Last hope for property prices

The price of assets is not a phenomenon of supply and demand, but a phenomenon of money

the boss plus labor does not mean that you are doing well, but that the central bank’s monetary policy is relaxing. Hong Kong’s property market began to decline in the fourth quarter of 2019. The future trend is not determined by how many new supplies and demonstration riots will continue each year (of course, it is also partly related), but how the currency environment will be in the next few years.

Under the linked exchange rate system, Hong Kong’s monetary policy is determined not by the HKMA but by the US Federal Reserve

In the 10 years from 2008 to 2017, property prices in Hong Kong expanded roughly in line with the Fed’s balance sheet. The financial tsunami hit the U.S. economy, and the Federal Reserve Board pushed QE to “release water” to save the market. The scale of its balance sheet soared more than US $ 1 trillion. At that time, the US economy was weak and Hong Kong’s economy was strong. Many of the printed banknotes came to Hong Kong, which caused the monetary scale of the HKMA and Hong Kong’s money supply (M2) to rise at the same time. Fair money pushed up Hong Kong property prices, and then pushed them up further.

The currency scale of the HKMA has increased from about 5 billion yuan in 2008 to about 400 billion yuan at the end of 2014. M2 also maintained high single-digit and double-digit growth most of the time. Hong Kong’s GDP has only grown in single digits, and all the extra money is hot money, pushing property prices to a half-day high.

In other words, the Fed stopped QE in 2014, and the HKMA’s balance sheet also peaked in 2014. But why has the port continued to hit a new high in the next few years?

Hot money drives up real estate market

Currency is not static but it will move and have a multiplier effect. Starting in 2015, some funds began to flow out of Hong Kong (or because the United States began to raise interest rates), but at that time the Fed had not yet begun to “collect water” and let the funds rotate in the market. In particular, the stock market fell sharply in early 2016, postponing the rate hike in the United States, and faster capital flows, which caused Hong Kong’s M2 to rise to nearly 20% (at the end of 2017). Hong Kong properties are also rising rapidly.

But in 2018, the Fed’s “receiving water”, the phenomenon of water shortage in Hong Kong began to surface, funds continued to flow out, M2 once fell to negative growth, and the property market began to decline simultaneously.

What is the hope of the Hong Kong property market? In the fourth quarter of last year, the Fed changed its course and restarted QE. But unlike last time, the HKMA’s currency balance has not expanded significantly, remaining at about 60 billion yuan, and Hong Kong’s M2 has not risen sharply. Why? Hong Kong is weak because the US economy is now strong.

To judge the whereabouts of property prices, we must first judge how Hong Kong ’s currency environment will be in the next few years. This year is the election year in the United States. The Fed may continue to release water, but the question is whether funds will flood Hong Kong under the current political and economic situation in Hong Kong.

Money flow determines rise and fall

High property prices themselves affect Hong Kong’s economic competitiveness, and demonstrations are a catalyst for further economic slowdown. But who can tell now, will the demonstrations continue this year? If the economy further slows down, will the new funds issued by the Federal Reserve come to Hong Kong as usual (M2 has been hovering at 2% and 3% in the past six months)? If not, what are the factors that support property prices?

The HKMA has a currency balance of over 60 billion yuan. Can it support property prices? Currency balance not only depends on the stock, but also on the direction of the trend. In 2016 and 2017, the currency balance declined slowly, but the Fed showed no signs of “water collection”, and the currency in Hong Kong will automatically rotate; on the contrary, although the currency balance has shown signs of bottoming out, the general direction is that funds will not stay in Hong Kong. It is a bit difficult to support the current property prices. Where else can I turn around?

The only good news is that with the relief of the Sino-US trade war, the Hong Kong dollar has strengthened recently, surpassing the 7.8 level, and Hong Kong stocks have also risen at the same time. If there is another large-scale inflow of funds into Hong Kong in the future, which will accelerate the growth of M2 and the currency balance will rise sharply again, the Hong Kong property market will once again enter the upward trajectory; on the contrary, if there is no inflow of funds, this year will be a year of further adjustment of property prices.


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