Hong Kong Housing Bubble Suffers Spectacular Collapse: Sales Plunge Most On Record, Prices Crash

Tyler Durden's picture

Two months ago, we observed the record plunge in Hong Kong home sales when according to Land Registry data, a paltry 2,826 registered residential transactions were record, down 14.4% from October and what we thought was an amazing 41.7% less than in November last year. This was the lowest print in the history of the series.

Little did we know just how bad it would get just two months later.

As we said in our last check on the HK housing market, the weakness was sharp and widespread, with sales of new homes declining to a three-month low. In the primary residential market, the number of home sales also declined 26.4 per cent month on month to 1,023 last month, according to Centaline. The total value reached HK$8.97 billion, down 15.4 per cent from October’s HK$10.6 billion.

Latly we presented some comments from local analysts, who perhaps unwilling to accept the reality, remained optimistic:

“The fall in transaction volume and value for new home sales due to an absence of big project launches early last month,” said Derek Chan, head of research at Ricacorp Properties. He expects to see an obvious increase in sales of new homes this month given more major projects are due to be offered for pre-sale.  Most of new projects launches will focus in the western New Territories ,” he said.

We concluded in early December that while "optimism is good... if and when this global housing luxury weakness mostly due to the withdrawal of the Chinese marginal "hot money" buyer crosses back into the Chinese border, all bets about the so-called tepid Chinese economic will be off, and since it will be just the moment when China resumes cutting rates, devaluaing its currency and maybe even officially (as opposed to the ongoing unofficial iterations) launching QE, that will be when one should buy commodities, as China does everything in its power to keep the house of $30 trillion in cards from toppling and sending a deflationary tsunami around the entire world."

So far China has only devalued, and so far there has been no effect on boosting commodity prices; meanwhile the deflationary tsunami is just getting worse as a result of the BOJ entering currency wars most recently by launching NIRP last week.

Which brings us to the latest Hong Kong housing data, and we can now officially say that any optimism about Hong Kong is officially dead.

First, as the chart below show, January Hong Kong home prices tumbled the most since July 2013, and after a 12 year upcycle, prices are now down a whopping 10% from the recent peak just four short months ago. Some analysts expect prices to fall more than 30 per cent by 2017 according to SCMP. 

In other words, the bubble has clearly burst.

 

But not only has the Hong Kong housing bubble burst, it has done so in spectacular fashion: as quoted by the SCMP, the local Centaline Property Agency estimates that total Hong Kong property transactions in January were on track to register the worst month since 1991, when it started compiling monthly figures. In other words, the biggest drop in recorded history!

Total transactions are likely to have hit 3,000, it said in a survey released on Sunday. With developers slowing down new launches, only 394 units were sold in the first 27 days of January, 80.3 per cent lower than the 2,127 deals lodged in December. Meanwhile, sales of used homes fell by a fifth to 1,276 deals in January.

A similar picture emerges from another survey by Ricacorp Properties, which shows 2,908 deals were lodged with the Land Registry in the first 28 days of January.

In other words, the market is in shock from the collapse in demand, and has effectively been halted until it regroups as sellers, clearly not desperate to chase collapsing bids, simply withdraw offers.

Sure enough, according to SCMP, "the recent withdrawals of government land sales as a result of poor bids and the return of negative-equity homeowners are adding to strains in a rapidly weakening Hong Kong property market, with analysts saying developers will be forced to cut prices aggressively to stay afloat."

What is causing this unprecedented collapse? One explanation is the infamous Fed butterfly flapping its rate hike wings and leading to a housing market crash half way around the world:

Analysts said developers slowed down new launches after the US implemented its first interest rate in a decade. Hong Kong commercial banks are expected to follow suit in the coming months, pulling up mortgage rates.

 

“Developers have to offer very attractive prices if they want to find buyers for their flats,” said Derek Chan, head of research at Ricacorp, adding that developers might even have to offer units at prices below the secondary market.

