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COMMENTARY

The resilience of Hong Kong's property market

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Besides hard statistics, it is also important to understand the nuances of the current situation gripping Hong Kong.

OVER the last five months, the escalating violence of protesters in Hong Kong has captivated the world.

What started as a straightforward protest over the Extradition Bill has now morphed into more complex issues of greater democratic freedom.

Not surprisingly, as news and social media platforms dish out graphic pictures, videos and sensational stories around the clock, the picture that is painted is one of a once-vibrant financial hub descending into uncharted chaos.

However, there are also reports and pictures of crowds at sell-out new property launches, and statistics to show that Hong Kong property prices are holding relatively firm.

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Why haven't Hong Kong property prices fallen by a quantum that is commensurate with the growing level of political uncertainty?

Here, it is helpful to delve into some statistics to contextualise what supports the Hong Kong property market.

Hong Kong has a population of around 7.4 million people. These make up 2.5 million households, of which 800,000 are in government rental flats.

Despite what one often hears about Hong Kong property prices spiralling upwards, the total amount of mortgage in the entire banking system is only HK$1.4 trillion (S$243.5 billion).

This is slightly more than 10 per cent of the entire cash deposits of HK$13.6 trillion residing in the banking system. The equivalent ratio is 30 per cent for Singapore. Hong Kong property owners are clearly not highly leveraged.

If one takes the entire value of housing stock in Hong Kong, as one Daiwa Securities property analyst had done recently, it amounts to HK$10 trillion.

Hong Kong is one of the very few countries where the amount of cash in the banking system (HK$13 trillion) exceeds the value of the entire housing stock (HK$10 trillion).

Essentially, if there is a great property sale, there is enough cash in the system to mop up the entire housing stock without the need for bank borrowings.

What is also fascinating is that the total loans to deposit ratio (LDR) in Hong Kong's entire banking system is only 76 per cent, compared to 106 per cent in Singapore.

LDR is an indication of a bank's liquidity as it compares a lender's total loans to its total deposits for the same period.

The strong balance sheet and healthy cash levels of the system are also reflected in the low gearing levels of listed Hong Kong property companies, with Sino Land standing with net cash on their balance sheet.

Given this financial data, if there is a property price correction in Hong Kong, should one not expect these domestic mega-sized property conglomerates to pounce on good buying opportunities?

If the property owners have such low levels of leverage, is it not surprising that there does not appear to be any panic selling in the midst of the persistent social unrest?

The numbers support the case that, despite the current crisis, the key financial pillars underpinning the Hong Kong property market remain fundamentally strong.

Besides hard statistics, it is also important to understand the nuances of the current situation gripping Hong Kong. This is not about an entire population seeking to revolt against its rulers. Instead, the situation remains fluid and continues to evolve.

For now, it appears that a group of hardcore protesters are deliberately trying to disrupt the lives of the majority.

In some cases, it has been observed that the first responders to clear the obstacles are not public service workers, but rather office workers and bystanders pushing aside barricades and clearing debris to restore traffic and achieve some normality. Such is the resilience of Hong Kong's people, as well as its property market.

  • The writer is a managing partner at Havenport Investments, an independent asset management and wealth services company. Havenport, like other boutique fund managers, structures secured lending solutions for accredited investors, and has investments in Hong Kong.