Economist Ye Xiuliang predicts that if Hong Kong’s property prices fall by more than 30 to 40%, it will cause a banking and financial crisis, multiple downward vicious cycles, a large number of companies experiencing financial difficulties or even bankruptcy, a severe economic recession, and massive layoffs in public and private institutions. File picture. (Yu Gang/The Epoch Times)
[The Epoch Times, November 06, 2023](Epoch Times reporter Zhang Yingyu reported in Hong Kong) Ye Xiuliang, a part-time lecturer in the Department of Economics at the Chinese University of Hong Kong and Hong Kong HKBU, and a senior research consultant at the Asian Competitiveness Institute at the Lee Kuan Yew School of Public Policy at the National University of Singapore, pointed out last month, The Hong Kong property market has entered the final stage before the bubble bursts. The bursting of the bubble and the subsequent financial crisis will be inevitable. Property prices may need to fall by 60% to 75% cumulatively from their highs, triggering discussion. He wrote an article in Ming Pao today (3rd), further explaining that when property prices fall by more than 30% to 40%, it will cause banking and financial crises, multiple downward vicious cycles, a large number of companies facing financial difficulties or even bankruptcy, and serious economic problems. Recession and mass layoffs in public and private sectors, etc.
Ye Xiuliang pointed out that many estimates of future property price declines do not have a solid theoretical basis. He gave the example of the bursting of the property market bubble from 1997 to 2003. The above-mentioned circumstances occurred, causing property prices to fall by 75%. In 2003, Hong Kong’s unemployment rate peaked at 8.8% and the underemployment rate was 4.3%. That is, 13.1% of the working population experienced employment difficulties. Compared with the 2% to 3% unemployment rate before the bubble burst, it was “basically two different worlds.”
Ye believes that the current Hong Kong property market continues to decline and has entered the middle to late stage of the “early stage of the property market decline”. The purchasing power of “buying goods” has been lower than the selling pressure. The resulting first wave of declines in real estate stocks and bank stocks has already occurred, but has not yet entered the “early stage of the property market decline”. A period of comprehensive financial crisis.”
Falling property prices are expected to lead to a vicious cycle
Ye Xiuliang estimates that the economic and financial environment will be quite harsh in the next few years. He believes that when the property price bubble is too big and the property market falls, if the purchasing power of homebuyers or investors to “buy goods” may be lower than the selling pressure, if the situation continues, it will lead to “psychological expectations that property prices will continue to fall.” Long-term property investors, Demand for homes from real homebuyers and speculators is quickly disappearing.
On the other hand, when developers see the above situation, they will cut prices one after another, which will trigger the second and third waves of “changes in market behavior” and “psychological expectations that property prices will continue to fall”, continuing to push property prices down.
At that time, real estate stocks will fall, dragging down bank stocks in anticipation of supply cuts and triggering pessimism in the market. Stock market investors will adjust their asset portfolios accordingly, creating a vicious cycle.
The decline in property prices and stock prices has triggered a negative wealth effect and liquidity constraints, causing consumption to drop and companies to freeze investment. This has further triggered a fall in property prices and stock prices, causing consumption, investment, output and assets to decline. A vicious cycle in which prices pull each other downwards.
In addition, when property prices fall repeatedly, companies and banks will need to keep more cash, repay their overseas loans when due, and even transfer some assets overseas, which will cause a sharp drop in the money supply, causing economic prosperity, property prices, and money supply to pull each other downward. vicious cycle.
Ye Xiuliang called on the public and the industry to prepare early, such as reducing leverage as much as possible to “cope with the coming storm.”
Oppose to withdraw all “dirty tactics”
Ye Xiuliang is a former associate professor of the Department of Economics at Nanyang Technological University in Singapore. He has worked at the Hong Kong Monetary Authority, the Hong Kong and Macau Management Office of BOC Hong Kong and the Bank of East Asia.
“Ming Pao” published its article on October 16, “The Estimated Fall in Hong Kong Property Prices and the Best Time to “Easy the Spicy”, stating that after the bubble bursts, Hong Kong property prices may need to fall by 60% to 75% cumulatively from their high levels, and pointed out that Hong Kong Once the government withdraws all the “dirty measures”, it will seriously damage the governance prestige of the current government, and there will be no danger of falling property prices in the future, triggering discussion. @
Editor in charge: Chen Minqi