Market Woes

October 7, 2011

The Hong Kong stock market in the last four weeks has seen one of the most turbulent periods in its history. The Hang Seng Index has stunned the market with rollercoaster rides since early September, plummeting almost 20 per cent from over 20,000 to 16,250 before bouncing back marginally.

The Euro debts crisis has sent shockwaves through all major economies, as governments scrambled to find effective ways to bail out the deeply troubled Greece, with Italy and Spain hanging in the balance. Pessimism has taken hold of the markets amid prolonged negotiations at all fronts.

With financial markets in turbulence, the property market in Hong Kong instantly felt the pain. Sales in September plummeted by as much as 50 per cent month to month, and developers watched their marketing spend head down the drain when just a trickle of buyers came forward.

Investors who are already overloaded with real estate are selling, albeit at a loss in some cases. Others stay away from the property scene. End users have put on hold their purchase plans, waiting for signs of settlement; while some aggressive bargain hunters are finding difficulty in borrowing despite low interest rate. It is estimated that luxury property prices have slid by 10 per cent in the last two months.

The gloom deepened when large-scale lay-offs began in the financial industry, with investment banking one of the most severely affected areas. High-flying bankers who made fortunes some years ago have had to sell off trophy properties which they bought in the good old days.

Many tenants of high-end properties are finding themselves on the receiving end of dismissals and have to return to their home countries, leaving behind vacated houses and large apartments. Breakleases are appearing in droves, as tenants are forced to quit Hong Kong before their tenancies expire. As a result, rentals have felt the downward pressure. Landlords are having to slash rents as high budget tenants dwindle, creating further pressure on the sale prices of luxury property.

The trend among mainland investors of selling off Hong Kong properties continues, as tightened credit in China strangles many an SME. Unless the central government reverses its austerity measures, there will be more mainland sellers in Hong Kong, adding to the glut of unsold stock and pushing further down prices.

However, there may yet be a silver lining to the cloud. On a recent visit to Wenzhou (near Shanghai) after some desperate business owners committed suicide or fled because of collapsed businesses, Premier Wen Jiabao pledged to help struggling private enterprises with relaxed credit control and a number of relief measures. If this eventually becomes a nationwide policy (as the whole country is also under tremendous pressure), there is hope that situation on the mainland may improve and in turn will ease the pressure on Hong Kong.

When the dust settles, buyers will come out again because, after all, there is still strong demand for Hong Kong properties.

By Koh Keng-shing