Concern over Hong Kong real-estate bubble warranted

There has been much speculation recently about an ongoing price bubble occurring in the Hong Kong residential property market.

In fact, the concern has been so great that Hong Kong Financial Secretary John Tsang recently announced significant measures that will be taken in order to mute the real estate trading activity including a higher levy on luxury properties, adjustments to the rate of land auctions and tighter scrutiny on bank lending.

Looking at the latest residential property price indices for Hong Kong, you can see that Tsang’s concern is warranted.

The University of Hong Kong’s Residential Real Estate Series (HKU-REIS) indicated that, in January, the price of residential properties continued to rise increasing 1.53% since December and 29.57% since January 2009.

The “Hong Kong Island” index, “Kowloon” and “New Territories” sub-components also showed notable year-over-year increases.

The HKU-REIS is a set of property price indices constructed monthly using a “modified” repeat-sale methodology similar to that of the S&P/Case-Shiller indices yet suited to the Hong Kong property market.

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