Hong Kong Home Prices Reach Double '97 Level and Stocks Rally

(Bloomberg) -- Here's a scary statistic: Hong Kong home prices are more than double their 1997 levels, when the city's biggest housing bubble burst.

What's more, affordability has deteriorated too, according to cautionary remarks made on Monday to legislators by Financial Secretary Paul Chan, who noted the ratio of mortgage payments to median household income hit 68 percent in the third quarter, compared with a 45 percent average between 1997 and 2016.

Chan's warning seems to be falling on deaf ears. The Hang Seng Property Index is up 6.5 percent so far this year, and more than 40 percent in the past year, outperforming the broader index's 37 percent increase. Wharf Holdings Ltd. has soared nearly 16 percent since the beginning of 2018, and China Overseas Land & Development, one of the most aggressive Chinese developers in Hong Kong, is up more than 15 percent.

As the Hang Seng Index continues to set new record highs, it's worth remembering that just after Hong Kong's handover to China, the gauge soared to an all-time high before plunging nearly 50 percent in the wake of the Asian financial crisis. Home prices also cratered, losing 69 percent of their value from a 1997 peak through their trough in 2003.

Even as the equity market has shrugged off the impact of rising interest rates, Chan said that “changing fundamental factors may put pressures on the residential property market in the future.” The affordability ratio would spike up to 88 percent if interest rates rose by three percentage points to a “more normal level,” Chan said.

To contact the reporter on this story: Frederik Balfour in Hong Kong at fbalfour@bloomberg.net.

To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Philip Lagerkranser

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