No. of view: 2602    Reply: 5

The middle class returns to poverty leading to the collapsed property market

Damon Ho

In the second half of this year, the rebound of property market has been completed. Until now, the average property price has fallen by 25%, and if you take a typical residential unit in Hong Kong with an average market value of HK$ six million in record high, the present value of this unit has decreased by 1.5 million to 4.5 million from the peak. There are about 1.65 million homeowners in Hong Kong, and the total market value of residential properties has decreased HK$2,475 billion based on this average decline.

Apart from the property, a typical middle-class family in Hong Kong usually owned two million MPF and one million Hong Kong stocks. Unfortunately, the stock's value in MPF and stock market has been declining half from its recent year high, which is about 1.5 million. If a middle-class family has a total asset of nine million, considering of the declining property prices, and the loss of MPF and stock investment, the total loss is about three million, so the asset value of the above-mentioned middle class will own only six million at present.

The total investment loss on MPF and equities was 2,475 billion for the 1.65 million private households. Hong Kong's total asset loss was $4.95 trillion, including the loss of the market value of properties.

Hong Kong's total asset value has decreased swiftly, and it inflicts a significant impact to the middle class, which is the main consumer power. Therefore, the double blow of the declining property market and the falling stocks prices has caused a rapid decline in purchasing power, which has directly dragged down the turnover massively in retailing and catering industries.

The swift decline in the number of local customers, the deep drop in rents and transaction prices of shops have been pushing up the vacancy rate, and most of the investors who had purchased the shops at soaring prices in recent years will be eliminated in this downturn. Soon, the number of bankruptcies of shops owners will increase significantly.

When the value of assets falls deeply, the number of bankruptcies will naturally increase. As a result, the foreclosed properties and the bad debts of banks will also rise rapidly. This destructive force of the declining market has begun to impose heavy pressure on banks' cash flows, so banks are more prudent in approving mortgage applications. Considering the difficulty in obtaining mortgages, it brings a further blow to the already exhausted property market.

 
I want to leave a message
Nickname
Message
/ Opinion
Captcha
 
Member Login
Login ID / Nickname
Password
1. HKMA keeps its base rate at 5.75% 2024-06-15 21:27:06

The Hong Kong Monetary Authority (HKMA) has retained its base rate at 5.75% following the US Fed’s announcement to keep the federal funds rate unchanged at 5.25 to 5.5%.

“The high interest rate environment may last for some time,” HKMA said.

“The financial and monetary markets of Hong Kong continue to operate in a smooth and orderly manner,” it said.

Additionally, HKMA said the Hong Kong dollar exchange rate remains stable, but interbank rates ar

2. Housing Comm revised income and asset limits 2024-06-17 11:41:32

The Housing Authority's Subsidized Housing Committee has approved the revised income and asset limits for applicants in the upcoming 2024-25 fiscal year. 

The proposed changes, effective from 1 April, include freezing income limits for one-person and four-person households whilst increasing limits for households with two, three, or five or more members.

Current economic outlook and past practices in income limit reviews were amongst the factors considered in the adjustments.

3. Hong Kong is the world's most expensive city 2024-06-18 22:53:55

Hong Kong is the world's most expensive city, driven by high housing, transportation, and goods costs.

In Hong Kong, prices for goods such as eggs, olive oil, and coffee rose by 13.7% YoY, 25.4% YoY, and 0.5% YoY in March.

Prices for necessities such as gasoline and haircuts also increased 7.2% YoY and 4.8% YoY, respectively.

Meanwhile, the cost of clothing, such as blue jeans, remained unchanged. Looking at housing, rents in Hong Kong increased by 8.0% YoY in 2024.

Behind Hong Kong in the rank are Singapore and Zurich. Other most expensive cities in Asia include Shanghai (23), Beijing (25), and Seoul (32).

4. TePrime retail spaces are on an expansion path 2024-06-20 12:50:02

Tenants in prime retail spaces are on an expansion path, and Mong Kok, Tsim Sha Tsui and Causeway Bay are the most appealing to them due to leasing costs that are still recovering from that Covid-19 retail chokehold.

One instance of this saw a 1,000-square-foot, ground-floor shop at 501 Lockhart Road in Causeway Bay leased out for HK$150,000 a month to Wu Zhi Jian Beef Noodles, with the rent being 40 percent lower than prepandemic levels four years ago.

For the shop's owner, that's a pretty seamless transition from the last tenant, a Japanese restaurant that had operated for four years since February 2020 at a monthly rental of HK$250,000, agreed upon prepandemic.

5. Hong Kong's economy is on a recovery path 2024-06-21 20:13:01

Hong Kong's economy is on a recovery path with five consecutive quarters of positive GDP growth, according to Marcos Chan, Executive Director, Head of Research, CBRE Hong Kong. Despite this progress, high interest rates are significantly disrupting investment activities and the property market.

"The Hong Kong economy, it's definitely recovering on track. We've seen five consecutive quarters of positive GDP growth, and we've recorded 2.7% growth in the first quarter, which is not bad," said Chan. He pointed out that the unemployment rate remains extremely low at around 3%, and some sectors are performing at pre-COVID levels, particularly domestic consumption