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If Hong Kong Isn’t A Housing Bubble, Then Nothing Is

Hong Kong. More expensive than New York. More expensive than London and Paris. When it comes to location, no place on Earth beats this city. But at the rate prices are rising, Hong Kong is the biggest housing bubble market around.
Housing prices rose an average of 4.3% around the world in 2012, all of it in the emerging markets. But where housing rose most is on a tiny peninsula in southeast China. Hong Kong. It’s housing prices, according to global real estate consultancy Knight Frank, rose a stellar 23.6% in 12 months.

Granted, many wealthy Chinese prefer to invest in hard assets than in the stock market or low yielding bonds. They turn to real estate. Demand is red hot. The government can’t seem to throw buckets of cold water on the market quick enough.

Hong Kong real estate prices cannot possibly be sustainable at these levels. Whether or not they decline by double digits anytime soon remains to be seen. Asia, and China in particular, is fast becoming the world’s biggest consumer market. It’s already the world’s trading hub. Lots of money floating around in that part of the world could sustain prices on the high side. But no one should expect prices to rise like this again. At these levels, if Hong Kong is not a housing bubble, then nothing is.

“Hong Kong, despite these price increases, is by far the most attractive real estate market in the entire region,” says John So, managing director and chief of Asian operations at Metropolitan Real Estate Equity Management. The firm has $2.5 billion under management in mostly China real estate. “The city is now the preeminent financial capital of Asia and investors will never be out of Hong Kong because of that reason. Even though we don’t think these prices are sustainable for housing, we are not leaving that market.”

Demand from mainland Chinese investors keen to get their slice of Hong Kong’s real estate boom, has surged. However, if the Hong Kong Government’s latest efforts to increase tax duties is a measure of their determination to cool price growth, then the market should expect a return to more muted growth in 2013, Knight Frank analyst said in their report published on March 13.

Properties worth below $2 million now incur a duty of 1.5%, while the rate for properties worth above $2 million has been doubled, to around 8.5% of the property’s value.

Hong Kong real estate prices have risen over 80% since the fall of Lehman Brothers in 2008, Knight Frank said.

When it comes to location, Hong Kong is the most location on Earth.
Last year, housing prices fell most in Europe, but continue to rise in other parts of the world, including in the United States. U.S. prices rose 7.3% between the fourth quarter of 2011 and the fourth quarter of 2012, putting at No. 12.

Of the 55 housing markets Knight Frank tracked for this research, 20 saw prices fall in 2012, down from 25 in 2011. ”What is more telling perhaps is the fact that 19 of the 20 countries which experienced price falls in 2012 were located in Europe,” said Kate Everett Allan, international residential analyst at Knight Frank.

The Knight Frank Global House Price Index established in 2006 is a way for investors and developers to monitor and compare the performance of mainstream residential markets across the world. The index is compiled on a quarterly basis using official government statistics or central bank data where available.

Forbes 29/03/2013