If this is a bubble, it is not about to burst any time soon

A reader has written in to take issue with a column from a couple of weeks ago which argued that despite the steep run-up in Hong Kong's housing prices over the last few years, there are still no signs of a classic credit-fuelled property bubble.

Given the prevailing conditions - a limited supply of new homes and mortgage rates below the rate of inflation - I argued that buyers are acting rationally in pushing prices higher.

As evidence, I noted that the rental yield on a typical flat is currently two percentage points above the yield on the 10-year exchange fund note, which is high by historical standards. In contrast, at the height of the 1997 property bubble, rental yields were more than six percentage points below the exchange fund note yield: a clear danger signal.

'I fear you are starting to think like an economist,' the reader chided me.

Economists, he explained, ignored reality, preferring to create theories based on selective data. That's why they were always wrong.

'If it looks like a bubble and feels like a bubble, I think you'll probably find it is a bubble,' he wrote.

With interest rates now artificially low, he suggested homeowners would be dangerously exposed to a rise in mortgage rates. 'What is the ratio of debt to equity in the average middle-class mortgage?' he asked. 'What is middle-class mortgage borrowing as a proportion of income, and how sensitive is that to increased interest rates?'