There's that, or there is the far simpler Chinese response to the Fed rate hike which has sent shockwaves everywhere from the Chinese forex market to the Hong Kong interbank market where liquidity a few weeks ago virtually disappeared overnight as the PBOC tried to crush and squeeze offshore Yuan sellers. It also means that mainland Chinese buyers, suddenly facing a draconian escalation in capital controls, are suddenly unable to park hot money in the HK market.

As for the local housing market expect it to remain in a state of suspended animation for a long time.

Developers are eager to add to their land banks when the market is good but may become more selective in tougher times, especially given the anticipated new supply set to hit the market in the next two to three years, said Chow. “More withdrawals will be seen if the government does not revise the reserved prices.”

And then there was the issue of negative equity mortgages which somehow have appeared despite just a modest 10% correction from all time highs. One can only imagine the kind of leverage involved in these transactions:

The Hong Kong Monetary Authority (HKMA) on Friday announced that the estimated number of residential mortgage loans that are in so-called negative equity had hit 95 as of December, according to its latest survey. The total value of these home loans amounted to HK$418 million.

 

This was the first time the surveyed authorised instiatutions reported negative equity cases since the end of September 2014, said the HKMA.

 

According to HKMA data, the number of homeowners with negative equity – before the phenomenon resurfaced again lately – had fallen to zero from its peak at 105,697 in July 2003 at the height of a property downturn when home prices plunged up to 70 per cent.

Amusingly, last February, the HKMA supposedly tightened the loan-to-value ratio to 60 per cent from 70 per cent for flats under HK$7 million. New owners hence have a 40 per cent equity buffer, said Chow, but said some negative-equity cases would occur among those who have borrowed from non-bank financial companies. That, or the regulations of the monetary authority were simply ignored because, just like in the US in 2005, housing could only go up: just ask Ben Bernanke.

Well, now it is not only not going up, but it is crashing, and if the situation on the margin is this bad in one of the world's wealthiest enclaves, one can only imagine what is happening in mainland China.

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SILVERGEDDON's picture

Ho Lee Fuk.

Down ten percent in Hong Kong, where a lot of people have real money means down at least 30 - 40 percent on Mainland China, where most folks don't have two yuan to rub together for good luck.

junction's picture

Gong Hei Fat Choi, paisan.  Can Manhattan be far behind?

CheapBastard's picture

The smart HK'ers saw the crackdown on corruption on the flood of Mainland money into HK and switched from overpriced houses, to buying underpriced gold.

 

As long as that outward Mainland flood is contained or stopped, RE globally will drop. Take a look at Macau...it's almost a depression there now.

NoDebt's picture

I'm sure this will have no effect on anything, least of all the value of my stawks.

old naughty's picture

"whopping", "spectacular"...why?

If oil could drop to 30-handle from  106 (July 2013), or 115 (Apr 2011), then you haven't known whopponh, or spectacular yet !

CB, have you look deep into the core? The "venue" is built when LV groups flocked to Macau...

FX control could not stop the flow. 

"You build taller wall you like; I have still taller ladders."

And why just HK, Macau,...where else not whopping up? 

COSMOS's picture

That pic reminds me of the human battery towers in the Matrix.  I wonder if they can collect all the methane farted in those apts to make them green powered buildings :)

The view must suck if you live in the middle bldg surrounded by all the others.

You know its bad when even the buildings are packed like and look like sardines.  You realize looking at those buildings that those people working during the day clothe most of the western word.

Hotel Poverty, you can check in but you can never check out.

AldousHuxley's picture

Hong Kong just seems like one giant prison island. even the most wealthy has to live in a hole.

 

Antifaschistische's picture

Up until now...it's been top secret, but Beijing will soon anounce their solution to the pending housing crisis.  It's the quatro-child-policy.  Every girl will be required to have 4 children before they are 30. 

jeff montanye's picture

the communist party is not that entrenched.

Dr. Bonzo's picture

The smart HK'ers saw the crackdown on corruption on the flood of Mainland money into HK....

