Hong Kong Property prices, Flu, etc.

[hongkongfooey]

Have a non PPRUNER friend thinking about getting into the property market, he is being told to hold off as the prices are way over inflated, and due for a substantial correction later this year ( September ) also now we have the distinct possibility of another flu epidemic ( although not if you believe the press )
Would appreciate input from the more ( than me ) financially astute out there ( especially you 404 and Numero Crunchero )

[missingblade]

I have been trying to sum the situation for 8 months - to no avail - while prices climb. As they should cause we have inflation and low intersest rates - which makes no sense - we should have higher rates when inflation is up. But the dollar peg takes care of that.

Then there's the stock market - down 25 % - which normally lead to lower property prices - but not now cause we have low interest rates....

Flu - well I think everybody will try sit this one out - so no bargains there.

Supposed supply shortages which will push prices - whether real or not the newspapers keep saying it and people believe it.

Money from the mainland flooding in.

Its a quagmire of possibilities - Prices might keep going up - but there are issues like affordability and possible higher interest rates in future. On the other hand prices are now where they were TEN years ago - so some consider that fair.

I give up - and nobody knows. Hope that helps.

[hongkongfooey]

thanks for the reply 'Blade

[volarecantare]

Dear HKf,

here are no certainties out there at the moment with investments and those you ask will split into 2 groups, the ones who think positively and do not live in fear and make the decisions based on clear goals they have set with their families and those who are terrified to comit to anything either because they are overly influenced or because they live in fear all the time.

If you are asking advice from people, take a look at their lives, progress and values, if they match yours then its worth considering but in the end its a lonely decision. Sitting on the fence, is not sitting on the fence, it means you are loosing flushing the value of your housing allowance down the can each month!

If you are worried about investing your savings into the down payment, then go for the maximum morgage you can over the longest term possible. he first year is the hardest psychologically then it gets much easier.

I have always found that when making investment decisions at the end of the day it comes down to having a clear goal in mind. In all the years in HK there was never a right time to buy, only in retrospect did we know the answer and those who took the risks who at the time were considered foolish by some were called lucky afterwaards.

If you are on an ex pat package with a housing allowance, ask yourself how long who hope to stay here, multiply your house purchases allowance by that many months or years and thats how much you can afford the propertity to go down and still break even.

The other factor to consider is that if you have a family, owning your own home gives a certain amount of peace and comfort in an otherwise rather displaced lifestyle.

Fortune tends to favour the brave

Good luck.

[missingblade]

HONG KONG (XFN-ASIA) - The government expects 10,980 new private apartments to finish construction and be ready for occupation this year, against 10,470 units last year, according to a report issued by the Rating and Valuation Department.
Apartment completions are expected to rise further to 12,670 units next year, the report said.
Completions refer to units that have finished construction and are issued occupancy permits.
About 46 pct of the new units completed in 2008 would be located in New Territories and 40 pct in Kowloon, according to the government report.



So much for the supply shortage......

[Fenwicksgirl]

Missingblade you are missing the point. That amount of flats released this year is 30% below forecast. Therefore as sentiment goes there is a tightening of supply! Once upon a time it was better to rent to get a bigger place and in alot of cases that is still true but at the middle level it is now cheaper to pay off a mortgage than rent for the equivalent flat size.
We are still well below 97 prices so dont panic there either. My agent has said she gets mainlanders coming in and paying for flats sometimes without inspecting and paying the advertised price. So still money coming in, just not from traditional sources, ie bankers with their huge bonuses.
If the market goes up another 20-30% this year, then i will bail!!!!!!!!!

[404 Titan]

Fenwicksgirl

My agent has said she gets mainlanders coming in and paying for flats sometimes without inspecting and paying the advertised price.

And you actually believe your agent? Supply is only down because demand is down.

[hongkongfooey]

Not too sure about the short supply rumour, where it stems from and what the motive behind it is ( well ok, I know the motive )
But judging by the mailbox full of leaflets with flats for sale/rent every few days, and looking at the empty units in TC and DB, and looking at the time some places are taking to sell, I question any shortage.
When people line up outside a place ( as in Melbourne, Sydney and Perth ) to rent it and get in a bidding war, that's a shortage, I have not seen this in HK.

[404 Titan]

about_to_jump

So where's the downturn?

When the stock market bottoms out. Where do you think the money for property has been coming from between November and February? When you see money quickly move from one investment to another because the grass appears longer, it usually results in a bubble. In your case a 70% price rise in 10 months but most of it in the last 4 months is a bubble waiting to burst. I suggest you cash out now while it lasts.

[hongkongfooey]

Well, they're not queuing up in TC and DB, I can tell you that, plenty of vacant properties.

