First, the bad (or, rather, good?) news: unit prices of small flats will fall 20 per cent within three months.
Then, the good news: the source of this prediction has been quite accurate.
Now the question remains: what would you do?
Most local newspapers played up a regular blog by Gale Well Group chief executive Jacinto Tong Men-leung, who spoiled the party with his warning. [Original source] (Chinese only)
“Those homebuyers are buying out of fear. Those who are greedy would not buy at this moment,” said Tong, whose company runs a HK$40 billion (US$5.16 billion) portfolio including Cosco Tower and the China Insurance Building.
His reasoning is interesting – at least it is not the mainstream view we read in the papers.
Tong began by crediting the government with achieving two-thirds success in stabilizing property markets, especially in the mid-size and luxury market.
The tightening measures drove capital into small homes, but that does not explain fully why their prices have kept going up.
He said some parents who funded the purchase of a home for their children had to take out a second mortgage and, later, third or even fourth mortgage to cover their interest costs.
Those who benefit from the fourth mortgage would be finance companies, the number of which surged fourfold to 1,200 in five years.
Tong estimated there are 12,000 fourth mortgages in Hong Kong, assuming each finance company managed to get at least 10 of them.
This works well as long as the property market keeps going up, as we have seen in the past five years.
But what if the music stops?
Tong has a good track record of predictions in the property sector.
Last year, he said he expected the property market to be stagnant in the first half before the pent-up demand drove up prices by 10 per cent. That was exactly what happened.
He also made his name in 2012 when he was one of the few who said the local property market would go up despite the government’s new tightening measures. He was right then, too.
We reckon Tong may probably be right again, because of the macro factors: interest rates in the United States will go up, which means Hong Kong’s rates will also go up, because of the currency peg.
We may not be able to count on mainland investors fueling the local property market, not just because of the extra 15 per cent buyer’s stamp duty but also because of their own lackluster property market at home.
And that’s not to mention that rich uncles from the mainland will keep a low profile amid the nationwide antigraft investigations.
Hong Kong buyers are increasingly finding overseas markets more attractive after a general 10 per cent fall in non-US currencies such as those of Australia, Canada and countries in Asia.
What is the point of paying more for a local home when you can get a 10 percent discount elsewhere?
Finally, it should be noted that Tong’s daughter bought four units at Redhill Peninsula in Tai Tam last month for a grand total of HK$86 million (presumably not funded by her parents’ mortgage).
Unless she is a naughty daughter who does not consult her father before buying, we tend to believe the collapse will have a bigger impact on smaller flats.
After all, nothing can escape the rule of physics that what goes up must come down.
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