Hong Kong’s red-hot property market

Lalaine C. Delmendo | March 06, 2019

Hong Kong’s property market is now cooling rapidly, amidst the introduction of new market cooling measures, rising interest rates as well as slowing economic growth. Demand is now falling. House price rises are decelerating sharply.

Hong Kong house price annual

Over the past decade, Hong Kong´s residential property prices have skyrocketed by 242% (152.6% inflation-adjusted), including spectacular growth of 28.5% in 2009, 21% in 2010, and 25.7% in 2012. In contrast, real incomes have virtually stagnated in Hong Kong for years. 

So is the big crash coming up?  Hong Kong’s residential property price index rose by just 1.62% during 2018, sharply down from the prior year’s 14.74% growth, according to the Ratings and Valuation Department (RVD). In fact when adjusted for inflation, residential property prices actually declined 0.92% y-o-y in 2018.

During the latest quarter, prices plunged 7.96% (-8.73% inflation-adjusted) in Q4 2018.

Prices of larger-sized and high-end apartments are now plummeting. During 2018:

  • Apartments smaller than 40 sq. m: prices rose by 4.93% y-o-y to HK$172,661 (US$22,000) per sq. m.
  • 40-69.9 sq. m. apartments: prices rose by 1.74% y-o-y to HK$173,070 (US$22,052) per sq. m.
  • 70-99.9 sq. m. apartments: prices fell by 1.25% y-o-y to HK$197,957 (US$25,223) per sq. m.
  • 100-159.9 sq. m. apartments: prices fell by 11.8% y-o-y to HK211,974 (US$27,009) per sq. m.
  • Apartments with sizes bigger than 160 sq. m: prices plummeted by 23.42% y-o-y to HK$219,698 (US$27,993) per sq. m. in November 2018

Demand is now falling. During 2018, the total number of property transactions in Hong Kong dropped 7.1% to 57,247 units from a year earlier while sales values increased a meagre 0.5% to HK$559.29 billion (US$71.25 billion), according to the RVD.

Residential construction continues to rise. In 2018, completions rose 18% to 20,968 units from the previous year, after y-o-y rises of 22% in 2017 and 29% in 2016.


  Average prices (per sq. m.) Year-on-year change (%)
Property size Hong Kong Kowloon New Territories Hong Kong Kowloon New Territories
Less than 40 sq. m 172,661 21,995 141,225 17,990 129,760 16,530 4.93 1.94 0.41
40 - 69.9 sq. m 173,070 22,047 141,029 17,965 110,710 14,103 1.74 3.47 -1.88
70 - 99.9 sq. m 197,957 25,217 182,251 23,217 131,955 16,809 -1.25 15.99 8.70
100 - 159.9 sq. m 211,974 27,003 166,815 21,250 119,858 15,268 -11.80 -14.31 10.43
Greater than 160 sq. m 219,698* 27,987 342,648* 43,649 90,917 11,582 -23.42* 40.57* 1.61
*As of November 2018 Sources: Ratings and Valuation Department (RVD), Global Property Guide

From 2008 to 2013, house prices skyrocketed by 134% (95.7% inflation-adjusted), driven by a flood of money in the wake of the global financial crisis.

The market slowed in the first half of 2014, with house prices rising only by 2.9%, due to government cooling measures. But the housing market bounced back quickly in the second half of 2014, with prices rising by 13.6% in Q4 2014, 19.6% in Q1 2015, 20.4% in Q2 2015, and 15% in Q3 2015. After a brief housing market slowdown from Q4 2015 to Q3 2016 amidst Hong Kong’s economic slowdown and decline in tourist arrivals, house prices recovered rapidly by end-2016, and have been accelerating since.

Now comes the pull-back.

“Prices have already corrected 8% from the recent peak in August 2018 due to macro uncertainties and several events occurring in the property market that concerned investors,” HSBC analysts said. HSBC predicts price falls of around 5% to 10%. 

This was supported by Colliers in its Q4 quarterly report: “A subdued stock market, rising interest rates, increasing loan rations and a slower economic outlook for 2019 all suggest residential prices will slide further in 2019.

