REAL ESTATE in HK

Many readers have been asking about this for a long while.

Real estate is no different than the stock market. The stock market shows you the way the real estate market is heading, but there are bumps too because the economy is impacted with very low nominal interest rates and negative real rates.

Negative real rates provide support to hard assets like real estate and commodities, then why commodities are falling - the reason is when demand is falling because of high debt in China and elsewhere, commodities fall too, but real estate still provides some positive yield of at least 3% or more with current rental market conditions.

Unless we see sudden economic shocks that pull down the economy sharply such as

• a retail chain filing for bankruptcy
• a listed company unable to pay its debt hitting one or more banks hard with debts to be written off
• euro zone breaking up or some southern countries have to restructure their debt hitting banks and investors
• substantial rise in interest rates although this is not likely for the time being since we are in deflation mode
• subsequent unemployment increases to uncomfortable level

then we will see adjustment of the real estate market.

The RE market lags behind the stock market by 18-24 months, it will take quite some time before you see material adjustments.

Simply say, the RE market is more sticky and not as elastic. The HK situation is that supply of rental apartments is not sufficient to satisfy demand at the moment, so the adjustment process will be slow and it will take a much larger economic hit to lower the demand and get it in balance.