Jacinto Tong: Multiple mortgage will trigger property bubble in 3 months

Posted: Feb 13 2015Last Updated: Feb 13 2015

13 February 2015 - With a proven track record of accurate predictions, Jacinto Tong, CEO of the Gale Well Group, recently blogged about a potential property bubble burst in Hong Kong. His claim that the ‘bubble will burst within 3 months for lower budget properties’, has sparked a heated debate around the city.

In the post, Tong points out that property with multiple mortgages may lead to the next housing bubble burst. Due to the lack of stringent regulations, finance companies encourage investors to continue to borrow by refinancing their properties to free up funds to invest in lower budget properties. Tong suspected that the number of “fourth mortgage” properties has already reached a tipping point on the market.

Tong predicts the market crisis is inevitable within the next three months, or six at the latest, followed by a decrease in property prices.

In fact,  a property in Heya Green, Cheung Sha Wan, was repossessed last week for the owner was unable to afford “forth mortgage” payments. The property was purchased at HKD$5.715M in 2012 and was sold as a distressed property two years later at HKD$6.888M. There was even a rumored “ninth mortgaged” property in Park Central, Tseung Kwan O, which was recently sold below market price with a HKD$100,000 discount.

However, Dr. Lam Yat-ming, an experienced economic analyst, held an opposite view and casted doubt on Tong’s estimated “forth mortgage” numbers. Dr. Lam believed there is still room for price a surge in the first half of the year. He therefore suggested the government should impose a standard rate of Double Stamp Duty (DSD) for properties across all price ranges to reroute investors from the “overheated” lower budget market. Reducing the Special Stamp Duty (SSD) rate would also help to increase property supply on the market in his opinion.

Updated: 14 February 2015

Tong posted an update on his blog, clarifying that his forecast is that a potential bubble burst is on the horizon in the next three to six months, not within 3 months.

He then wagered a bet with Dr. Lam, who believes the prices may continue to increase, that the Centa-City Leading Index (CCL), which reflects secondary private residential property price, will drop below 136.64 after six months on 14th August 2015 (as of 13th February 2015, the Index is at 136.64). If it stays high above 136.64, Tong will treat the press to dinner and apologize publicly for making a false forecast. 

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