Hong Kong joins Australia and Canada as world's riskiest housing markets

Household debt accounts for nearly half of the SAR’s GDP.

Bloomberg reports that Hong Kong along with Australia, Canada and Sweden have the unenviable distinction as the riskiest housing markets in the world, featuring glaring red flags in real estate that could threaten economic activity. 

“In all four, valuations are very elevated, there has been a lengthy housing boom, debt levels are high and there is a significant share of floating rate debt,” Adam Slater, lead economist at Oxford, said in a research note.

The rise in Hong Kong real home prices over the past five years have clocked in at 37%, trailing only behind New Zealand’s equally heated home market where residential property prices have surged 43%.

Also read: Household debt weighs heavily on homeowners as home prices far exceed wage growth

The percentage of household debt as a share of GDP (48%) is another risky burden for Hong Kong but is nowhere near close to Australia where household debt accounts for 115% of economic product.

Hong Kong has one of the worst credit-to-GDP gaps globally, observed the Bank for International Settlements, which is in the red at 30.7 and long beyond the acceptable threshold at 9. The SAR’s debt service ratio falls at 6.9 which is similarly way beyond the acceptable range of 1.8.

On the flipside, markets like US, Germany, France and Japan have limited property risks.

Nomura earlier singled out Hong Kong as amongst the territories most vulnerable to a financial crisis or a sharp drop in domestic demand over the next three years. The research firm came up with a metric to predict the likelihood of a financial crisis taking place using parameters like private credit-to-GDP, private debt-service ratio, real effective exchange rate, real property prices and real equity prices. Countries with a score of 30 have most to fear, according to Nomura.

Hong Kong’s score came in at 52.

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