News Articles


 Human being is not particularly good at learning from history.  Either we haven’t lived long enough to live through every moment of it, or we just forget what we have lived through.

The terrible property crash of 1997 led to almost 70% drop of home prices in nominal terms for 6 consecutive years.  Today, many analysts are still very bullish (with Andrew Lawrence as the early exception), and are trying hard to explain why property prices today can’t drop, and how much healthier the market is today relative to 1997.
Today, analysts are arguing that supply and demand is not balanced (with other derivatives of the same reason, like there are many rich Chinese buyers), such that today is not 1997 and prices can’t fall.  The trouble is, majority of analysts in 1997 told the same sort of story, arguing that the supply-and-demand has been imbalanced (at that time, because of the increase of immigrants from China). 
Today, the government is toying with the idea of resuming the Home Ownership Scheme (HOS), which is essentially subsidised housing.  Analysts are not hugely bothered, and they are probably right.  Back in 1997, as the government announced the new housing target of 85,000 units a year, analysts were not hugely bothered.
Today, many pundits blamed the 85,000 units housing target as the culprit for the 6-year slump.  In reality, 85,000 units target had nothing to do with the initial drop.  It was the Asian Financial Crisis, stupid.  The 85,000-unit housing target has probably prolonged the slump, but it did not cause the slump.
Today, many believe that the resumption of HOS will have no impact.  They are most probably right, and it may well turn out to be a non-event.  Property prices correction is imminent today, not because of the rumour of the resumption of HOS, but slow draining of liquidity, which has already caused low transaction volume for weeks now.  All it takes is something to trigger that.
I now have the pleasure to get hold of a few research reports of the Hong Kong property sector in 1997.  Here are some excerpts for your entertainment:
Credit Suisse First Boston – 15 July 1997
We believe the supply demand imbalance will continue to drive residential prices during 4Q 1997 and into 1Q 1998. The two extremes will perform best; luxury residential prices should fare particularly well as we see flows of capital into the top end of this sector. Luxury property is also much less sensitive to affordability levels and much more geared to supply and price expectations. The smallest units (below 40 square metres) will also fare well as there is very limited supply at this level, yet they are the most affordable private sector flats.
Deutsche Bank – September 1997
More supply does not mean oversupply when one considers demolition and population growth, which have been higher than forecast. Mass residential property prices are likely to rise at a more subdued rate than before, possibly in line with the nominal GDP growth rate and dominated by end-users, as would-be speculators are now aware of the government’s seriousness in targeting speculation. Trading up is likely to be a more important source of demand as living standards and aspirations rise, supplemented by the wealth effect of a 419% appreciation in capital values during 1987-1996.
Goldman Sachs – 22 October 1997: Overweight Major Property Developers
Without details of the new policies, our initial assessment is that supply should increase and property price growth should slow. Nonetheless, the rising trend of end-user demand due to population growth and increasing net immigration is irreversible… This cushions property prices from undue correction, since they have already fallen by some 15% from the peak in April- May 1997.

Read more: 


Bookmark and Share