Speculators have been driving up property prices in Hong Kong. In the first quarter of 2011, house prices surged by 7.14% (5.04% in real terms) from the previous quarter, based on the latest figures released by the government’s Ratings and Revaluations Department.
In the year to end-Q1 2011, house prices skyrocketed by 23.85% (18.8% when adjusted for inflation).
HK property prices rose by 22.1% y-o-y in Q4 2010, after a 25% y-o-y rise in Q3 2010, according to the estimates of the property consultant Knight Frank.
Marking the 14th anniversary of Hong Kong’s return to Chinese rule, thousands of angry residents gathered in the Central Business District (CBD) on July 1 to protest the skyrocketing property prices in the city-state, which many feel are primarily caused by property developers’ control over the country’s economy. The demonstrators accused the government and developers colluding to establish a monopoly and called for Chief Executive Donald Tsang to step down.
Demand from Mainland China alone constitutes one-fourth of the HK property market. Russians, Japanese and other Asian buyers have also been buying luxury Peak properties. Investors and speculators included companies “diversifying” into other fields.
The buying frenzy has been fuelled by robust economic growth and very low interest rates in the US—mirrored in Hong Kong, due to the currency peg. Since 2009, the Chinese government has loosened restrictions on yuan use in international trade while allowing foreign companies to issue yuan-denominated bonds.
In attempts to lessen speculation and cool down the real estate market:
• In Q4 2010, the Hong Kong government introduced the Special Stamp Duty (SSD). The measure decreased transaction volumes in January 2011 by 39% from November 2010. However, house prices surged again in the two months that followed.
• The government has also introduced measures to strengthen the mortgage database. Buyers must disclose mortgage histories prior to having their mortgage application granted. Banks may refuse mortgage applications, lower loan-to-value ratios, and offer higher mortgage rates if applicants do not share their mortgage data.
• The Hong Kong Monetary Authority raised minimum down payments and deposits for foreign buyers purchasing houses priced at HK$6 million (US$770,000), thus, putting an additional 10% down on their purchase. Buyers of properties worth HK$10 million or more must pay a 50% down payment.
In June 2011, Hong Kong home sales slid by 58% from the previous month.
Hong Kong’s 2011-2012 Budget outlined the government’s goal to stabilize the residential market by ensuring an adequate supply of land in the medium to long term. The total number of sites available for sale has increased by at least 70%, according to a report by Cushman & Wakefield.
House prices are expected to rise by 15% y-o-y in 2011 before dropping by around 15% to 20% next year, according to Barclays Capital Asia Ltd.
Inflation drifts upward
During the year to end-Q1 2011, HK’s economy grew by 7.2%, after experiencing a real GDP growth rate of 6.4% in the previous quarter, according to the country’s Census and Statistics Department. In Q1 2011, the total exports of goods rose by 17.7% from the same period last year, up from 8.2% y-o-y increase in Q4 2010.
The seasonally adjusted unemployment rate fell to a two-year low of 3.4% to Q1 2011, the lowest since the third quarter of 2008. The unemployment rate is expected to remain stable at 1.8% across the year.
The inflation rate has been rising since 2010, when it reached 2.4%. In February 2011, the inflation rate was 3.7%. The trend is expected to continue, with rising food price and bulk commodity prices. In 2011, the inflation rate is projected to be 4.5%.
In the year to end-Q1 2011, house prices skyrocketed by 23.85% (18.8% when adjusted for inflation).
HK property prices rose by 22.1% y-o-y in Q4 2010, after a 25% y-o-y rise in Q3 2010, according to the estimates of the property consultant Knight Frank.
Marking the 14th anniversary of Hong Kong’s return to Chinese rule, thousands of angry residents gathered in the Central Business District (CBD) on July 1 to protest the skyrocketing property prices in the city-state, which many feel are primarily caused by property developers’ control over the country’s economy. The demonstrators accused the government and developers colluding to establish a monopoly and called for Chief Executive Donald Tsang to step down.
Demand from Mainland China alone constitutes one-fourth of the HK property market. Russians, Japanese and other Asian buyers have also been buying luxury Peak properties. Investors and speculators included companies “diversifying” into other fields.
