House prices rose by 9.7% year on year to end-October 2013 (5.19% inflation-adjusted), a sharp slowdown from the 22.11% year-on-year increase in October 2012 (17.64% inflation-adjusted), according to the Ratings and Valuation Department (RVD).
Smaller-sized residential properties have seen the highest price increases. During the year to October 2013, the average price of apartments smaller than 40 sq. m. rose by 10.4%, 10% for 70-100 sq. m. apartments and 5.6% for 100-160 sq. m. apartments. The average price of larger-sized residential properties rose by a meagre 0.9% over the same period.
On Hong Kong Island, the average price of residential properties with a size of between 100 and 160 square meter (sq. m.) was HK$185,122 (US$23,872) per sq. m. in October 2013. In Kowloon, the average price of residential properties with the same size was HK$160,634 (US$20,714) per sq. m. in October 2013 while it was HK$82,690 (US$10,663) per sq. m. in the New Territories.
HOUSE PRICE CHANGE, NOVEMBER 2012
|AVERAGE PRICES (HK$/sq. m)||YEAR-ON-YEAR CHANGE|
Source: Ratings and Valuation Department (RVD)
Property prices in Hong Kong have surged 117.2% (89.5% inflation-adjusted) from December 2008 to December 2012, propelled by very low interest rates and strong foreign demand.
To curb speculation, Hong Kong´s government has imposed several rounds of cooling measures:
From January to October 2013, the total number of home sales in Hong Kong plunged by 40.5% to 42,219 from the same period last year, based on RVD figures. Likewise, the total value of property sales also fell by 40.6% y-o-y to HK$233.6 billion (US$30.12 billion) over the same period.
Residential construction continued to increase in 2012, with total completions of 10,149 units, up by 7% from a year earlier, according to the RVD. In 2012, the total housing stock in the country rose by 0.7% y-o-y to 1,117,932 units.
Property prices in Hong Kong are expected to fall in 2014, according to several property market experts.
Hong Kong´s economy is expected to grow by 3% in 2013, supported by a recovery in exports and stable domestic consumption. Hong Kong’s economic growth slowed to 1.25% in 2012, down from 4.9% in 2011 and 6.8% in 2010, according to the IMF.
Hong Kong’s total domestic sales and purchase agreements fell 37.8% in 2011 to 84,462, from 135,778 in 2010. Transactions fell 20.3% on the primary market, and 39.8% on the secondary market.
These declines reflect the government actions such as the Special Stamp Duty (introduced in November 2010), the Hong Kong Monetary Authority’s (HKMA) lowering of LTV ratio and other credit tightening measures to slow speculation activity in the housing market.
Housing supply is still tight in Hong Kong. Housing vacancies fell 0.4 percentage points from 4.7% of the total stock in 2010, to 4.3% in 2011. Housing completions fell to 9,449 units in 2011, from a four-year high of 13,405 units in 2010, partly due to limited housing land supply.
Housing supply is expected to rise to 11,888 units in 2012, and 14,928 units in 2013. Most of the new supply is in the New Territories.
Since 2002, housing completions have been falling, as the Government (which owns virtually all land in Hong Kong) tightly limited the supply of new land for housing.
The tight supply of new houses has arguably contributed to the steep property price rises of recent years.
The Government designated around 52 residential sites in the 2011-2012 Land Sales Programme. Around five were sold by the government through public tender in Q1 2011, according to Colliers. The Government offered four more residential sites for sale by public tender in Q2 2012. Around 400 residential units are expected to be produced from these four sites.
The Hong Kong Monetary Authority (HKMA) still retains its best lending rate at 5%. It dropped from 5.25% to 5% in December 2008, when the Fed Funds rate declined from 1% to 0.13%, and has been unchanged since then.
Total outstanding residential mortgages were up by 4.6% during the year to May 2012 at HK$815.9 billion (US$105.2 billion), according to HKMA’s recent Residential Mortgages Survey, but proportionally this is a slight decline to 42.3% of GDP, from 42.5% of GDP in 2010. Mortgage growth is sharply down on last year’s growth of 15.5% y-o-y to May 2011, and on the previous year’s growth of 13.7% to May 2010.
Maximum loan-to-value (LTV) ratios were lowered by the HKMA’s latest residential mortgage tightening (June 2011):
In monetary terms, approvals for primary market transactions were up by 39.7% during the month to May 2012, while those for the secondary market dropped by 1.5%.
Hong Kong’s rental yields are extremely low. For instance, gross rental yields for Property Class A to C (properties with an area of 99.9 m2 and below) ranged from 2.8% to 3.6% in May 2012, according to the RVD’s latest figures. Yields for Property Class D and E (areas of 100 m2+) are around 2.6% and 2.2%, respectively.
The house price index in Hong Kong rose by 131% from 2001 to 2011, but the rental index rose by just 40%.
In May 2012, the average rent in Hong Kong for Property Class A (less than 40 sq. m.) was HK$328 (US$42.3) per sq. m., while the average rent for Property Class E (160 sq. m. and above) was HK$447 (US$57.6) per sq. m., according to RVD.
Demand for luxury residential properties with monthly rents of HK$80,000 and above has become weaker, with rents declining on South Side (5.3%) and The Peak (4.5%) during the three-month period to February 2012. Overall luxury rents from December 2011 to February 2012 for The Peak, Mid-levels and South Side, were down 3.2% q-o-q to HK$45.26 (US$5.84) per sq. ft., according to Colliers. Landlords are now more willing to renew tenancies at rents set two years ago.
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.
According to the latest Global Property Guide research in April 2011, the highest average yield of 3.4% was generated by residential properties from the New Territories. In Mid Levels, in a posh residential area in the Hong Kong Island, the average rental yield is about 3.3%. Meanwhile, properties in Hong Kong’s most prestigious neighbourhood, The Peak, yield an average of 2.13%. Yields estimated by the RVD are comparable to Global Property Guide figures.
Hong Kong has one of the largest public housing sectors in the world. Around 3.4 million people or 47.7% of HK’s total population lived in public housing in 2011. In 2011/12, around 11,186 public rental units were produced, down by 18% from the previous fiscal year, according to the Hong Kong Housing Authority.
Public housing in Hong Kong began as early as the 1950s as a way to provide citizens affected by wars and calamities temporary housing. In the 1970s, the government changed its policy to provide permanent public housing.
The Hong Kong Housing Authority (HKHA) offers three ways to assist low-income families to purchase homes:
Hong Kong´s economy is expected to grow by 3% in 2013, supported by a recovery in exports and stable domestic consumption. With an average real GDP growth rate of 7.4% from 2004 to 2007, Hong Kong’s economic growth slowed sharply to 2.1% in 2008, then contracted by 2.5% in 2009. The economy then bounced back strongly, with real GDP growth rates of 6.8% in 2010, and another 4.9% in 2011, though GDP growth was sharply down to 1.5% in 2012, according to the International Monetary Fund (IMF).
By end-November 2013, HK’s unemployment remained steady at 3.3%. From an annual average unemployment rate of 6.1% from 1999 to 2006, HK’s jobless rate fell to an average of 4% from 2007 to 2012, based on figures from the IMF.
In September 2013, annual inflation inched up to 4.6% in September 2013 from 4.5% in the previous month, mainly driven by the increase in prices for fresh vegetables, electricity, gas and water, according to the Census and Statistics Department (CSD). Overall inflation is expected at 4.3% in 2013, based on government projections.
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