Exchange rate Hong Kong to US
Like a cartoon character whose legs continue to pump even after he has run off a cliff, Hong Kong's house prices have remained buoyant even as purchasing activity in the real-estate sector has crashed to levels not seen since the slump at the start of the millennium. The situation cannot continue indefinitely: sooner or later prices will follow sales down.
Property prices more than doubled in Hong Kong between end-2008 and end-2012. Policymakers have taken several steps to try to cool the market, including tightening restrictions on mortgage loan/value ratios and increasing stamp duty in late 2012 and early 2013. However, according to the Hong Kong Rating and Valuation Department (RVD), property prices in September 2013 were still 7.8% higher than in December 2012.
Nevertheless, the sector is not in rude health. Figures from the Land Registry show that there were only 3, 426 residential units sold in October, a drop of 60.7% year on year and of 7.1% compared with September. On a rolling three-month basis, the number of all types of building units being sold is at its lowest level since March 2001. Over the last two decades, slumps in sales activity have usually been temporary, but the current downturn has been unusually long-lasting-and there are few signs that it will end in the near future. That is largely a reflection of the fact that prices continue to levitate, despite the sharp contraction in demand.
The strength of prices is partly a reflection of high levels of liquidity, a phenomenon that is linked both to rapid credit growth in China (a major source of demand for property in the territory) and to the extraordinarily loose monetary policy being adopted in the US. Hong Kong's interest rates are linked to those in the US through the exchange-rate peg. However, given that demand is slumping, liquidity no longer seems to be the primary driver of local property prices.