The buying frenzy has been fuelled by robust economic growth and very low interest rates in the US—mirrored in Hong Kong, due to the currency peg. Since 2009, the Chinese government has loosened restrictions on yuan use in international trade while allowing foreign companies to issue yuan-denominated bonds.
In attempts to lessen speculation and cool down the real estate market:
• In Q4 2010, the Hong Kong government introduced the Special Stamp Duty (SSD). The measure decreased transaction volumes in January 2011 by 39% from November 2010. However, house prices surged again in the two months that followed.
• The government has also introduced measures to strengthen the mortgage database. Buyers must disclose mortgage histories prior to having their mortgage application granted. Banks may refuse mortgage applications, lower loan-to-value ratios, and offer higher mortgage rates if applicants do not share their mortgage data.
• The Hong Kong Monetary Authority raised minimum down payments and deposits for foreign buyers purchasing houses priced at HK$6 million (US$770,000), thus, putting an additional 10% down on their purchase. Buyers of properties worth HK$10 million or more must pay a 50% down payment.
In June 2011, Hong Kong home sales slid by 58% from the previous month.Hong Kong’s 2011-2012 Budget outlined the government’s goal to stabilize the residential market by ensuring an adequate supply of land in the medium to long term. The total number of sites available for sale has increased by at least 70%, according to a report by Cushman & Wakefield.
House prices are expected to rise by 15% y-o-y in 2011 before dropping by around 15% to 20% next year, according to Barclays Capital Asia Ltd.
Inflation drifts upward
During the year to end-Q1 2011, HK’s economy grew by 7.2%, after experiencing a real GDP growth rate of 6.4% in the previous quarter, according to the country’s Census and Statistics Department. In Q1 2011, the total exports of goods rose by 17.7% from the same period last year, up from 8.2% y-o-y increase in Q4 2010.
The seasonally adjusted unemployment rate fell to a two-year low of 3.4% to Q1 2011, the lowest since the third quarter of 2008. The unemployment rate is expected to remain stable at 1.8% across the year.
The inflation rate has been rising since 2010, when it reached 2.4%. In February 2011, the inflation rate was 3.7%. The trend is expected to continue, with rising food price and bulk commodity prices. In 2011, the inflation rate is projected to be 4.5%.
Analysis of Hong Kong Residential Property Market »
RENTAL YIELDS
Last Updated: Apr 07, 2011
A rising tide lifts all boats…Hong Kong’s property market rose an amazing 19% during the year to the end of Q1 2011, the highest property price rise in the world, after a yet more amazing 27% during same period the previous year, also a record!
As Hong Kong’s residential prices have surged, rents have risen too. If you want to live in Mid-Levels you’re going to have to pay US$10,000 a month. 350 square metres – real style – will cost you US$300,000 per year. You’ll pay US$4,000 per month for 120 square metres of faceless horror in the New Territories!
Yet rental yields are extremely low, with gross rental yields of from 2% on the Peak to 3.7% for a small New Territories apartment. Given that the Global Property Guide’s figures are for gross rental yields, i.e., do not make any allowance for periods when the apartment is vacant, for legal costs, administration costs, cleaning and repairs, rental taxes, property taxes, and other taxes, etc, it is safe to say that landlords of high-end apartments in Hong Kong earn very little on their apartments.
Of course, buyers are hoping that values will rise even more. Which, given low interest rates and a bubbling economy, could well happen.
Hong Kong is not a ‘typical’ market. It is a place where the rich choose to park assets in the form of apartments, as part of a diversified asset-safeguard strategy - like Monaco and Singapore. Such markets typically have lower rental yields than more ‘normal’ housing markets.
As Hong Kong’s residential prices have surged, rents have risen too. If you want to live in Mid-Levels you’re going to have to pay US$10,000 a month. 350 square metres – real style – will cost you US$300,000 per year. You’ll pay US$4,000 per month for 120 square metres of faceless horror in the New Territories!
