Traders and investors hoping that China will soon loosen financial restrictions designed to cool China’s real estate market won’t find any good news in the August 30 land auction in Hong Kong.
A parcel in Kowloon Tong went for $165 million in an auction run by Hong Kong’s government. That set a per-square-foot record for Kowloon and signaled that the market for luxury properties is still in overdrive.
Hong Kong homes prices are up 45% since the beginning of 2009, but they have fallen 3% since the Hong Kong government put into place new measures to damp price increases on August 13.
The resumption of land auctions—there have been six this year–was one part of that program. The auctions were suspended in 2004 as Hong Kong government moved to support falling home prices.
Besides local measures in Hong Kong, the Beijing government has put restrictions on second and third mortgages, required banks to tighten standards on lending, and heightened regulatory scrutiny of banks and their relationships with affiliated lenders. All that has raised fears that any slowdown in the real estate market could lead to a wider slowdown in the general economy.
In recent months the Shanghai stock market has rallied whenever traders decided they’ve seen signs that the government is going to back off some of these restrictions. And it has fallen whenever traders have become convinced that the restrictions aren’t about to change—or might even get stiffer.
Real estate speculation and soaring prices aren’t limited to Hong Kong and China. Singapore recently introduced controls designed to slow price increases there.
Fascinating exchange. Thanks.
Kowloon tong has the best school district and that drive the land price up. Normal people cannot afford to pay 2 mil for an 1000 sqft condo. My father in law was lucky to buy into kowloon tong new condo at the Sars crisis, and now the condo has tripled. Whoever owns luxury condo is either very rich or has bought the condo early in the game.
viwi:
My above posting did not imply that those “old tradition” single handedly caused China’s real estate bubble.
cmila:
Thank you for sharing your experience. I am always curious about how the “engagement money” issue is settled between Western men and their Chinese wives. I personally know several such couples, but never dared to ask them about it. But I did ask Chinese women about the chickens and live stocks that you mentioned. I was told it was never the case. But your words are funny though. Among all cases that I know about (mainland) Chinese women receiving “engagement money”, all received substantial amount and they did not spend it. (Just imagine how much Chinese people like saving money). Keep in mind, the traditions and custom are quite different in China and outside China. Overseas Chinese are quite different in many ways from mainland Chinese for long time, but the difference may narrow due to the increased trade and contact. Even within China, it’s quite different between North and South.
I’d like to hear more actual experience about this subject.
viwi: It’s true that the per capita GDP of Hong Kong and the USA may be similair, but, there is a bigger gap between the wealthy and the poor & middle class in Hong Kong. The lowest wage earners still make below $3/hour and a beginning teacher may make around $1,500 a month. Likewise engineers & beginning to mid-career financial workers make less than their USA counterparts. (However, that may change due to the recession). Professors, traders, and high level financial professionals do make amounts similar to their USA counterparts, but I wouldn’t consider them middle-class.
I love Hong Kong, and I agree that their public transport is excellent and cheap – no car needed. Taxes are incredibly low (10-15% income, no capital gains, sales, or inheritance taxes) and their public healthcare is good. No need for health insurance here! Food has gotten pricier lately, though it is excellent. It’s also incredibly safe (3rd safest behind Singapore and Japan).
The majority of Kowloon is well-developed now and feels just as developed as Hong Kong Island. The land that just sold is in the priciest area of Kowloon. The undeveloped part of Hong Kong is the New Territories which border mainland China.
yx: When I got married to my Hong Kong wife, I had to pay money to my wife’s family and she did not bring that back into our marriage 🙂 But, I’m ok with that, and it wasn’t that much. She’s a modern girl and at least I didn’t have to give her the chickens and other livestock that Chinese tradition dictates. Besides, we couldn’t fit them in the flat anyway…
yx:
I am not sure that those old traditions can be applied to a modern HK or Singapore. However, those two countries, in my opinion, have the most outrageous housing prices.
Terryw mentioned something very interesting.
We all know that in western countries, parents of the bride traditionally pay for the wedding. I heard that tradition formed on such idea that because soneone else (the groom) is going to take care of the daughter, therefore her family has to pay for it. In many cases, in western countries, all the groom has to do is showing up at the wedding. (I may add even for such good deal, many grooms still get cold feet or drag their feet!)
