Is the Hong Kong property market set for a serious decline?

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There are real concerns about the Hong Kong property market as the worldwide economic slowdown continues to hit many parts of Asia after seemingly avoiding the early stages of the credit crunch in America. There are some property experts suggested that house prices in Hong Kong could fall by between 20 and 30 percent over the next six months with evidence that local and international buyers have either disappeared or are waiting on the sidelines for the best deals.

Hong Kong has been one of the major successes in the Far East of late with a growing financial sector, improved international relationships and an economy which has performed very well in recent times. However, like many countries in the Far East, Hong Kong does depend on countries such as the US for substantial investment and trade, although the ongoing slowdown in America has already affected this. This knock-on effect has seen demand in the property market collapse of late and there are real concerns that house prices could fall substantially in the short to medium term.

Hong Kong property market

There are some experts in Hong Kong suggesting that the fall which is being experienced now could blow up into a similar situation to that seen in 1996/97. This was one of the worst ever property market collapses with some house prices falling by over 70% as the region was gripped by a serious economic downturn which in many ways was isolated from the rest of the world. However there are some reasons as to why the fall of 96/97 will not be repeated over the next couple of years such as:-

Supply

In the late 1990s there were in the region of 80,000 new units in the pipeline as oppose to the
12,000 new units we are seeing today. While you could argue that demand in the 1990s was higher than today’s the difference in new units becoming available should to a certain extent insulate the market against any substantial fall in the short to medium term.

Economy

Since Hong Kong received independence from the UK the economy has expanded substantially and the over dependence on the US in the past has been reduced markedly. This expansion of the economy has attracted more and more overseas investors from different regions of the world thereby ensuring the Hong Kong economy is not at the whim of the US altogether.

Finance

Thankfully a number of lessons seem to have been learnt from the late 1990s and the subsequent crash in the Hong Kong property market. Banks are now more aware of the signs of over heating and rather than instigating a deal at all costs strategy they were more selective even as the Hong Kong property market was rising. This should ensure that fewer people are in serious danger compared to the figures of the 1990s.

Concerns about the Hong Kong property market

While many believe it is unfair to compare today and the potential for the next two years against the crash of the 1990s there are still some concerns in the short to medium term which will best hold back the property market and at worst see substantial price cuts. The word in Hong Kong is that each and every estate agent in the region is now slashing prices and introducing incentives to try and attract any buyers who may be out there.

Drop in transaction levels

Just prior to the property slowdown in the country it was reported that between 10,000 and 12,000 units were exchanging hands each month which led to a very buoyant estate agency market. However, recently that figure has fallen by 50% and not only have prices fallen in line with reduced demand but we have seen the demise of a great number of estate agents in Hong Kong due to the reduced levels of activity.

General property market

In line with many property markets of the world the average cost of a house in Hong Kong has fallen by 15% in the last few months. While this in itself is concern enough, for many there is the potential for further falls before we see the economy start to recover, which some experts are predicting will happen in 2010 at the earliest.

Luxury property market

However the situation in the Hong Kong luxury property market is very much different with some homes now being offered at discounts of up to 50% from their highs earlier in 2008. We recently saw a home in the luxurious Victoria Peak region sold for less than 50% of its $24 million price tag. This is a serious development for the wealthy end of the market and could have serious repercussions for many years to come.

Finances

As with each and every developed property market around the world the availability of mortgage finance in Hong Kong has reduced substantially of late as the banks attempt to pull in their horns and retain what assets and mortgages that have at the moment. The reduction in available finance will also play a part in the ever decreasing value of Hong Kong property until such a level is reached whereby the banks see more upside than downside in the short to medium term.

Conclusion

Hong Kong is like so many other countries around the world experiencing the after-effects and ongoing impact of both the credit crunch and the worldwide economic slowdown. This has resulted in a softening of the Hong Kong property market although the fact that buyers have effectively gone on strike is rather alarming for the short-term trend in Hong Kong property prices.

However, dealing in the Far East has its own specific risks and many will remember the sudden downturn in Far East economies in the light of the SARS outbreak in 2003. The end of the SARS saga was a sign for the start of another property boom in Hong Kong and one which continued up until earlier in 2008. Hong Kong has a very strong economy, improved international relationships, a property market which attracts interest from around the world as well as being one of the central business hubs in the region.

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