Yet rental yields are extremely low, with gross rental yields of from 2% on the Peak to 3.7% for a small New Territories apartment. Given that the Global Property Guide’s figures are for gross rental yields, i.e., do not make any allowance for periods when the apartment is vacant, for legal costs, administration costs, cleaning and repairs, rental taxes, property taxes, and other taxes, etc, it is safe to say that landlords of high-end apartments in Hong Kong earn very little on their apartments.
Of course, buyers are hoping that values will rise even more. Which, given low interest rates and a bubbling economy, could well happen.
Hong Kong is not a ‘typical’ market. It is a place where the rich choose to park assets in the form of apartments, as part of a diversified asset-safeguard strategy - like Monaco and Singapore. Such markets typically have lower rental yields than more ‘normal’ housing markets.
TAXES AND COSTS
Last Updated: Sep 02, 2011
Rental Income: Net property income is taxed at 15% (previously 16%). Net income is computed by deducting a standard 20% for repairs and outgoings from the assessable value (gross rent less irrecoverable rent and rates paid by owners).
Capital Gains: No capital gains tax exists in Hong Kong.
Inheritance: Inheritance tax or estate duty was abolished from 11 February 2006.
Residents: Taxation in Hong Kong is based on the territorial source principle; i.e., where the income was earned. Income derived from outside Hong Kong is not taxed in Hong Kong.
Capital Gains: No capital gains tax exists in Hong Kong.
Inheritance: Inheritance tax or estate duty was abolished from 11 February 2006.
Residents: Taxation in Hong Kong is based on the territorial source principle; i.e., where the income was earned. Income derived from outside Hong Kong is not taxed in Hong Kong.
BUYING GUIDE
Last Updated: Dec 05, 2006
The total roundtrip transactions costs of buying and selling an apartment are low, with the maximum scale of charges only 7.8%. This is inclusive of the real estate agent 's fee (0.5% to 1%) and stamp duty (0.75% to 3.75%). Legal fees are around 0.5% to 2%.
LANDLORD AND TENANT
Last Updated: Jun 20, 2006
Landlords have an easy life in Hong Kong.
Rents: Rents can be freely negotiated in the private sector, which comprises about half of the rental market.
Tenant Security: The Landlord and Tenant (Consolidation) Ordinance 2004 removed security of tenure, i.e. domestic tenants no longer have the statutory rights to renew their tenancy at prevailing market rates.
Rents: Rents can be freely negotiated in the private sector, which comprises about half of the rental market.
Tenant Security: The Landlord and Tenant (Consolidation) Ordinance 2004 removed security of tenure, i.e. domestic tenants no longer have the statutory rights to renew their tenancy at prevailing market rates.
ECONOMIC GROWTH
Last Updated: Jul 20, 2011
Robust growth as domestic demand, exports recover
Hong Kong is a small bustling metropolis, a corporate and financial centre where Western and Eastern influences converge. A former British colony, Hong Kong became a Special Administrative Region of China after Britain’s 99-year lease expired in 1997. It enjoys a high degree of autonomy from China.Hong Kong has one of the highest GDPs per capita in Asia at US$29,803 in 2009. With 7 million people occupying about 1,100 sq. km., it has also one of the world's highest population densities.
In the second quarter of 2010, Hong Kong’s economy grew by 6.5%, after an 8% GDP growth rate in Q1 2010, based from the latest figures released by the Census and Statistics Department (CSD).
Foreign trade is the key driver of Hong Kong’s economy. In August 2010, the total volume of goods exported rose by 31.5% from a year earlier. The volume of goods imported also increased by 21.3% over the same period, according to the CSD.
The government raised its GDP growth forecast to 5%-6% from its earlier projection of 4%-5%, on the back of robust domestic demand and stronger-than-expected GDP growth in Q2 2010.
HK’s economy contracted by 2.8% in 2009 due to the global crisis. After experiencing spectacular GDP growth of 7.2% annually from 2004 to 2007, economic growth started to slow in 2008, with just 2.2% GDP growth rate.
In 2010, the inflation rate is expected at 2.7%, from 0.5% in 2009, according to the IMF.
In the third quarter of 2010, HK’s seasonally-adjusted unemployment rate was 4.2%, unchanged from the previous quarter, according to the CSD. However, economists expect unemployment to fall to 4% by the end of 2010 as domestic demand continues to grow.
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