Why Hong Kong’s property market won’t crash – this time
Andy Xie says although Hong Kong’s fragile economy remains unhealthily dependent on the property sector, the asset bubble today is unlikely to burst, as happened after the handover. Stagnation is the bigger worry
Is Hong Kong’s property market heading for its biggest crash since 1997?
The similarities between now and then are only skin deep. In 1997, Hongkongers were extremely optimistic about the future. Foreigners agreed. The mantra was that China was set for explosive growth, Hong Kong, being China’s window, would be the conduit for all the money flowing to the mainland, and Hong Kong property would rise and rise on that money. Most bubbles occur because people got carried away. Hong Kong in 1997 fell into that category.
When the Thai baht collapsed, it exposed the problems in the East Asian boom. When foreign money pulled out, the Hong Kong property market collapsed. It showed that hot money was the driver for Hong Kong’s property market, not growth.
The collapse of the bubble exposed a greater challenge facing Hong Kong’s economy. The city prospered on China being closed. Arbitraging on China’s inefficiencies was the foundation of Hong Kong’s prosperity – being in Hong Kong offered a seat on the gravy train. The Hong Kong government taxed the privilege through high property prices to fund itself.