Eavesdropping on price-drop prediction

Editorial | Mary Ma 6 Dec 2018

Justin Chiu Kwok-hung, aka the "god of property" at CK Asset Holdings, can get very unconventional when it comes to marketing.

This time, with no funny costumes and not at a marketing event, he's playing a crystal ball gazer - predicting property prices to fall further by up to 25 or 30 percent next year.

Understandably, his view has raised some eyebrows among his peers.

The raised eyebrows were obvious since none of his peers have been as downbeat, except for property investor and commentator Jacinto Tong Man-leung, who is always of the view that the market is due for a major adjustment.

Others have at most predicted a 10 percent drop, with some even foreseeing as little as 5 percent.

The others couldn't be excessively pessimistic, otherwise it could have a direct impact on their companies' inventories that may be sold in the coming year.

Wouldn't it be really nice if the price correction could go as high as 30 percent or even more? That would surely be welcome news for homebuyers and the government. After all, flat prices have hit insanely high levels for too long, and it would be in the common interest to see a meaningful correction to reduce the affordability gap.

Perhaps Chiu hadn't expected his remarks made during a private dinner - at which Tong and a few others were present - to be reported for public consumption. While a 30 percent drop would be the most pessimistic forecast by a leading member of the industry so far, Chiu offered an update yesterday, saying prices may not fall by that much, and that his personal view is a general correction of 10 to 20 percent. That's for the public record.

I wonder, if the general correction is to be 10-20 percent, how deep could it be for the notorious nano-cubicles that, by all standards, couldn't be possibly categorized as normal flats for normal family needs.

Is the "god of property" leaving some room for interpretation? While your guess is as good as mine, common sense lets us know that nano units are bound to be hardest hit when a market correction occurs, as the leverage in this segment has been the highest.

If the correction is 10-20 percent, I wouldn't be a bit surprised if owners of nano flats - glorified shoeboxes marketed as homes - are hammered harder than that.

No matter which magnitude is to be believed: 10-20 or 25-30 percent, what's common in both sets of numbers is the consensus that housing prices will plunge, and this would be consistent with the normal economic matrix.

Home prices surged like crazy in recent years because nearly all factors, except wages and housing demand, were abnormal: excessive liquidity, almost zero interest rates, capital exodus from the mainland via both open and underground conduits, etc.

Now that the environment is reversing to normalize monetary supplies and interest rates, amid the threats of trade wars and a slowdown in the mainland economy, conventional economic factors are quickly settling in to replace the crazy times.

Nano unit owners would face the biggest risk of falling into dreaded negative equity as the reversal bites.

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