October 07, 2005

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Hong Kong blogger: Bubbly Joseph Yam

The Hong Kong Monetary Authority's Joseph Yam today's receives a prestigious award: I am declaring his Viewpoint series is the world's first central bank blog (it just needs some RSS feeds). This week's edition is on financial stability and the property bubble, a self-congratulatory romp on how Hong Kong "survived" the bursting of its property bubble from 1998-2003. Mr. Yam puts it down to six factors:

1. Low interest rates - he concedes Hong Kong was "lucky" interest rates were falling during the period. For that he can thank Alan Greenspan.
2. 70% loan-to-value ratio - thanks to the HKMA's oversight, banks had low-ish LVRs, slowing the decline in negative equity loans. But when prices fall by 60%, that's not going to help you. And in the current market you have to be a chump not to be able to get LVRs of 90%+, even via vendor financing.
3. Two-income households - thanks to Hong Kong's army of domestic helpers, both partners in a family can work, which cuts the odds of unemployment hurting a family because at least one still has a job. Of course two people usually have to work because the city is so expensive, especially property, and those two people endured 6 years of stagnant wages offset by deflation. So thank your helper today. She saved Hong Kong.
4. High savings rate - people are thrifty, so they can afford more debt. It's a crazy world.
5. Highly capitalised banks - you say conservatively run, I say lazy balance sheet. While people scraped together their last few cents to repay their mortgages, banks didn't need to draw down on their capital reserves. It simply proves the adage that people would rather go hungry than default on their home loan.
6. The Hong Kong Mortgage Corporation - the USA has been actively discussing their versions of the HKMC (Fannie Mae and Freddie Mac are the two biggest), with their implicit government guarantees meaning the US taxpayer effectively subsides mortgage rates for home owners at the expense of non-home owners. Mr. Yam says: we established the Hong Kong Mortgage Corporation to which banks could sell their mortgages if they wished to reduce their exposure to the residential housing market to a comfortable level. This implies the HKMC is simply the mortgage dustbin for Hong Kong banks. If the market wanted a way to dispose of mortgages through securitisation, it would have created it.

But Mr. Yam finishes with a prescient warning:

falling housing prices have a debilitating effect on consumption. The feeling of your property going deeper and deeper into negative equity is painful, particularly when your home is your only asset. Those who have been financing consumption by borrowing against rising housing prices are particularly vulnerable. Thankfully the community of Hong Kong is quite conservative in this respect.
As opposed to some other communities we could name. Thankfully America has no real estate bubble, according to dis-interested and independent realtors, and Hong Kong has no bubble at all...just a slump.

posted by Simon on 10.07.05 at 12:23 PM in the Hong Kong economy category.




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The world's first central bank weblog is...
Excerpt: ...by Joseph Yam, Chief Executive of the Hong Kong Monetary Authority, according to Simon World:The Hong Kong Monetary Authority's Joseph Yam today's receives a prestigious award: I am declaring his Viewpoint series is the world's first central bank bl...
Weblog: New Economist
Tracked: October 7, 2005 06:53 PM


Comments:

I'm at a loss on how exactly to describe Mr. Yam's views. Certainly not free thinking. Not quite propaganda.

What would you say?

posted by: doug crets on 10.07.05 at 01:33 PM [permalink]

I'd call them the party line.

posted by: Simon on 10.07.05 at 01:35 PM [permalink]

I use the same supermarket as Joe. Is there anything you'd like me to ask him next time I see him at the cheese counter?

posted by: fumier on 10.07.05 at 02:50 PM [permalink]

Just one: can I have a job?

posted by: Simon on 10.07.05 at 02:54 PM [permalink]

Then you have to at least give us an idea how to get rid of this slump of HongKong:)

posted by: lin on 10.07.05 at 03:30 PM [permalink]

Well Lin there's two parts to that answer:

1. Hong Kong isn't in a slump....yet.
2. That's what the boys and girls at the HKMA get the big bucks for. If they want me to join them, my consultancy fees are reasonable.

posted by: Simon on 10.07.05 at 03:42 PM [permalink]




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