In China, I heard it’s just the opposite. Getting married is very much an event of the groom’s family. That tradition came from the idea that Chinese families extend or expand along male line. In other words, it’s the male’s (or groom’s) family that gets expand and extend (family tree disruption is a very bad thing in Chinese culture). Therefore, men’s (or grooms’) families must not only pay for the wedding (the biggest item of a Chinese wedding is the banquet), but also PROVIDE A PLACE TO LIVE for the new family which is going to keep the family’s fire from being distinguished. (This also explains why so many Chinese are desperate to have a son.)
Further, prior to the wedding, the groom’s family must also give the bride a substantial amount of money called “engagement money” which often equivalent to couple of years’ saving by the old days’ standard. A diamond ring is not necessary, but “engagement money” is a must. Few Chinese women would marry without such “tradition” being met. This tradition is said came from the idea that the groom’s family must compensate the bride’s family for raising the bride all these years who from now on will be serving the groom’s family. I suspect before Mao and Communists took over, the money probably went to the bride’s family, but since Mao and Communists took over, that “engagement money” strictly goes to the bride. (It will be scandal and shameful, if not.) And modern Chinese women who grew up under Mao which promoted women as “holding half of the sky” (meaning equal to men) are pretty tough. They won’t be cheated.
As you can see, getting married is a huge burden for Chinese men’s families. But at the same time, it’s balanced out because women (though not obligated) extremely likely to bring the “engagement money” into her new family (not her in-laws’, but her own new family). Plus the housing provided by the groom’s family, the new family gets a good financial start.
But I suspect this tradition is increasingly changed as the society changes so drastically. For example, younger generation could make much more money than their parents, therefore they may pay it themselves instead of burdening parents. But that still does not waive men’s responsibility to PROVIDE things needed to start a family and housing is the biggest item. Having a place to live or owning a home makes men more appealing to women. That pretty universal.
cmilas:
I am confused … What does it mean that people in HK work a fraction of the US workers? First of all, GDP per capita are about the same for HK and USA. Secondly, in many areas, mostly professional, HK workers earn more. For example, salaries of their professors are the highest in the world.
Indeed, their prices are higher, but the structure of spending people their is completely different. Public transportation is great and inexpensive, so no need for cars. Food is great and not that expensive. People save more and, as a result, they have more to invest. Real estate has been always considered to be the safest (among the Chinese) investment. So … here is the result …
Re: Jim’s comment. Kowloon is relatively undeveloped area of HK. I recall driving through it and not believing that I am in HK (it was more like country side). I am not surprised that it gets significant attention from the real estate companies. With their MRT, it really does not matter where you live, so sooner or later prices become compatible with the ones on a main island.
Pretty much the same thing is in Singapore, where there is more government control, which decided long time ago to leave certain lands free of housing. And people in Singapore are not largely underpaid. Their GDP per capita is higher than in the US. Taxes are lower (they prefer not to deal with SSN and long-term commitments), so people have money to spend.
I live in Hong Kong now and I can tell you that housing prices are crazy. There are 3 main classes of housing here – public (very cheap rent and owned by the government), government subsidized (government provides 25% of the mortgage price in an interest free loan, but you own it), and private/luxury. Most people cannot afford private/luxury flats.
The 480 sq. foot government subsidized flat I live in costs $375,000 to buy ($280,000 after said government loan). Fortunately, mortgage interest rates are about 2.33% at the moment. But considering that most workers make a fraction of the amount US workers do, it’s incredibly difficult for even doctors/lawyers to buy a decent sized place now.
I feel that the majority push for prices is the ultra-wealthy in mainland China buying a place in Hong Kong. Owning property in Hong Kong is a status symbol for the rich (and a safe haven to flee to if things go to pot in mainland China i.e. another cultural revolution). Hong Kong has essentially all of the freedoms of the USA (more so in some areas) so it truly is different from the rest of China. I feel that this difference has made Hong Kong more attractive and prices go out of control in the private/luxury market.
Also, real estate is considered an excellent investment here and that could be why prices have risen so quickly in the bubble. The feeling of the general populace though is that we’re nearing the top of the bubble, especially with the government trying (rather unsuccessfully so far) to keep housing affordable for the middle class.
Is it a real estate bubble,, or is it the pent up demand of the new rich ?
It could be the opposite of here in USA you know, where we have a real estate collaps, due to the new poor.
In a culture where owning a home is a requirement for finding a wife, or getting a girlfriend. There’s little the government can do vs the natural need to procreate.