Dangers of a bubble in Hong Kong’s property market, authors of UBS Global Real Estate Bubble Index report warn
Global investment bank says the city has wondered into ‘risky territory’ as a result of massive prices rises over years, while price-to-income ratios are near unsustainable levels
Is a bubble forming in Hong Kong’s real estate sector? Many in the sector would say no, thanks to a raft of cooling measures – and directives from Hong Kong’ s de facto central bank, the Hong Kong Monetary Authority (HKMA), to banks to restrict lending – that have halted runaway prices.
However, global investment bank UBS says Hong Kong is in “risky territory” in its report released last week that raised eyebrows as property prices have been sluggish since dramatic falls began in late 2014.
The sector has been showing signs of life as developers have started to bypasss the HKMA by offering up to 90 per cent mortgage loans – and sometimes a second mortgage. Depending on the price, Hong Kong banks are only able to offer up to a 60 per cent loan on the value of a property.
Matthias Holzhey and Maciej Skoczek, the authors of the UBS report, suggest that prices in cities such as Hong Kong that are at risk of a real estate bubble, have risen more than 50 per cent over the past few years.
This means that Hong Kong is in “bubble-risk” territory, according to the UBS Global Real Estate Bubble Index, despite price falls over the past year. After prices peaked in mid-2014 in Hong Kong, they have fallen as much as 10 per cent.
The UBS report warns that the price-to-income ratio has hit record highs, and nearing unsustainable levels. “This [10 per cent drop in prices] appears modest, considering that from 2003 to 2015, the price level [had] tripled,” Holzhey and Skoczek say. “The UBS Global Real Estate Bubble Index score for Hong Kong has decreased significantly, but is still in bubble-risk territory.”
They add that real incomes have virtually stagnated in Hong Kong for years. As a consequence, the affordability of housing is the lowest among the cities considered, and the average living space per person amounts to only 151 sq ft.