So 404, I assume you are not recommending to buy at this point in time ?

[Kitsune]

A cautionary note.....a flat in DB bought by a friend of mine at the very pinnacle of the last Hong Kong boom has STILL not regained its price in HK$, let alone any reliable home currency. If the company is paying for you to buy your house a la CX, go for it, if it's your own money.............

[404 Titan]

hongkongfooey

Some advise I never read in a book but received from my mum many years ago when my parents own numerous investment properties in Aus. You buy when the interest rates reach their high and sell when they reach their low.

With the exception of a major flu outbreak in Hong Kong, my advise is now isn’t the time.

[missingblade]

Carnegie ( I think ) said - " Sell when everybody is buying and buy when everybody is selling "

This ties in nicely with statement above to buy when rates are high and sell when they are low.

Two things puzzle me -
1. Affordability - how many people can pay these prices and service the mortgage when interest rates go up?

2. The statement made by some that because we are still below 97 values - or thereabouts - ten years later - the current prices can be considered good value. HKG is way more expensive than anywhere else on this planet just about.....so what is considered value? What the speculators tell you? Or what the average herd mentality HKGer thinks?
Last bubbles were - '86 , '97 and next one is...? Do the math.

Now the CX money situation - I hate to waste it on rent - but on the other hand I would rather do that and buy when the market is down and make a much quicker return with much less risk of negative equity than buy now and take 15 years to pay it off.
It's all as clear as mud to me...

[404 Titan]

missingblade

You forgot to mention paying more tax to the IRD because of the larger loan and therefore the longer time it will take to pay that loan off.

[4-Daned]

Interest rates will be at an all-time low by September of this year. I can't see how this would do anything but increase the property values, as everyone turns to buying flats, often as cheap or cheaper than renting....This is already a natural correction to the downturn in stocks.

Interest rates at an all-time low? Why would you not buy??

[stillalbatross]

Yes, interest rates are tied to those in the US but while low interest rates may drag the US out of it's quagmire (along with the Feds rescue package) eventually inflation has to be sorted out in the US also. It's somewhat over 3 and a half and it's heading towards 4, with the fed stating that it should remain below 3%. So that would lead one to believe that the interest rate cuts will only last as long as the fed is happy to tackle the sub prime and when it moves back into sorting inflation then the interest rates will go back up as fast as the fed thinks the markets will handle. My completely uneducated guess, based on smoking round the back of the bike sheds when I should haver been in my economics class is that will occur some time mid to late next year. Then Hong Kong would be in a peaking market price wise with sharp interest rate rises coming as well.

There are other ways of fighting inflation but in a round about way interest rate rises are the easiest.

Anyone who thinks that you can't go wrong buying in Hong Kong hasn't witnessed people 10 years ago stuck in negative equity in a house that the family has grown out of, that they can't sell because the valuation is way lower than the mortgage, that they can't rent out because the rent is a drop in the ocean next to the mortgage payments, that they cant leave Hong Kong and walk away from because the bank would push them into bankrupcy in an attempt to get the money still owing on the mortgage, that the resulting termination of their CX job as per the employment contract would make taking a basing slightly difficult. There is always the argument as to what lengths the bank would go to in chasing you down in your own country if you did a runner.

There are risks and downsides to everything, so long as you know what you're getting yourself into.

[404 Titan]

4-Daned

Interest rates at an all-time low? Why would you not buy??

As well as my advice above, rule number two, never buy in a rising market, always in a declining market. You have much more leverage with the vendor and as long as you do it near the bottom of the market you have minimum to loose and the most to gain.

[777300ER]

and as long as you do it near the bottom of the market you have minimum to loose and the most to gain.

That's a little easier said than done isn't it?? I wish it was as easy as you make it sound...

[404 Titan]

777300ER

I never said or implied it was easy. It’s only because of my background that I'm so keen on economic issues. I tend to look at economics from a macro point of view rather than the micro one that we all seem to see and read about daily in news papers and television. When you put this vast economic jigsaw puzzle together you get a pretty good picture of where things are going.

[4-Daned]

It depends if we are talking about the housing scheme...If it is all out of your own pocket??? Couldn't handle the swings...

However, I have never met anyone that made money on the housing by paying rent...Interesting that "negative equity" is still such a powerful force when you're not paying the mortgage out of your salary per se...

I think it really depends on how long you are committed to staying in Hong Kong. If its for the relatively short term, then I agree you should be very careful where in the cycle you buy!

I have met people that sold their house at less than they paid, and pocketed quite a bit...They never studied macroeconomics, but they made money.

What about buying higher and selling a little higher? What if the company made housing a straight benefit, as salary? Now that's a different story!