This was on the front page of today’s SCMP:
Rising housing prices in Hong Kong have spurred the government to introduce measures to rein in growth by tightening mortgage criteria for home buyers and investors.
The money inflating the HK housing bubble (and, I suspect, the Singaporean housing bubble) isn’t coming from locals – it’s coming from mainland China, as the article later acknowledges:
Prices of luxury homes have gained 41 percent on average since the fourth quarter of last year, driven by low interest rates, limited supply, and money flowing from the mainland, according to international property consultants CB Richard Ellis.
A duplex penthouse at Hong Kong’s 39 Conduit Road sold a few weeks ago for HK$439 million, or about $11,200 USD per square foot. By that standard, a common-or-garden thousand-square-foot two-bedder would be worth somewhere north of ten million greenbacks, which I think we can all agree is a bit enthusiastic.
An article in the Business section even speculates that prices might reach 1997-bubble levels – and we all know how that ended.
I wrote that last Saturday, and never got around to hitting “post”. Good thing too – because today, this article hit Crikey.com.au (paywalled, but you can sign up for a free trial – and you should, because Crikey is great):
The Financial Review reported yesterday that the influence of overseas (largely Chinese) investors is a major factor in Melbourne’s recent home price inflation, particularly in the leafy ‘blue chip’ suburbs of Kew, Camberwell and Hawthorn.
Jellis Craig agent, Peter Vigano told the AFR that prices “have been influenced by overseas investment, the Chinese particularly.” So much so that the Chinese have “single-handedly been responsible for increasing the market” in recent months. Apparently, the Chinese, not always known for their investing expertise (they are world beating savers, not necessarily world beating investors), “…believe that the Australian property market is under-priced by 30%.”
Chinese money inflating housing bubbles in Hong Kong and Singapore: that’s not news. But Chinese money inflating housing bubbles all the way down in Australia: that’s news.
The writer then goes on to explain that net yields on housing in Australia are somewhere down around 2%, which is beyond “bubbly” and into the realm of “completely bloody stupid”. By way of comparison, look at an Aussie bank stock: it’ll pay you a dividend of around 5% (and it’ll never be late with the money), it’ll give the same capital growth you’d get from a house, and it won’t call you up at two in the morning to complain that the heating’s stopped working.
So why is this happening? Why is China singlehandedly reinflating every asset bubble in the world – and can we make them cut it out?
Whether or not you believe China’s Madoff-a-riffic GDP numbers (and you shouldn’t, but that’s a whole other post in itself), their economy is certainly holding up – and holding up well enough to justify some fairly tight monetary policy.
But by pegging their currency to the USD, they’re importing the US’s zero-interest-rate ultra-loose monetary policy, and Chinese punters are using that loose money to fire up an absolutely stupendous bubble in every investable asset in the Asian timezone. Australian mining companies. Hong Kong luxury apartments. Toorak mansions. (And you’ll all have seen the fireworks today when the Chi-Next exchange started offering dotcom-bubble-style small-caps to Chinese mug punters… that, too, is a whole other post in itself.)
It can’t last. Just like the real estate bubble couldn’t last. Just like the Poseidon bubble couldn’t last. Just like 1980s Japan couldn’t last. Just like tulip-mania couldn’t last. It never lasts.