Debt Worries Mount as Dollar Rises

Barron's: Hong Kong Property Prices to Fall 40%?
This could be just the beginning of more property market weakness. Deutsche Bank’s Tony Tsang is among a growing contingent of analysts who are projecting a fall of 30% or more for Hong Kong housing prices. Tsang’s argument rests on the fact that Hong Kong banks are restricted to a debt servicing ratio of 50% or less on mortgages. However, current residential property prices imply a debt servicing ratio, which measures monthly mortgage payments as a share of monthly income, of about 72% for a typical 20-year mortgage on an archetypal 40 to 70 square meter apartment, estimates Tsang. The analyst argues that “for the affordability ratio to return to a sustainable level of 50%, residential prices would need to fall 32%.”
There's a lot more reasons why home prices are expected to slump and developers could be in for pain. It's also worth noting that if Hong Kong prices crumble, Shenzhen real estate will take a hit. Although first-tier cities are not the whole Chinese market, Beijing is cooling and Shenzhen is responsible for most of the rebound in home prices. A housing slump in Hong Kong could spillover in Shenzhen and deliver a psychological blow if it causes the national price index to fall.

An emerging market debt blow up remains the larger concern.

Reuters: Emerging market credit crunch could haunt 2016
More worryingly, the build-up of emerging market debt is not confined to the corporate sector. Ballooning household debt is also likely to raise questions for local banks, which have some $700 billion outstanding in dollar-denominated bonds.

The Washington-based Institute of International Finance, a banking industry group that specializes in emerging market investment flows, said this week that global household debt had risen by $7.7 trillion since 2007 to more than $44 trillion and that $6.2 trillion of that rise was in emerging markets.

Household debt per adult in emerging economies rose by 120 percent over that period to some $3000, it added.

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