Walk along exclusive Conduit Road in the Mid-Levels district of Hong Kong until you come to number 39, then look up to the 68th floor to see Asia's most expensive residential property and the world's most expensive apartment - a five-bedroom flat that a wealthy Chinese buyer picked up late last year for US$57 million (Dh209.3m).
Each square foot in this apartment cost $9,200. These are the kinds of prices that start people talking about bubbles. There are regular reports on the television news about scrums of buyers competing to pick up flats in new residential projects - which hearken back to similar frenzies in Dubai and elsewhere in the UAE - and developers are hungry for land to develop anywhere in this small territory.
It is not surprising that during the past few months there have been concerns that the property market here may overheat after prices surged 29 per cent last year. What is helping keep the bears at bay is the fact that Hong Kong's economy is growing strongly. GDP shrank by 2.7 per cent last year, far less than the 3.3 per cent contraction that the territory's government had predicted in November. The economy grew by 2.3 per cent in the final three months of last year from the previous quarter, and is expected to grow by up to 5 five per cent this year.
Also, borrowing costs are the lowest they have been for two decades. Hong Kong has kept its base interest rate at 0.5 per cent since December 2008 to provide a cushion against the global financial downturn. The market rise is fuelled by buyers from across the border in mainland China, where the economy continues its breathtaking expansion. About 18 per cent of mid-range to luxury flats valued at HK$10m (Dh4.73m) and up were bought by mainlanders, according to market data, but many Hong Kongers believe the share is actually higher, as they believe many mainland Chinese buy the properties through local representatives and agents.
Still, there is considerable resentment in Hong Kong about the role of mainland buyers, as rising prices mean that the former British colony is one of the world's most expensive property markets and many locals find it difficult to buy into the dream. Home sales in Hong Kong last month hit their highest level in five months. Sales rose 13 per cent from the month earlier to HK$40.8 billion, while the number of transactions climbed 10 per cent to 11,733, the government's land agency reported.
Borrowing costs are so low that the banks are worried. Margaret Leung, the chief executive of Hang Seng Bank, which is the second-biggest provider of mortgages in Hong Kong, says mortgages will eat into profits if borrowing costs fall further. To try to cool things down a bit, the government says it will raise taxes on luxury home purchases for the first time in more than 10 years. Stamp duty on homes selling for more than HK$20m would rise to 4.25 per cent from 3.75 per cent, John Tsang, the financial secretary, said last month.
The government has also promised to increase the supply of apartments. But an increase in the required downpayment on luxury homes to 40 per cent from 30 per cent in October had little effect. At the time of the Conduit Road sale, the Hong Kong chief executive Donald Tsang said he was concerned about a possible property bubble. "The relatively small number of residential units completed and the record prices attained in certain transactions this year have caused concern about the supply of flats, difficulty in purchasing a home and the possibility of a property bubble."
Fears of a bubble began to rise in January. The respected commentator and investment expert Jim Rogers, author of A Bull in China and the chairman of the Singapore-based Rogers Holdings, says that he expects property prices in Hong Kong and Shanghai to decline after being driven sharply higher by speculative demand. Not everyone shares the view. Mark Williams, the senior China economist at Capital Economics, believes it is too soon to be talking of overheating in Hong Kong. The luxury sector might be the one exception, he says, but that is a small part of the total market.
"Prices of residential properties are rising, but so are incomes. This means that housing affordability remains at a reasonable level," says Mr Williams. He believes that to some extent though, Hong Kong, unlike China, has to live with volatile prices for property and equities because its currency peg gives it no space to conduct independent monetary policy. Property in China is far less exposed to shifts in global investor appetite and global monetary conditions as a result.
"In Hong Kong, the government relies on two things - the unusual flexibility of its markets, which means that wages for example respond quickly as goods and asset prices rise and fall. Second is targeted 'prudential' measures [such things as raising the minimum level of downpayment required] to keep speculative appetite under control," he says. "In terms of whether Chinese property is now in a bubble, for similar reasons to Hong Kong I would say no."
Last year was the only one in the past decade in which property prices rose more rapidly than average wages, so it does not seem that property is too expensive across the country as a whole. There may be exceptions: developers seem to have piled in to commercial and luxury residential property, leaving an overhang of unsold property in some cities - Beijing is one that is often mentioned. "But these are local or sectoral issues that are not, so far at least, a major macro problem for the economy as a whole," says Mr Williams.
Hong Kong's banks show little evidence of the irrational exuberance that characterised lending patterns in western banks that led to the credit crunch, and are careful about whom they lend money to. Banks are also restricted in how much they can lend, to around 70 per cent of a property's value. And there is also much to suggest that the Hong Kong government is watching the situation closely and is prepared to intervene if necessary to stop any damaging bubbles forming. Mr Tsang, the chief executive, recently repeated his concerns about a bubble forming, but insisted that the hard data have yet to show that Hong Kong has one, even way up on Conduit Road.