Faber predicts apocalypse for HK property

PUBLISHED : Sunday, 05 June, 1994, 12:00am
UPDATED : Sunday, 05 June, 1994, 12:00am

HONG KONG is heading for a meltdown in property prices within the next two years as a result of economic mismanagement by the Government.

House values could plunge by as much as 50 per cent in the run-up to the handover in 1997, leading to a collapse in share prices which could ''permanently injure'' Hong Kong's economic well-being.

The slump in property prices has already begun and will not be affected by the Government's attempts to stabilise Hong Kong's overheated market.

These dire warnings come from the pen of Hong Kong's best-known pessimist, Dr Marc Faber, but even by his standards they have a biting edge.

Dr Faber, a 20-year veteran of the local investment scene and a self-proclaimed market bear, believes the property market will never again reach the highs of early this year.

''We do not believe that Hong Kong property prices will merely undergo a minor correction. In our opinion they will experience a severe downturn and most likely never recover in real terms to their early 1994 highs,'' he writes in his upcoming report, Hong Kong Property - The Apocalypse Cometh.

''I am afraid that, because of the inevitable collapse which will follow the inflationary boom the Hong Kong Government has created over the last few years, by 1997 Hong Kong will have been badly and most likely permanently injured.'' Blaming ''reckless incompetence'' and ''irresponsible monetary policies'' by the Government, Dr Faber believes the property collapse is already underway. Prices in both the residential and office property sectors have risen, in some cases, by 10 times over the past decade and by between three and five times in the past four years.

The inflationary bubble has been caused by negative real interest rates where inflation has outstripped borrowing costs and the tight supply - both areas in which the Government could have acted, he writes.

''Poor economic policies conceived by the Government . . . have been fuelling inflation in Hong Kong and are the prime culprits for the unbelievably inflated property prices,'' he adds.

But, he warns, the end is in sight. ''An inflationary bubble never ends well. A hangover period following a speculative boom driven by excess liquidity is inevitable.'' A host of reasons ranging from rising interest rates which will eventually turn positive, increasingly fractious Sino-British relations, new reclamation work which will open up space for new office developments, a downturn in the Chinese economy and growing moves by multinationals to relocate on the mainland, will combine to drag down prices in both residential and office markets.

Once values begin to fall and sentiment on the housing market turns negative, the market could plunge by as much as 50 per cent, writes Dr Faber.