So says Goldman Sachs. This morning's HK Standard carried an article on Goldman Sach's prediction that Hong Kong residential property prices would increase by an average of 20% this year (25% in the luxury sector).
The article cites the following factors as driving the expected price appreciation:
1. inflation rising to 4%;
2. the US Federal Funds rate falling by 175 basis points (from 4.25% to 2.5% this year) with Hong Kong following suit (the HK$ dollar is pegged to the US$). At least one other economist has predicted the Federal Funds rate dropping to 1.5% by the end of 2008;
3. rising inflation combined with lower interest rates will result in negative real borrowing costs. (We are actually quite close to this point already);
4. the household debt burden is still substantially lower than in the 1990s. This is reflected in the massive rise in the level of bank deposits in Hong Kong over a period of several years;
5. households spend on average about 40% of their incomes on mortgage payments. This is a very affordable level.
Of course there were a few factors not mentioned in the press article and no negatives at all, which I assume is a function of space constraints rather than omissions from Goldman Sach's analysis.
Maybe I should go and buy another property?