20 years of market change put in a historical context

Hong Kong

Hong Kong just celebrated the 20th anniversary of the handover. In the past two decades, the city’s real estate market has been on a rollercoaster ride. From the peak of 1997, home prices rapidly declined and hit rock bottom in 2003.

The “85,000 flats” homebuilding project, led by Tung Chee-hwa and CY Leung, became the target of harsh criticism. That was before the Individual Visit Scheme and the “Nine Measures of Michael Suen” saved the market, which, later, not only survived the 2008 Financial Crisis, but even started its ascendance to a record high value.

While experts are trying to figure out when this rising tide will come to an end, it’s worth noting that the real estate market cycle tends to stretch for long periods of time, and 20 years might not be enough for us to see the full picture. The last housing peak before 1997 was in 1981, and this was thanks to Hong Kong’s infrastructure development in the 1970s—the newly-introduced MTR system and highways brought new towns closer to the city center, developers started to build high-rise residential buildings, and some shipyards and factories became residential blocks (such as Taikoo Place). However, the golden times didn’t last long. As the handover approached, many Hong Kong people started to lose faith in the future, resulting in a wave of migration, which in turn negatively affected the financial and real estate sectors. It was not until 1984, when the signing of the “Joint Declaration” restored Hongkongers’ confidence and China’s economic reform brought huge opportunities - Hong Kong’s property market, along with its economy, got back on track. 

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The housing peak before that was in 1973. The stock market growth in the 1970s attracted real estate developers to amass funds by getting listed. However, with the oil crisis triggering a stock market crash, some overly inflated developers went out of business as the property market took a hit. Going back even further to the early 1960s, the anti-Chinese movements in Southeast Asia pushed large amounts of assets from the region into Hong Kong, while the continued waves of migrations in mainland China created a huge housing demand, resulting in an array of large real estate developments. In 1965, several banks suffered runs, Hang Seng was acquired by HSBC, and with the Cultural Revolution and the 1967 riots thrown into the mix, the housing price, again, took a nosedive.

There’s a common thread in Hong Kong’s property cycle: every time the market price went up, it was a result of welcoming and supporting the political and economic environment. However, on the other hand, human nature dictates that greed and fear would push the market to an unreasonable spike that always ended with a plunge to the ground due to unexpected political or economic crises.

The irrational bubble of the market peak will grow till it eventually bursts, and it’s not always rewarding to be constantly guessing when the market will reach its peak or hit rock bottom.

I hope the past can serve as a cautionary tale, reminding us that we need to know our limits when making investments and exercise caution and good judgement. 

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