Tuesday, January 15, 2008

HK Property Prices To Soar

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?

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