Hong Kong second most at risk of housing bubble

A pedestrian walks past residential buildings in the Tai Kok Tsui district of Hong Kong

Hong Kong ranks second in a list of cities most at risk of a property bubble, according to a report released by investment bank UBS. The report entitled “UBS Global Real Estate Bubble Index” measured 15 “world cities” and ranked them according to the risk posed by over-valued property prices, taking into account ratios between average earnings, and property prices and rents.
Hong Kong ranked second most at risk with a score of 1.65, only just behind London on 1.88. Sydney was the third most at risk, according to the report, with a score of 1.39.
However, it is Hong Kong that has the worse affordability levels in relation to property prices (non-rents), as local and global investment thrusts them higher and out of the reach of the average skilled service worker’s wages. According to the report, it takes such a worker an average of 21 years to be able to buy a 60-square-meter home in Hong Kong, while it takes 14 years in London, and only 11 in New York.
Partly as a result of a credit boom, the UBS report evaluates current Hong Kong property prices to be “200 per cent higher than in 2003.” Meanwhile, “Rents have grown by 35 percent in real terms and inflation-adjusted incomes [have] stagnated.”
“This has made Hong Kong one of the world’s most expensive cities for private housing,” said Claudio Saputelli, the Head of Global Real Estate at UBS’s chief investment office.
UBS stated that the outlook for property in Hong Kong is darkening following weaker economic growth in mainland China, a worsening job market and a risk of rising interest rates.
UBS expects property prices to decline by more than 10 percent by the end of next year, while investment group CLSA forecasts a 17-percent fall in the next 27 months.
Macau was not included in the UBS selection. However, the data available for this year indicates that, after more than quintupling in value over the past six years, residential prices in the MSAR are heading for their first year of declines since 2008, in line with a gambling revenue slump in the region. Real estate broker Jones Lang LaSalle Inc. forecasted earlier this year that home prices may drop 15 percent this year. Staff reporter