On the global contagion of falling US property market and the deja vu...

Reading reports like the one in New York Times, on the global contagion of the falling US housing market around the world, it feels like deja vu to me.

Perhaps there's no other place in the world that is more capitalist in nature, with mass speculation on property market, than Hong Kong. Ever since the beginning of time, property prices always - ALWAYS - go up in Hong Kong. It has become a theorem. Savings rate (as with typical Chinese) is phenomenal, and everyone (including the old lady street hawkers) speculates. That has always been the case.

So, when Hong Kong was hit by the Asian financial meltdown back in 1997, it was a wake-up call (an awakening; no, actually it's more like a whack-in-the-head with a sledgehammer) to the people in Hong Kong, that for the first time, EVER, that housing prices were going down. The economy contracted drastically since its economy and government coffers are intrinsically tied to the property market. (Hong Kong has simple and very low tax system, with most government revenue coming from land auction to property developers.) And for the first time, a large number of the population had (or knew someone who had) negative equity in their properties.

I know, because I have family there who experienced just that. My brother bought not one, or two, but THREE properties, one month before the financial crisis hit. He was left with three mortgages that he couldn't get rid of, and he lost almost all his savings. He had to borrow money from families to pay the mortgages (since he was laid off too). He counted himself, to be able to sell those three properties after some 10 years, losing a few million dollars in total.

I vow to myself that if I can possibly help it, I would not repeat the lesson that my brother suffered, out of nothing but greed. Somehow, by Providence, we sold our tiny condo in a tony downtown area for three times the original purchase price, about two years ago. That was a few months before the market started to peak, followed by news of market softening, and then last summer, came subprime mess. And we're using those profits to start a business instead of jumping right back into the falling housing market. There are bargains around, and I sometimes wish I would just swoop them up. But I know we shouldn't stretch our finances like that, and the business is more and better for the longer term health of our finances and independence, than to tie ourselves down to a big mortgages on a bigger house that we could be forced to sell.

Perhaps and let's hope that's the kind of lesson that people in US and around the world in this generation would learn, that they should not stretch their finances and live beyond their means. But you know, I won't count on it. Greed is built-in to human nature. Ten years (or even five) from now, another bubble will come around, and the lesson would be all but forgotten. I have no doubt of that.