History of Hong Kong housing provided excellent learning experience on property investment and economyBrief history of Hong Kong housing provided excellent learning concepts on property investment. Hong Kong housing price, demand and supply was affected by her political situation, inflation expectation, unemployment, economic condition and land policy. See how much you can learn from the following history of Hong Kong: 1982 - 1987 England agreed that Hong Kong should return its sovereignty to China in July 1997. The Hong Kong people were not confident in the old China. Although there was no formal data on property price but we guess the index should be around 10 points or even less. People at that time worked extremely hard hoping to earn enough to migrate to other countries. The country turned into a service based from a manufacturing based economy and in the next 15 years, the economy experienced a dramatic take-off. 1987 - 1989 When Alan Greenspan appointed chairman of the United States of Federal Reserve in August 1987. The worldwide stock market crashed in October 1987. US stocks were wiped out by 22.6% in first hour of trading on Monday morning. The plunge on Wall Street tumbled the entire financial system and Hong Kong stock market. The market plunged by 70% in the first trading day after 4-day suspension. This accelerates the bottoming of the property market. The index was estimated to be around 10 in 1988. Smart guys started to queue up at property development sites expecting property price to recover. 1989 - 1994 The Beijing Tianenmun case further tumbled the confidence in Hong Kong and a lot of people migrated to other places. Canada was one of the favorites. We saw those people damped their properties in Hong Kong at about 15 points. Yet this decision wiped out their wealth. The Hong Kong housing skyrocketed to 55 points (3.6 times in 5 years)! The dramatic jump in the property prices in 1990 was because of the Sino-British agreement to limit the land supply to 50 acres every year. Moreover the Hong Kong government announced massive fiscal spending to build a US$13 billion world class airport to restore public confidence! This huge government expenditure and its multiplier effect spiraled inflation to 6-8% every year and unemployment rate was virtually negligible. The salary increases were double digit every year. With the expectation of the limited property supply, expanding economy, increasing population and demand for better living conditions; the Hong Kong housing price was way up to 72 points. 1994 - 1995 The property prices were pressured by China’s macro-economic control to clear the State-owned enterprises debts. The bank credits were crunched and inefficient organizations not funded went bankrupt. The funding, mostly resided in property and stock markets, of these state-owned enterprises suddenly dried up. In addition, Hong Kong Government increased the mortgage down-payment from 20% to 30% of the property price, the property price plunged 30% from 72 to 52 points. 1995 - 1997 The Sino-British relationship was worsening during this period of time. The land auctions were lowest because China suspected that Britain would sell most Hong Kong assets and spent most of its foreign currency reserves... The property supply was drastically reduced. Most people were overly optimistic about properties. People increased the level of speculations. It was not uncommon that a normal citizen held 2 to 3 properties leaving vacant for a year pending for capital appreciation. The vacancy rate increased rapidly to about 8% -10%. As most people in the market were positive on the property price, there were all buyers and virtually little sellers, the price spiked to 100 from 52 points in July 1997! 1997 - 1998 Hong Kong returned to China in July 1997 and appointed the first Chief Executive. One of his most stupid policies was to drastically increase the residential property supply to 85,000 units from about 35,000 units every year. Worse of all, in August 1997, George Soros come to Asia and attacked Hong Kong pegged exchange rate. Monetary authorities spent more than US$1 billion to defend the local currency and raised overnight bank interest rate from 8 percent to 23 percent! The high interest rate pressured the stock market and Hang Seng Index plunged by 23% between 20 October and 23 October 1997. The Government then spent more US$10 billion buying back stock to stabilize the market. These 2 events suddenly choked the property market. The property investment transactions are thinner and thinner. Because of the pegged currency with the strengthening US dollar, land and labor costs needed to adjust to maintain competitiveness of the country output. This led to a prolonged 6 deflation years. The index plunged 50% to 50 points end 1998 in one and a half years! 1998 - 2001 The technology bubble buoyed the demand for a 10% rebound when the stock market went up. People could not restore confidence on the job security and economic future. The deflation expectation drove people to hold more cash and tighten spending. Without incremental inflow of money into the property market, that is, the market has a lot more sellers than buyers, the property price resumed its downtrend when Nasdaq topped out 5,000 in 2001. 2001 - 2003 The fundamental change was the 9/11 event that triggered Alan Greenspan to drastically increase money supply, reduce interest rate, weaken US dollars, increase bond sales to Asia to buoy the US economy. The increased money supply flowed into property market and stock market of US. The capital gain financed US consumer spending. As a result of the SARS respiratory disease outbreak in Hong Kong, the property market accelerated bottoming in 2003. Worldwide money supply was excessive and chasing for investment opportunities. Excessive fund chasing for investment opportunities started to outflow to global stock and property investment markets. 2003 - 2008 There were a global bull markets in stock and property during this period of time. Hong Kong is no exception to rebound from 31 points to 76 points in 4 years. These bull markets were triggered by the global money supply increase and highly geared investment strategies. Eventually, global financial turmoil happened that reset the stock and property prices globally…
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