Everyone likes to talk about a Hong Kong property ‘bubble’, given that home prices have increased by more than a third since the depths of the recent financial crisis.
Yet at the same time, highly experienced property investors such as billionaire Li Ka-Shing are still active. For example, he recently bid more than the market was expecting for two land plots on Kowloon Peninsula.
It might have something to do with a long-term perspective.
As shown by a chart from Citi below, while Hong Kong home prices have increased 15% year-to-date and have already broken their 2008 highs, they still remain well below their past peak.
Prices were obviously too high back in 1997, but it’s now 13 years later and Hong Kong’s underlying economy and the income level of its inhabitants have grown substantially since. Moreover, even bubbles can last longer than they should and tend to overshoot.
It’s not like we’re willing to step in and snap up a condo, but this could be the long-term perspective on prices motivating people like Mr. Li. Basically, some could argue that Hong Kong home prices have actually fallen over the last 13 years, while the overall economy has grown more than 20% larger.
(Graphic via Citi Investment Research, Home Thoughts, Ken Yeung, 4 October 2010)