More Normalized Mortgage Rates In Hong Kong Shredding The Housing Market......

Easy money, long available to borrowers for housing, is now become more expensive. This is causing a large slowdown in the purchase of flats here in Hong Kong. Borrowing rates of 2-3% were common but since most loans in Hong Kong are floating rate, interest rate resets will cause large increases in monthly payments.

New mortgages drawn down, or used, in July fell 34.4 percent to HK$10.96 billion, also a third consecutive monthly decline.

Sales of residential units in July tumbled 30.3 percent compared with June, to 7,497 units, or almost 50 percent down from the peak of 14,124 units recorded in April this year, Land Registry figures show.

I called HSBC to find out what their best lending rate is and I was disconnected. I am a Premier customer and this is the usual treatment that I get! According to the Standard Chartered Website, their best lending rate is 6.75% This implies that a mortgage would still be somewhere below 5%. But this cost has risen around 2% in recent months. A HK$ 2 million mortgage interest would increase in cost at around 3,333=2,000,000*.02/12 a month, not a great deal but enough to slow down new purchases considerably.

I still have difficulty understanding Hong Kong wild love for buying incredibly expensive real-estate. Real-estate is more liquid in Hong Kong with transaction costs much lower than in the US where typical broker fees are around 5% compared to 1% here. And with lower income tax rates, real-estate should trade a some premium. But I think that it is way out-of-line to reality. People should not be spending all their disposable income on housing.

I remember back in 1997, when the property market was coming unglued after a spectacular rise to incredible heights. The Kwok brothers, the mega-rich owners of property developer Sun Hung Kai, came out and said that the decline in prices was over after falling around 10%. This declaration was splattered all over the front pages of the newspapers. Of course, they were dead wrong and prices continued to decline dramatically. They were just talking their position and were trying to sell some of their silly expensive properties to unwitting and gullible Hong Kong property consumers.

Sun Hung Kai, never once, from 1994 to present had to endure a loss [I also looked at Henderson Land and it too has the distinction of not producing a loss for the period]. In other words, despite a huge decline in the property market, they never experienced a loss on their net income line. This only tells me that the real-estate markets are just stacked against the individual and in favor of the big tycoons, who never experience losses even when prices fall. This skewed non-market situation should temper the prices of housing here but individual consumers just haven't caught on. One day, prices will collapse and everyone will be wondering what happened. At that point, though, the uber-wealthy people will have been out of the business and will have their cash in other countries. I just don't understand why Hong Kong people put up with these things.