"A deceleration of the global economy in Q4 could further dampened buyer confidence.”

Hong Kong’s economy grew by just about 1.5% y-o-y in Q4 2018, the weakest growth since Q1 2016, amidst the US-China trade conflicts. Overall, HK’s economy expanded by about 3% in 2018, easing from a six-year high of 3.8% growth in 2017, according to Finance Secretary Paul Chan. The HK economy is expected to expand between 2% and 3% this year.

Hong Kong property market remains the world’s most unaffordable

Housing demand in Hong Kong has been propelled by a combination of stringent government regulations on development, low interest rates, and currency stability; while the supply of land, which the government controls, continues to diminish.

Hong Kong’s currency peg to the dollar kept borrowing costs near record lows, fuelling continued property demand.


Year Nominal Inflation-adjusted
2009 28.5 26.5
2010 21.0 17.7
2011 11.1 5.1
2012 25.7 21.2
2013 7.7 3.3
2014 13.6 8.2
2015 2.4 0.1
2016 7.9 6.6
2017 14.7 12.8
2018 1.6 -0.9
Sources: Ratings and Valuation Department, Global Property Guide

For the ninth year in a row, Hong Kong’s property market is rated the world’s most unaffordable by the 15th Annual Demographia International Housing Affordability Survey: 2019. Average home prices were 20.9 times gross annual median household income in 2018, up from 19.4 times in 2017, 18.1 times in 2016, 19 times in 2015, 17 times in 2014 and 12.6 times in 2013.

This is in line with Mercer’s 2018 Cost of Living Survey, which ranked Hong Kong as the world’s most expensive city for expatriates to live in.

Among 20 major cities in the 2018 UBS Real Estate Bubble Index, Hong Kong’s house prices are the most overvalued and at the greatest risk of collapse.

“Since 2008 prices have doubled while rents have gone up by 15% and incomes have remained unchanged in real terms,” said UBS. “The market is chronically undersupplied. So over the last decade its affordability has fallen the most among the cities considered in this study. Even for highly skilled workers, property ownership is now out of reach.”

Property transactions down

During 2018, the total number of property transactions in Hong Kong dropped 7.1% to 57,247 units from a year earlier while sales values increased a meager 0.5% to HK$559.29 billion (US$71.25 billion), according to the RVD.

Hong Kong property sales

Over the same period:

  • Primary market property sales fell by 16.2% y-o-y to 15,633 units from a year earlier, while total transaction values dropped 8.7% to HK$ 219.5 billion (US$28 billion).
  • Secondary market property sales dropped 3.1% to 41,614 units from a year earlier, while transaction values increased 7.6% to HK$ 339.8 billion (US$43.3 billion).

Residential construction activity rising strongly

Completions rose by 17.9% in 2018 from a year earlier, to 20,968 units, according to the RVD. From 2007 to 2017, completions averaged 11,500 units per year, down from an average of 25,000 units from 2000 to 2006.

Hong Kong completions

During 2018:

  • Class A completions rose by 4.7%, to 7,212 units.
  • Class B completions rose by 7.5%, to 8,237 units.
  • Class C completions surged 90.3%, to 3,414 units.
  • Class D completions soared 45.7%, to 1,541 units.
  • Class E completions soared 47.3%, to 564 units.

Likewise, housing starts increased 8.2% y-o-y to 18,400 units in 2018, according to the Transport and Housing Bureau.

New market-cooling measures

In June 2018, Chief Executive Carrie Lam revealed another series of cooling measures, including a vacancy tax on unsold homes that are not leased or remained unoccupied six months after receiving an occupation permit. The tax rate is two times of the rental income, or 5% of the home’s value. This is in an effort to discourage developers from hoarding.

“Today, when the housing supply is so tight and the demands for ownership are so strong, it is hard to understand why so many flats are left empty,” said Lam.

Aside from the tax, the government also allocated nine plots of land, including three in the prime Kai Tak district, for public housing.

