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Forbes mentions something the rest of the media seems to have largely ignored about the origins of the Hong Kong pro-democracy movement. It coincides with an era of growing socio-economic hardship driven by the price of property (and consequently rent).

These figures come from Demographia 2014:

MostExpensiveCities

Hong Kong is the most expensive city in the world to live in from the real estate perspective. The problem with rising property prices is that it creates a stark disparity between the Haves and Have-Nots. Those who have money own property for themselves as well as earning money from rent. The majority get shut out of this market, and the disparity only grows where house prices rise grossly in excess of incomes.

The world ends up like a Jane Austen novel. In that era, to inherit or own land defined wealth, and one’s place in society. Where land ownership through inheritance defined the wealth of rentiers it was impossible to escape from the place in society into which one was born.

Forbes puts this well:

Hong Kong has made economic gains over the past decade, but these have disproportionately accrued to the economic elite.

While Hong Kong’s GDP has grown by about 50% in the past decade, median household income has risen by only about 10%. Hong Kong’s Gini coefficient, a score of income inequality, has risen into the territory of developing countries; according to the CIA World Factbook, Hong Kong had a Gini score of 53.7 in 2011, indicating that its income distribution is more unequal even than that of the US, which scored a 45 in 2007.

Real estate is the source of much of this inequality.

Note, however, where Sydney sits relative to Hong Kong on the list. Sydney sits at number four, with Melbourne just behind it at number six. Note too the prominence of Vancouver. Canada, like Australia, is in the midst of a Chinese driven mining boom.

Part of what is driving prices up is also the influence of Chinese property investors. I quote from the Eurasia Review from 24th of September, 2014:

In 2013, China emerged as top foreign investor in Australia’s real estate – pumping in USD 6 billion – nearly double the amount just a year ago. Chinese hunger for real estate as an investment option has pushed property prices across major cities in North America, Europe and Australia. The trend has picked up as Chinese property developers look to diversify the effect of cooling domestic property market. My emphasis

ChinaInvestment

From the Sydney Morning Herald

One source in the Australian Financial Review claims that, according to Treasury statistics, this figure of 6 billion has since “surged to $24.8 billion in the first nine months of 2013-14, an increase of 93 per cent on the previous year”.

Australia is the number two most popular place for Chinese property investors in the world after the US. Today it has been announced that the Chinese government has made it easier to move money overseas. The mere trickle of Chinese money into the Australian real estate market will soon turn to a flood.

The same thing is happening in Hong Kong, only it is much easier for mainland Chinese to purchase there as none of the restrictions on sending money abroad apply. The end result is that Hong Kong property prices have reached an intolerable 15 times the annual income. Property bubbles usually start to burst at around 7 to 8 times the annual income. Sydney has reached 9 — and since the Demographia figures were released has probably already reached 10. All driven by deluded investors who think that real estate is a safe haven because it allegedly never devalues.

Imagine living somewhere housing cost around twice as much as Melbourne. Almost all of your income would go towards rent or mortgage payments. This would cause immense economic hardship. If the Chinese central government embark on another massive stimulus to expand the Chinese property bubble even more vastly, the spillover effect on the Sydney and Melbourne real estate market will result in prices reaching those seen in Hong Kong.

The effect of Chinese stimulus on Australian property prices would be both as a result of Chinese investment as well as increased sales of Australian minerals prolonging the minerals boom. Australia is exquisitely sensitive to the volume of mineral exports to China:

ChinaShareofTotalExports

See last reblogged post for source.

What we are seeing in Hong Kong could well represent the tip on the iceberg of simmering social discontent in China. It is a discontent that may erupt if the real estate bubble on mainland China bursts. Huge numbers of investors will lose their life savings. Others will be left with mortgages worth more than the value of their homes. The effect on the economy could engender a recession. On the other hand if more stimulus inflates property prices even more this will render housing unaffordable to most. The Chinese government is caught between a rock and a hard place.

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