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PropertyHong Kong & China

Hong Kong real estate seen as poor bet

City comes last, with Tokyo in lead, in terms of future returns from residential investments in analysis of 12 cities around the world

PUBLISHED : Thursday, 19 December, 2013, 1:37am
UPDATED : Thursday, 19 December, 2013, 1:37am

Hong Kong is likely to see the lowest returns on residential investments in the next five years among 12 global cities monitored by Real Estate Foresight, an independent research, analytics and consulting firm based in the city.

Tokyo ranked No1 and was likely to offer the best residential returns, it said in a recent report.

The firm selected 12 cities with a population of at least five million and with a gross domestic product of US$150 billion or more.

"These 12 cities represent major driving economic forces for their nations and serve as junctions of international capital and workforce," said Diana Olteanu-Veerman and Robert Ciemniak, the authors of the report.

The city judged most likely to have the best residential returns in the next five years was Tokyo, followed by Washington, Frankfurt, Sydney, Berlin and New York.

"Hong Kong, the place we love to live in, comes last in our ranking as the city most likely to have the lowest residential returns," the report said.

The city scored poorly on several criteria: it has one of the lowest median household incomes, a less attractive regulatory environment after the government's introduction of market-cooling policies, and relatively short leaseholds compared to most of the other cities.

The study's main criteria included current price levels, economic strength, household wealth, vacancy rates, demographic profile and regulatory/ policy environment.

"The main strengths for Tokyo as a city are relatively low valuations and vacancies combined with high median household income and the large size of its metropolitan economy," the report said.

Tokyo also had a relatively stable regulatory environment and a large number of high-net-worth individuals. Despite the general concern about Japan's demographic situation, Tokyo still had a healthy percentage of its population at working age.

The report is in line with earlier research by the Urban Land Institute and PricewaterhouseCoopers that saw Tokyo as the top destination for real estate investment in Asia-Pacific next year.

The earlier report said Tokyo emerged as an investment magnet soon after the introduction of dramatic economic reforms aimed at boosting the Japanese economy.

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impala
Really. Gee, that would make Hong Kong the first real estate market in the history of world that does not revert to its historical affordability ratios means. Are you saying that this time is different? Good luck with that.

There is absolutely zero evidence that any real estate market anywhere ever, over the medium/long term can rise faster than the rate of real income growth + the rate of price inflation of the economy that underpins it. In the short term, prices will deviate from this compound trend line , below and above it, but they will revert sooner or later. On average, the cycle (classically first mildly undershooting the trend, then wildly overshooting it, and then back again, repeat) takes about 12-13 years. It may also take 8, or 18, but the pattern will remain the same.

Where we will be exactly 10 years from now is anybody's guess, but after >6 years of inflation-adjusted real estate price increases that far exceed the underlying real income growth rate in Hong Kong, there is not a single indicator I can think of that does not signal that we are overdue a correction of at least 15~20%, most likely 25~35%, and perhaps as much as 40-50% (which still would only take us back to 2008 levels by the way).
impala
It comes down to a very nice way of saying: Hong Kong real estate is ridiculously overvalued.
TenioLatev
I agree with you if hong kong was an isolated island.. Problem is that your scientific approach is not working because you underestimate the buying power of the newly rich who are looking for save places to park money.. That has nothing to do with numbers crunching on the local economy. The world is a global place now and you need to take a macro view.
TenioLatev
Hong kong real estate prices will continue to rise and in 10 years you will wish you could buy at today's price levels.
frank.pueschel@gsneurope.com
Frankfurt and Berlin are far below the mentioned criteria of 5 million people

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