This reply is so laughably contrived I don't even know where to start. Let me assure you, NOBODY outside Xi Jinping's little skull saw the crackdown coming. You can safely quit your dayjob and become a professional mindreader if you can read Xi Jinping's mind. What a sheer nonsense. SECOND, even IF Xi had telegraphed a YEAR in advance that he would launch a crackdown on corruption you wouldn't have been able to sell your flat which is precisely the point of exiting real estate in a timely fashion because as every moron on the planet knows real estate is one of the most illiquid assets on planet earth when prices top. Isn't THAT what your fanboys are trying prove?

Un-fucking-real.

nmewn's picture

"With BitYuan they have a chance to reach escape velocity!" - fonestar's evil twin

SILVERGEDDON's picture

Nmewn, it woulda been " Buh teh fuckig Yuancoin yew reetards ! "

I miss that guy. Fun as heck to light a fire under his nuts.

nmewn's picture

I find it amazing, one of these days (when it doesn't matter) I'll tell you all that I know and how I know.

But I'll leave it at this for now..."digitized currency" is the last thing anyone who believes in freedom should be advocating for.

NOW...they can shut it down with a simple mouse click and poof!...you're just as poor as the day you were born.

nmewn's picture

There's a place called Fu King up the road in Lake City, I shit you not.

I think they're scewin with us ;-)

The Merovingian's picture

We have a pretty good Chinese place here called Hung Far Lo

forgottenozonehole's picture

WTF?  They're still using old fashioned bare bulbs?
Where're goes all this overpriced LEDshit? Again to the western world?

williambanzai7's picture

And those are mahjong tiles on the facade...ergo contrived vernacular style

max2205's picture

Time for the echo bubble 

Bunga Bunga's picture

So hurry up Hongkongers, it has never been a better time to buy an home. They don't make anymore land. Buy one, before you are priced out forever.

Spitzer's picture

That mentality is still working in Vancouver

nmewn's picture

Clearly the thing for the Keynesian Chi-Com Politburo to do is PRINT MOAR! and build some more ghost cities.

It's for the stawk cheeelrun, cuz if they could save just one it will have been worth it ;-)

 

CheapBastard's picture

6. IF UP AND GOLD IS DOWN, BUY GOLD – Gold usually moves opposite of stocks, so buy gold or gold funds such as NEM or GLD which will move up when stocks crash.

 

Solid advice!

Yen Cross's picture

  UST yields  are plunging across the short end and belly of the curve, out to 10 years. I wonder who's selling the 10 year?

 caugh, caugh...

Soul Glow's picture

The BoJ will buy them.  They'll buy anything.  Stocks, bonds, bags of dicks, anything.

Yen Cross's picture

 I'm checking.  I think it's China not Japan. I have to look at the OIS rates on Shibor, and some of the Chinese equity indexes.

 The TPX is flat, so it's probably China. [ or Nigeria] lol

FreedomGuy's picture

It's the relatively safe harbor in the storm, right?

Dr. Bonzo's picture

*YAWN*

I'm sitting here in Hong Kong and looking around me and I'm not seeing this mega super uber duper cataclysmic crash anywhere near. Believe me... I WANT this market to crash badly. Baaaaaaaaadly. We're just not there yet. The Hong Kong market goes south when the China property market goes south. When those fucking commie peasants start losing their life savings in cement futures rotting away in Inner Mongolia, they'll be panicked out of their Hong Kong cement boxes... THEN we can light the bonfires and bury this fucker.

We're not there yet.

The Ingenious Gentleman's picture

People don't talk about it much, but it's nearly impossible to sell a flat right now. It seems only the Standard is willing to talk about it.

1. Today's paper - Tung Chung flat cut from 2.8m to 1.9m

http://www.thestandard.com.hk/section-news.php?id=165783

2. Two weeks ago in Tseung Kwan O - from 6.2m to 5.2m

http://www.thestandard.com.hk/section-news.php?id=165247

3. Ten days ago - new high-end flats in Mid-levels: Henderson Land cut prices 30% and still no sales.

http://www.thestandard.com.hk/section-news.php?id=165442

Soul Glow's picture

Devalue the yan, that'll fix everything!

