HK Housing “in Free Fall” and “Worse Than ‘97” Says Kyle Bass

Hong Kong’s real estate situation is worse now than it was before the 1997 Asian financial crisis and the city’s housing market is in “free fall” according to hedge fund manager Kyle Bass.

Bass, who made a reported $500 million shorting the US housing market before it crashed in 2007 and runs Dallas-based Hayman Capital Management, sees the falling Hong Kong market as an indicator of a China situation that is much worse than what’s seen from official statistics.

Some Hong Kong developers have already cut prices on new housing projects by 20 percent this year, and investment bank Goldman Sachs last week predicted another 20 percent drop in housing prices in the city would be on the way.

Bass Bearish on China’s Liabilities

Bass made his diagnosis of the Hong Kong market at the SkyBridge Alternatives Conference in Las Vegas this week, according to an account in Bloomberg, where the outlook for China and Hong Kong grabbed the attention of the primarily US-based fund managers attending the event.

“When you start thinking about how levered China actually is, their asset liability mismatches are 10 percent of the system vs the US at 2-3 percent prior to our crisis,” Bass told the conference attendees. The fund manager went on to call the economic situation “one of the biggest macro imbalances the world has ever seen,” according to a transcript seen by Mingtiandi, and said that China is already experiencing a “hard landing as we speak.”

Despite his clarity in calling the US subprime bubble, Bass’ foresight in Asia has been less dependable. The Dallas-based executive has been predicting a financial crisis in Japan several years, and has called its debt a Ponzi scheme.

In this week’s discussion, however, many of Bass’ fund manager counterparts seemed to share his pessimism about China. Rubicon Fund Management’s Paul Brewer shared the same panel with Bass and also pronounced China’s economic challenges to be larger than what the US was facing during the subprime times. Also during the discussion, Graham Capital Management founder Kenneth Tropin criticised China’s economy, predicting that, “It’ll all come unglued but the current regime just wants to kick the can.”

Hong Kong Home Prices Already Sliding

While the hard landing that Bass and his fellow panelists are predicting for China has yet to crystallise, Hong Kong home prices have already been dropping fast this year.

The city, which had seen housing prices rise by more than 150 percent over the seven years ending in 2015, saw the home market begin to decline last year.

This year prices have continued to drop with top-line developer Swire Properties offering 4.25 to 5 percent discounts, and up to 7.5 percent cash rebates to buyers of its Alassio project in Hong Kong’s Mid-Levels area, bringing the price of homes in the project down to 20 percent below a neighboring development in the prime location, according to the South China Morning Post.

Other top developers such as Sun Hung Kai Properties, Wheelock Properties and Kerry Properties are also said to be slashing prices in the city.

Home prices citywide have now dropped 13 percent since September, according to a recent agency report. Last week, Goldman Sachs real estate analyst Justin Kwok said in a note to investors that rising interest rates and other factors would contribute to a further 20 percent drop in housing prices.