27 May 2019
Two multi-year property booms in Hong Kong since 1984 were both heralded by steep price declines. Photo: Reuters
Two multi-year property booms in Hong Kong since 1984 were both heralded by steep price declines. Photo: Reuters

Previous bull cycle may show how current housing boom will end

Hong Kong’s housing market has continued to rise since July 2003, a bull cycle that has many similarities with the previous one that occurred between September 1984 and October 1997.

One common feature of the two bull cycles is that both started after a steep slump of 60-70 percent.

In early 1980s, housing prices started to decline amid political uncertainties, and reversed the downward course only after falling almost by a cumulative 70 percent.

Before the current bull cycle began, Hong Kong went through Asian financial crisis in 1997, the bursting of the internet bubble in 2000 and the SARS outbreak in 2003. Home prices also tumbled nearly 70 percent during the period.

As can be observed, the housing market apparently often goes through a deep correction before a sustained rally begins.

The second thing that is common between the two property booms is that housing prices never showed a correction bigger than 20 percent during the period.

The first bull cycle had an accumulative rally of 935 percent, compared with 448 percent in the current cycle.

However, the inflation-adjusted housing price soared 292 percent in the first bull cycle, and close to 278 percent in the current cycle.

Yet there is one notable difference. In the 1988-1997 bull run, big apartments were leading the charge, whereas this time, the small units are outperforming.

The first bull cycle lasted 158 months or 13.2 years, while the second one has already extended for 165 months or 13.75 years as of March.

Does that mean the bull cycle is ending? There is no simple answer.

It is, however, noteworthy that external factors played a key role in the market’s ups and downs.

The previous bull market was killed by the Asian financial crisis, and this time, property prices were to a certain extent buoyed by the influx of capital.

The trigger that will end the current bull market may also be an external shock.

This article appeared in the Hong Kong Economic Journal on June 8

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal chief economist and strategist

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