In addition, the Hong Kong Monetary Authority (HKMA) imposed new restrictions on bank lending to property developers in May 2017, to restrain the city’s real estate prices, restricting loans to property developers a maximum 40% of a site’s value, replacing the earlier limit of 50%. The cap came into effect from June 1. Also, the amount of loans allowed for residential property with value less than HK$10 million was reduced from 60% to 50% and those with value exceeding HK$10 million was also cut from 50% to 40%.

Also, a 30-person Land Supply Task Force was set up to consider long-term solutions to Hong Kong’s housing crisis, given the outcry about ‘coffin homes’.

In recent years, Hong Kong’s government has leaned against the property price rises:

  • In November 2010, the government imposed a ‘flip tax’ of 15% on properties resold within six months (though in May 2014 the rule was somewhat relaxed), and doubled stamp duties to 8.5% on properties worth HK$20 million (US$2.6 million) or more.
  • On October 26, 2012, the government imposed a 15% extra tax on property purchases made by foreigners.
  • In February 2013, the government doubled the stamp duty on all property transactions worth more than HK$2 million (US$254,790), though again, this measure ended in May 2014.
  • In April 2013, the Residential Properties (First-hand Sales) Ordinance to shield buyers from dishonest sales practices came into full effect.
  • In February 2015, the government required buyers of self-used residential properties valued under HK$7 million (US$900,000) to make larger down payments.
  • In November 2016, the government raised stamp duties for all property transactions to 15%, except for first time homebuyers who are charged just 4.25%. However, house price rises continued to accelerate, amidst a surge in the number of multiple home purchases on one single transaction as investors take advantage of lower tax rates.
  • In an effort to close the loophole, the government also announced that first time homebuyers acquiring more than one property in a single contract will be charged the same 15% stamp duty that applies to purchases of a second property starting April 2017.

How to solve Hong Kong’s housing crisis?

Hong Kong’s new Chief Executive Carrie Lam shares the view of former leader Leung Chun-ying that increasing supply is the primary requirement to solve the city’s land and housing crisis.

"We are looking at a shortfall of at least 1,200 hectares of land to meet our future supply and demand, and this is not taking into account extra land needed to improve the living space of each individual," said Task Force chairman Stanley Wong Yuen-fai.

The government recently unveiled Hong Kong’s first major reclamation project since 2003, with an estimated cost of HK$20.5 billion (US$2.62 billion). It will reclaim 130 hectares off the northern coast of Lantau Island and extend Tung Chung new town to provide 49,000 flats for 144,000 people, along with about 870,000 sq. m. of commercial floor area. It is scheduled for completion by 2030.

"It is one of the largest land development projects in recent years," said Financial Secretary Paul Chan. "It will greatly help solve the current shortage of housing." He added that the project "symbolizes the government’s resolve to spare no effort to increase land supply."

The government’s 10-year housing strategy aims to provide land for 28,000 public flats annually - 20,000 units for rent and 8,000 units for sale - along with 18,000 private homes.

Currently, the total housing stock stood at 1,174,628 units, a 1.4% increase from the previous year, according to the RVD.

Interest rate hikes are likely

Hong Kong’s currency has been pegged at circa HK$7.8 per U.S. dollar since October 1983, so that when the Federal Reserve increases interest rates, Hong Kong’s interest rates will most likely increase as well.

The HKMA raised its base rate by 25 basis points to 2.75% in December 2018, the fourth time in a year following a similar move made by the Fed. As a result, the best lending rate increased to 5.13% in December 2018, up from 5% a year earlier.

Hong Kong interest rates

Hong Kong’s top mortgage banks – HSBC, Bank of China (Hong Kong) and Hang Seng Bank – have already raised their mortgage rates recently, a move that signals the end of ultra low interest rate environment. 

“Hong Kong’s ultra-low rate environment has prevailed for more than 10 years and is hard to sustain. The lending rate hikes will put an end to a decade of extremely cheap lending,” said Finance Secretary Paul Chan.

“This will bring a fresh bout of volatility to Hong Kong’s housing market. Residents and investors should be ready for the rate hike cycle on the horizon,” Chan added.

