End game in property wait; Hong Kong Monetary Authority announced 27 cases of negative equity involving residential mortgage loans, the first time that negative equity has reared its ugly head since June last year

End game in property wait
Mary Ma
Monday, July 29, 2013
The Hong Kong Monetary Authority announced that as at the end of June, there were 27 cases of negative equity involving residential mortgage loans. This is the first time that negative equity has reared its ugly head since June last year. It would be imprudent to say the resurgence of negative equity cases is alarming, as they mainly related to mortgages with unusually higher loan- to-value ratios. But it’s still a development that shouldn’t be ignored. Following the property market crash during the 2003 SARS outbreak, many homeowners were trapped in negative equity. Nobody wants to see that again. Now, everyone is asking the same question – have home prices peaked?Over the weekend, a hot rumor circulated that Shih Wing-ching had just sold a luxury unit in the upscale Leighton Hill development in Happy Valley for HK$28 million, compared to HK$28.8 million that a similar unit on a lower floor fetched in February.

The rumor immediately caused a ripple in the market. The speculation was that the Centaline Property founder may be foreseeing a correction in the near future, so he decided to unload now.

But the plot thickens. For Shih denied it was him. Perhaps, it was someone else by the same name.

Nonetheless, it’s clear the market is increasingly sensitive to every piece of information that may signal where real estate is headed. It has lost direction.

Some analysts said a correction was long overdue. But it didn’t happen because special stamp duties prevented the market from operating normally.

Objectively speaking, factors that precipitated the market boom are in the process of fizzling out.

Excessive liquidity arising from quantitative easing is subsiding as the measures are due to be withdrawn by the US Federal Reserve. Although Fed chairman Ben Bernanke has not yet said when interest rates will rise as a result, it’s only a matter of time before that happens.

Mainland capital is also affected by the crunch as the central government absorbs from the system extra liquidity that fails to benefit the real economy.

If the SAR government crackdown has been effective in stamping out investors, users would be the ones left in the property market.

The rush for Home Ownership Scheme units in the secondary market was spectacular with record-breaking sales.

The heat even spilled over to former public rental housing units that had been sold to tenants in the past.

Recently, such a flat in Wah Kwai Estate in Aberdeen changed hands on the open market for HK$4.2 million – the highest price for such a unit.

Could this be the final straw?

Investors are now largely absent from the property market.

Unlike the last market correction – when investors and end-users suffered alike – the latter will likely suffer the most serious blow if another major correction occurs.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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