Table of Contents
List of overvalued properties
| reason | describe | example |
|---|---|---|
| Psychological factors | Sentiment and optimism drive speculative buying | Taiwan 2020 Hsinchu "Red Ticket Speculation" |
| Credit expansion and low interest rates | Easy credit pushes up prices, and later rate hikes correct | Australia's housing prices were high during the epidemic, but fell later |
| Government Policy | Tax incentives or relaxations to boost demand | Hong Kong to abolish stamp duty in 2024 |
| Supply and demand imbalance | Tight supply and strong demand push up prices | Hong Kong rents to rise by 1.6% in 2024, talent introduction plan |
| Historical Price Growth | Past surges create momentum, increase bubble risk | China's eastern provinces, high risk of collapse |
Number of moves
- Higher selling prices and capital gains
Overvaluation enables owners to sell at the peak and realize significant capital gains. For example, Hong Kong’s housing prices peaked in September 2021, and investment owners can sell for a profit, increasing their sense of wealth. - Better loan terms
Banks often approve higher mortgage amounts based on market valuations to reduce entry costs. For example, if a property in Hong Kong worth HK$8 million is calculated based on a mortgage ratio of 60%, the owner only needs a down payment of HK$3.2 million, alleviating liquidity pressure. - Increased rental income potential
Demand drives up rents, with Hong Kong rents rising by 1.6% in the first half of 2024, which is beneficial to landlords, especially as policies attract talents and students into the market. - Improved mortgage financing capabilities
A high valuation allows the owner to obtain a higher mortgage loan for reinvestment or consumption, improving cash flow in the short term. - Selling Profit Opportunities
If the owner successfully sells the property at a high price, capital appreciation can be achieved, especially for short-term speculators, as the profit margin can be expanded. - Increase in paper wealth
Rising property valuations are directly reflected in personal balance sheets, strengthening homeowners’ sense of financial security. - Credit rating improvement
High-value properties can help improve your personal credit, making it easier to apply for other financial products (such as credit cards or business loans).
as a result of
1. Financial risks increase
- Rising tax costs：Overvaluation may lead to increased holding costs such as property taxes, land rents and rates, and increase cash flow pressure on long-term holders.
- Mortgage repayment pressure: If the owner applies for a high-ratio mortgage with a high valuation, he may face the risk of defaulting on payments once interest rates rise or income decreases.
2. Asset depreciation crisis under market fluctuations
- Bubble burst risk: When the market corrects, overvalued property prices may plummet, and the owner's assets may shrink significantly, forming "negative equity" (the property's market value is lower than the outstanding loan).
- Decreased liquidity：Overvaluation makes the property unmarketable and difficult to realize in a reasonable time. Especially in an economic downturn, the seller may be forced to reduce the price to sell.
3. Misjudgment of investment decision
- Misconfigured resources: Owners may over-invest in real estate due to high valuations and ignore other asset classes (such as stocks or bonds), reducing the risk resistance of the portfolio.
- Misjudging the timing of reinvestment：Holders may postpone selling to wait for higher prices, miss other market opportunities, or even be trapped due to policy shifts (such as interest rate hikes or purchase restrictions).
4. Legal and compliance risks
- Bank Recourse Liability: If a false valuation results in a loan default, the bank may hold the owner or the appraiser legally responsible.
- Transaction Disputes: If the buyer later discovers that the property appraisal was inflated, he or she may file a lawsuit, accusing the owner or agent of misleading.
5. Psychological and social stress
- Wealth Anxiety: When the market fluctuates, owners may experience constant anxiety due to concerns about asset depreciation, which may affect their quality of life.
- Social tensions：Overvaluation may cause dissatisfaction among tenants or buyers, such as rental disputes caused by excessively high rents.
6. Psychological selling difficulties
- In a down market, overvalued properties are difficult to sell and may need to be sold at a reduced price. For example, if Hong Kong developers cut prices in 2024 and secondary market owners follow suit, this could put owners in an asset liquidity dilemma, especially in a cooling market.
in conclusion
Overvaluation of properties is driven by psychological, economic and policy factors, which brings short-term benefits to owners such as higher selling prices and better loans, but long-term risks such as market corrections and financial pressures cannot be ignored, and its potential risks are more worthy of vigilance.
Owners need to be cautious, especially in volatile markets such as Hong Kong and China, balancing immediate interests with future stability. Owners should view valuation results rationally, avoid excessive leverage, and diversify investments to reduce risks.