New mortgage lending falling

New residential mortgage loans approved plummeted by more than 28% to 6,983 in January 2019, from 9,680 in the same period last year, according to according to Hong Kong Monetary Authority (HKMA). Likewise, the value of newly approved residential mortgage loans was HK$27.99 billion (US$3.57 billion) in January 2019, down 26.6% from a year earlier.

Hong Kong outstanding loans

The average loan-to-value (LTV) ratio of newly approved loans also declined to 46% in January 2019, down from 46.3% in the previous month and 49.2% in the same period last year.

Both the mortgage delinquency ratio (more than 6 months) and the rescheduled loan ratio were unchanged in January 2019, at 0.02% and 0% respectively.

Hong Kong’s rental yields remain low; rents rising modestly

Hong Kong´s extremely low rental yields can be attributed to the surge in property prices in recent years. 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.

Hong Kong rental yields

Rental yields are rising, however. In December 2018:

  • Property Class A (properties with an area of 40 sq. m. and below) rental yields were 2.8%, up from 2.7% a year earlier.
  • Property Class B (40 to 69.9 sq. m.) rental yields were 2.5%, unchanged from the previous year.
  • Property Class C (70 to 99.9 sq. m.) rental yields were 2.4%, up from 2.3% a year earlier.
  • Property Class D (100 to 159.9 sq. m.) rental yields were 2.3%, up from 2.2% a year earlier.
  • Property Class E (160 sq. m. and above) rental yields were 2.1%, up from 2% a year earlier.

Rents are generally rising in Hong Kong, with smaller-sized apartments registering the biggest rent increases. In December 2018, apartment rents for all classes rose by 3.1% from a year earlier.

Hong Kong prices rents

In December 2018:

  • Rents for apartments smaller than 40 sq. m. rose by 5.4% y-o-y, to an average of HK$490 (US$62) per sq. m. per month.
  • Rents for 40-69.9 sq. m. apartments rose by 2.9% y-o-y, to HK$428 (US$55) per sq. m. per month.
  • Rents for 70-99.9 sq. m. apartments fell by 7% y-o-y, to HK$426 (US$54) per sq. m. per month.
  • Rents for 100-159.9 sq. m. apartments fell by 5.5% y-o-y, to HK$444 (US$57) per sq. m. per month.
  • Rents for apartments larger than 160 sq. m. increased by a meager 0.2% y-o-y, HK$438 (US$56) per sq. m. per month.


  Average rents (per sq. m.) Year-on-year change (%)
Property size Hong Kong Kowloon New Territories Hong Kong Kowloon New Territories
Less than 40 sq. m 490 62 385 49 318 41 5.4 3.2 4.3
40 - 69.9 sq. m 428 55 365 47 272 35 2.9 5.2 5.8
70 - 99.9 sq. m 426 54 365 47 268 34 -7.0 0.3 1.9
100 - 159.9 sq. m 444 57 378 48 283 36 -5.5 4.7 10.5
Greater than 160 sq. m 438 56 462 59 250 32 0.2 82.6 4.2
Sources: Ratings and Valuation Department (RVD), Global Property Guide

Economic slowdown

Hong Kong’s economy expanded by about 3% in 2018, easing from a six-year high of 3.8% growth in 2017, according to Finance Secretary Paul Chan.  The HK economy is expected to expand between 2% and 3% this year, amidst cloudy global outlook, according to Chan.

Hong Kong gdp inflation

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Tourism is surging. Visitor arrivals reached a record high of about 65.1 million in 2018, up 11.4% from a year earlier, according to Hong Kong Tourism Board. Mainland Chinese, who accounted for about 78% of arrivals in Hong Kong, increased 14.8% y-o-y to 51 million people.

In January 2019, inflation was 2.4%, up from 1.7% in the same period last year, according to the Census and Statistics Department. Hong Kong’s inflation rate averaged 3.4% from 2011 to 2018.

Hong Kong’s jobless rate remains low. Unemployment was 2.8% in Q4 2018, slightly down from the previous year’s 2.9%, according to the Census and Statistics Department. Hong Kong’s unemployment rate averaged 3.4% from 2010 to 2017, down from an average of 5.5% from 2000 to 2009, according to the IMF.



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