real rates.
The
HK Finance chief expressed optimism that the economy can weather a
property downturn.
My
best wishes to him.
