Once again the world stands amazed at the price of Hong Kong property. The last boom/bust cycle I missed was SARS in 2003, when a well-placed bet would have been worth a fortune.

Now, with the US awash with tales of property bust, Hong Kong’s real estate prices have almost bounced back to pre-crisis levels. (Rents have too, if you ask my landlord)

Why the Hong Kong bounce?

The property prices have risen in Hong Kong partly because of the territory’s fixed exchange rate to the dollar forcing economic adjustment through the price of assets rather than currency fluctuation. In this case, the Fed dropped interest rates to near zero, prompting a flood of cheap money.

Jonathan Anderson at UBS, however, does not buy that as the full explanation:

Hong Kong is not the only economy in Asia that runs a currency board-like arrangement; Singapore runs a pretty hard peg against the G3 basket and has seen a similarly dramatic drop in local interest rates, but according to the latest official data Singapore housing prices are down nearly 30% with no sign of a strong rebound to date.

Asia’s sickness and the emerging market sickness

Anderson adds that Singapore is not alone in suffering low real estate prices. The neighboring markets of Thailand, Malaysia and the Philippines are also suffering. Outside of Asia, the emerging markets are suffering as well, including Russia, South Africa, Baltics, Poland, Czech Republic, Hungary, Mexico.

But not in greater China (and Korea)

The only recovering and/or stable Asian property markets are Hong Kong, Taiwan, Korea and China.

With only four economies in the entire emerging world with property prices able to stage a rally this year – and three in greater China – Anderson suspects the causes may be nearer at hand than the US Federal Reserve.

How China brought the property boom

While US Fed and other central banks expanded their balance sheets aggressively, only one central bank globally in printing more “base” money and having those funds spill out into the wider economy through bank credit: The People’s Bank of China.

The magnitude of the increase in broad money and credit aggregates in the first half of 2009 took place in volumes never before seen in Chinese practice, according to Tao Wang of UBS.

Roller coaster ahead?
That said, Anderson offers a word of caution about that China is now the one country most actively withdrawing excessive monetary stimulus. This means that despite very good Chinese macro numbers ahead, there is at least some chance that related liquid asset markets will feel less “bubblish” going forward.