Weisbrot's picture

what would happen if they increased its value instead?

ghostzapper's picture

But, but the fruitcakes on TV selling posh manhattan real estate said the markets would never turn down again.

Dr. Bonzo's picture

Let me show you guys how ZH enjoys a good embellishment. The ZH bloomberg shows the blow-off top. That's a 4-year chart. This is the full chart going back to '94 showing the 20-year trend:

http://www1.centadata.com/cci/cci_e.htm

As you can see, nowhere CLOSE to anything resembling a "crash." Scroll down the rest of the page. You can see a list of all the constituent estates that comprise the Index. As you can see, well over half the units are actually still rising. That's what I'm seeing around me. Nothing much.

 

Tyler Durden's picture

As noted prices are one part of it. Prices are irrelevant when there were no transactions which is what this piece focuses on in case you didn't read that far

Yen Cross's picture

  Why? The battle was won, before it was ever fought.

zhandax's picture

What part of 'no bid' has he failed to experience?

Seer's picture

Liquidity and transaction volumes are under pressure  Kind of hard for a system to operate without them...

Without a doubt, this article provides the early warning.  Whether this starts a melt in mainland China [first, before outside of China] or not is to be seen.  I've been watching the periphery: Australia and Canada; have always thought that China's drop will start ripping in these places pretty hard, and first; I wasn't watching Hong Kong (but, anyway, Thanks Tylers for keeping an eye on everything).

Dr. Bonzo's picture

Thanks for replying. "Prices are irrelevant." The title of your piece is, Hong Kong Housing Bubble Suffers Spectaculuar Collapse: Sales Plunge Most on Record, Prices Crash. You wrote it. Not me.

And since when did price not matter? Prices don't matter???? This is the financial equivalent of telling me, "Let them eat cake."  Give me a break guy. Seriously. Prices are not irrelevant when they're at their highest in the city's history. For those of us forking over obscene rents based on these grossly inflated real estate prices it's all pretty real actually. I am 1000% sure if some Fed figure head came out and said, "Prices are irrelevant" you guys at ZH of ALL places would have mercilessly raked him over the coals.

Finally YOU posted a graph of PRICE action to illustrate YOUR piece and the graph you posted was a 4 year chart of PRICES, not volume, regardless of my reading abilities. YOU posted the graph, not me. MY reply was in response to the graph YOU posted and I have only attempted to point out that the graph YOU posted is a misrepresentation of price action, regardless of volume.

Thank you for replying.

RadioactiveRant's picture

It looks like it dropped about 60% 98-99, thats like crash.

yogibear's picture

About time! Many CB created bubbles. We are seeing only the beginning of the multiple bubbles bursting.

The longer the CBs defer reality the larger the mess.

robertocarlos's picture

That's a pretty neat camera trick where they turn a small group of people into an army of people like in Gladiator. Why did they do this trick for that apartment block in Hong Kong?

starman's picture

Fortune  cookies are on the house! 

williambanzai7's picture

That is a massive public housing estate in that picture.

I can see five high rise construction sites within a six block radius of my window.

new game's picture

and i thought a block walled back yard was bad in vegas. woow, at 10 billion this is how we will live?

plez bring the reset fwd to stop this madness. jumping from one of these will end the pain...

williambanzai7's picture

They call that a New Town and There is a waiting list to get in. The list consists of thousands of people who cannot afford to rent or buy the expensive places financed with hot money.

COSMOS's picture

Plenty of room in Australia, its only a matter of time before its all one big Chinatown in Sydney.

Weisbrot's picture

wont get to 10 billion with sars, swine flu, zika, and what ever else is or may be on the way

zeroaccountability's picture

I sometimes question whether or not China has some other, less obvious reason for building all these ghost cities.

Sun Tzu, and all that.