In sharp contrast to the US housing market, the Hong Kong property market is experiencing a boom which has pushed prices to their highest level in a decade. With an economy being lifted up by its close proximity to the powerhouse of China, Hong Kong’s boom is also being helped by the fact that their own currency is tied to the US dollar. This is forcing them to officially react to the recent string of US cuts in interest rates. Many local banks have cut rates by approximately 100 basis points in correlation to a 3 percent drop in US federal fund rates.
With Hong Kong literally on the other side of the planet, it appears as though the housing market downturn and credit crunch in the US has helped to fuel Hong Kong's property boom.
A 50 percent increase in property prices over the next three years has been predicted by analysts at Merrill Lynch, but they are not alone in their positive outlook. Sun Hung Kai Properties and other developers have also stated that they expect an extra push from some of their stronger mainland China divisions. There appears to be a prevailing opinion that purchasing an apartment is more profitable than purchasing shares.
Economists do not seem to be too worried about any impending bubble that could be created from the current market boom. With more wealth being created and leading to consumer spending, they see economic growth possibly increasing by 4 or 5 percent. This news comes in the face of an impending US recession which would hurt global exports, many of which travel through Hong Kong.
The gross domestic product of Hong Kong has had an average growth rate of 7 percent annually over the previous four years. According to Nicholas Kwan, "mass market property prices are still 35-40 percent below their peak in 1997. So even if they rise 30-40 percent, prices would only be what they were 10 years ago." He also stated, "It's hard to argue that would be a bubble."
