Hong Kong Real Estate Requires 40% Down

Admittedly not an expert on Hong Kong real estate and having no idea how other forms of "stimulus" factor into buying property in this part of Asia, the simple disparity between down payment amounts between here and there, as reported in the Wall Street Journal, seems like it's worth pointing out.

Concerns about a growing bubble in Hong Kong's high-end property market pushed central bankers here to increase the required down payment on luxury homes to 40%, from the current 30%.

The new measure, which goes into effect immediately, applies to properties valued at HK$20 million (US$2.6 million) or more, part of an attempt to tamp down an overheated sector that has alarmed regulators and set off a wave of populist anger.

The Hong Kong Monetary Authority, the city's de facto central bank and main banking regulator, said that luxury-home prices already had exceeded Hong Kong's historical peak in prices, in 1997.

While property prices in much of the rest of the world continue to languish, prices in traditionally volatile Hong Kong have been on a tear this year, thanks in large part to low interest rates and a wave of liquidity from mainland China, where Beijing last year unleashed a four trillion-yuan (US$585.6 billion) stimulus.

Since they don't seem to be having the same types of problems at the middle or low end, clearly, a lot of that newly created credit on the mainland is finding its way into the hands of people who probably aren't hurting for work.

Nonetheless, the difference between 40 percent down and the effective "no money down" in the U.S. (after combining the tax rebate with FHA or VA financing) is quite startling...

Comments

[Michael Clark:]

Most Asians tend not to borrow from the banks for housing purchases. They tend to pay cash, and borrow from family and friends. I think this is especially true for China and Vietnam (SE Asia).

I'm living in Vietnam: this is still a housing bubble. One of the local newspapers is 28 pages long, 26 pages are houses listed for sale. Hotels are giving away rooms. And Vietnamese people just think everything is going to get better and better... Across West Lake, where they are building expensive homes, most of the houses are empty.

Oct 26 06:23 AM

[Jeff Diercks:]

Could it be the Chinese authorities also see a U.S. Currency crisis bringing hyper inflation to their shores? One way to control the mania of rising inflation and property values is to require higher and higher down payments, not lower like the U.S. did with its real estate bubble.

Oct 26 09:25 AM

[Graham and ...:]

A 40% down payment is a conservative ratio that leaves a large margin of safety. We should do the same.

Oct 26 09:43 AM

[James Lewis:]

This issue is interesting because the housing bubble in Hong Kong is indicative of the amount of new USD being created through QE emanating from US, as well as the amount of RMB being created in China through the QE program otherwise known as 'mental reckless lending'.

Because of the size and openess of Hong Kong, it is immensively sensitive. Based on this, I dare say that Hong Kong is very much a leading indicator of what will occur in the west and in China later down the road. The USA needs this hyper-inflation. China based on its actions also seems to believe it is necessary. However with such huge reserves and less need to take writedowns at its financial institutions (as they are in effect government entities), I think China could end in a very uncomfortable hyper-inflation spiral that will ultimatly lead to stagflation. This will be especially true if the rich continue to hold such huge % of the wealth. China needs to eithr reduce liquidity (impossible as the Stimulus will not peak until next year at the latest) or spread the wealth. Asset Hyper-Inflation does not spread wealth, it just makes upper classes rich if they are smart enough to bail out in time at the expense of tax payers and savers.

All Eyes on Hong Kong then - my new leading indicator.

Oct 26 10:10 AM

[Mad Hedge F...:]

qqn Two of my favorite picks for the year blasted through to new highslast night, the Hong Kong ETF (EWH) and the China ETF (FXI). Even Bonois singing about Chinese stocks going up. The FXI is now up astaggering 136% from the March lows, compared to a measly 65% for theS&P 500. Looks like those decades of eating fish heads and rice arefinally paying off for me. Have you ever noticed how the qualityinvestments rise much faster than the dodgy ones over time? At leastthe global wave of liquidity is surging into the good names, not onlyjust the crap, as it is here in the US. Jim Rogers, are you listeningyet?

Oct 26 10:55 AM

[rlirph:]

One should not confuse with Hong Kong and mainland because they are governed by two different governments. This year HK real estate has gone up more than 30% because of the low interest rate as the authority is flushing the market with liquidity. Earlier this year HSBC was making mortgages at 1.25% interest rate. At this low rate all residential properties can be bought at current rate and one can still enjoy positive cash flow! In China the government has set the 30 year mortgage rate to 4.7%.

Oct 26 12:06 PM

[knownothing:]

but who can get the money from the bank? average person? Absolutely not. Only the vested interest group (those big man) can get money from the bank. If the average people believe in the "so called boom by printing money" and pour their "hard to earn" mony into real estate, the only result would be getting stuck in such "shameful trick played by central bank" once the process of liquidity tightening begins. At the that time, the only winner would be those big man by taking out the average people's mony and leave them crying.

Oct 26 09:25 PM