Think U.S. housing is expensive? Compared to Hong Kong, it’s a steal.
With Hong Kong’s currency pegged to the U.S., the Fed’s easy monetary policy is blowing a massive bubble in Hong Kong real estate, says money manager and Hong Kong resident Puru Saxena in a recent interview with Financial Sense Newshour.
“I think once the Fed starts tapering and when interest rates get normalized in the future, people in Hong Kong are going to be in for a very rude awakening,” he tells listeners.
Earlier this year, Puru sold all his real estate positions and began warning that Hong Kong could experience anywhere from a 50-60% correction.
To give you an idea, Puru says the price of his office building was selling for $400 a square foot in 2003. Recently, before the government started taking measures, it was selling for $2400 a square foot.
“Prices have risen by about 600% or more in some areas in the last 10 years…when you see a 600-700% appreciation in any asset class in ten years without any fundamentals, then you know this cannot go on forever.”
When asked what’s causing such a surge in prices, he explained, “Our currency is pegged to the U.S. and we don’t have our own monetary policy so we’ve had interest rates at near zero for almost four years now and that’s the reason why property prices are so inflated. I believe this is going to end very, very badly.”
Further, he states, the property bubble in Hong Kong "has everything to do with the Fed’s QE policy. I have looked at the numbers and after the Fed started QE in 2008, mortgage debt in Hong Kong has increased by over 50% in the last four years. So, in the last four years, Hong Kong people have taken on 50% more debt than they have ever in the history of Hong Kong.”
If that wasn’t enough to cause alarm, Puru points out another startling fact: Hong Kong residents can’t get fixed 10, 15, or 30 year rates—it’s all adjustable. So, if rates increase by just 2%, he says, 30-year adjustable rates will climb by 30-40%.
When luxury households are already paying 80% of their pre-tax income on mortgage payments, “I don’t see how these households are going to spend more on mortgages than they bring in. Of course they can dig into their savings for a while, but savings don’t go on forever. So, in my view, all the signs are here for a huge, huge asset bubble in this city and also in some other cities in China.”
In the rest of this interview, Puru explains his five to seven year outlook on U.S. real estate and the stock market, and why overseas investors are continuing to pour money into the U.S.
If you would like to hear this full interview with Hong Kong-based money manager Puru Saxena available for subscribers next Tuesday, CLICK HERE for more information. In addition to hearing from market experts, institutional investors, and analysts regularly interviewed for FS Insiders, you’ll also gain access to our entire archive of prior interviews.
