Real Estate

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Ants don't attack two equidistant, similarly tempting sugar lumps with the same fervor. One cube gets devoured before interest in the other perks up. An economist who has studied ants for years wonders if such herding behavior could also explain the way investors treat comparable assets.

Asia's property market offers a fertile ground for entomological research. Property ants are piling into Hong Kong, and ignoring Singapore. After moving up in tandem for years, home prices in the two Asian cities began diverging earlier this year. Despite broadly similar curbs aimed at tamping down skyrocketing prices, Singapore continues to fall as Hong Kong surges.

Moving in tandem for years, Hong Kong property prices, after falling late last year, are rising again while Singapore prices fall
Sources: Singapore Urban Redevelopment Authority, Centaline

Why are cooling measures working in one city, but not the other, especially when both have a 15 percent tax on foreign buyers?  The clampdown may even be slightly stricter in Hong Kong, where the loan-to-value cap of 50 percent on homes priced above HK$10 million ($1.3 million) is well below Singapore's 80 percent limit on a first mortgage of up to 30 years.

One answer to the puzzle: Singapore's curbs are all-encompassing. Total debt servicing, including credit cards and overdrafts, can't exceed 60 percent of a borrower's monthly income. Add to that a glut of homes. Between 2014 and the end of this year, UBS expects supply in Singapore to more than double from the historical average  to 51,000 units annually. In contrast, Hong Kong is expected to produce an average of 19,800 units in 2015 and 2016, 35 percent more than the 2000-2014 average of 14,600, says Louisa Fok of UBS CIO Wealth Management.

That could partly explain the divergence: Singapore's home vacancy rates are at their highest in 11 years and prices have fallen 11 percent from their record in September 2013, while in Hong Kong, the market unexpectedly resumed its rally in March. Prices have almost quadrupled since the end of the 2003 SARS outbreak.

But ants' actions have consequences, especially with extreme wealth inequality breeding popular angst. Affordability is among the world's lowest in Hong Kong, which UBS says is at risk of a bubble. The average skilled service worker needs to work 18.5 years to be able to afford a 60-square-meter apartment, compared with 11.8 years in Singapore.

Out of Reach
It takes 18.5 years' annual income for the average Hong Konger to afford a 60-square-meter apartment, making the city the world's least affordable.
Source: UBS Global Real Estate Bubble Index
Note: The price-to-income ratio is an average indicating how many years a skilled service worker needs to work to be able to buy a 60-square-meter flat near the city center.

Perhaps the biggest issue lies not with curbs or supply but with the flood of money available. Ample global liquidity is keeping borrowing costs low in both cities: Singapore's three-month interbank interest rate is 0.9 percent, compared with 0.6 percent in Hong Kong. But the latter, by virtue of its proximity and other ties with mainland China, has the curse of another type of liquidity: Chinese money escaping a falling yuan.

Mainlanders have scooped up as much as 20 percent of recent Hong Kong mass-market projects. More importantly, their cash shifts the city's economic gears, which are currently overflowing with engine oil. Bank of China's Hong Kong unit was in the headlines recently for offering mortgages at a 1.38 percent premium over interbank rates, one of the lowest in town.

The aggression isn't surprising, considering how much more room Hong Kong banks in general have to lend: BOC Hong Kong's loan-to-deposit ratio is 69 percent versus 93 percent for Singapore's largest lender DBS.

Cash to Spare
Most Hong Kong banks have lent out less of their deposits than Singapore counterparts
Source: Bloomberg

The end game for Hong Kong and Singapore is still some distance away. For now, speculators' foraging behavior will be determined by banks' desperation to spread the dough around. In the short term, that will be a bigger factor than demand and supply or regulatory curbs.

Banks in both cities are hungry for returns in a low-yield world pockmarked by soured corporate debt. Singapore is quietly investing in public infrastructure to prepare its private property for the next take-off following a soft landing. But Hong Kong lenders are dripping cash, and as a result, the city's home prices may soar further before sanity catches up -- perhaps abruptly.

In the end, it's the banker's hand that feeds the property ants.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Theoretically, a foreign buyer in Hong Kong could pay as much as almost 43 percent more than a local resident for a $1.3 million home.

  2. Singapore's average residential supply between 1996 and 2013 was around 24,000 units a year, according to UBS.

To contact the authors of this story:
Nisha Gopalan in Hong Kong at
Andy Mukherjee in Singapore at

To contact the editor responsible for this story:
Matthew Brooker at