Hong Kong at risk of bursting housing bubbles

Things are starting to get worse.

Hong Kong's GDP unexpectedly fell by 0.1% (sa) q-o-q in Q2 (Consensus: 0.4% gain) after the 0.3% increase in Q1. This is the first quarterly decline in GDP since Q2 2011.

According to a research note from Nomura, amid this result, it sees substantial downside risks to our Hong Kong GDP growth forecast of 3.5% for 2014.

The report also noted that Nomura still sees risks of the housing bubble bursting.

Here’s more from Nomura:

On a year-over-year basis, GDP growth eased to 1.8% in Q2 from 2.6% in Q1.

A slower growth rate in mainland Chinese tourists has had a negative impact on retail sales (especially luxury and durable goods sales), which have declined for five straight months through June.

Indeed, household spending and service exports fell by 0.9% (sa) q-o-q and 2.3%, respectively, in Q2, after the 0.6% and 0.4% gain in Q1.

Reflecting the weaker-than-expected Q2 GDP, the Hong Kong government today revised down its 2014 GDP growth forecast from 3-4% to 2-3%.

The Hong Kong government today said that overall home prices in June 2014 exceeded the 1997 peak by 44% and residential property prices rose 3% q-o-q in Q2 2014.