Global Property Guide

Financial Information for the Residential Property Buyer


Hong Kong’s red-hot property market

Last Updated: March 17, 2018

Hong Kong house price annualHong Kong’s property market continues to boom. Demand is surging. House price rises are accelerating. Residential construction activity is rising sharply.

Hong Kong’s residential property price index soared 15.5% (13.6% inflation-adjusted) during the year to January 2018, up from a y-o-y increase of 11% (9.61% inflation-adjusted) during the same period last year, according to the Ratings and Valuation Department (RVD). During 2017, residential property prices increased 14.83% (12.88% inflation-adjusted), a sharp acceleration from growth of 7.86% in 2016, and 2.41% in 2015.

During the year to January 2018:

  • Apartments smaller than 40 sq. m: prices surged by 13.95% to HK$170,159 (US$21,702) per sq. m.
  • 40-69.9 sq. m. apartments: prices rose by 14.48% to HK$170,853 (US$21,791) per sq. m.
  • 70-99.9 sq. m. apartments: prices rose by 10.6% to HK$205,418 (US$26,199) per sq. m.
  • 100-159.9 sq. m. apartments: prices increased 18.9% to HK227,861 (US$29,061) per sq. m.
  • Apartments with sizes bigger than 160 sq. m: prices rose by 6.67% to HK$294,342 (US$37,540) per sq. m.

Real incomes have virtually stagnated in Hong Kong for years. But house prices have tripled from 2003 to 2015.

Housing demand 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. The latest house price rises come despite the government raising stamp duties for all non-first time homebuyers starting November 2016 and cutting the amount of allowable loans on residential and commercial properties in May 2017.

During 2017, the total number of property transactions in Hong Kong increased 12.6% to 61,591 units from a year earlier while sales values surged 30% to HK$556.35 billion (US$71.12 billion), according to the RVD.

Residential construction activity is mixed. Completions rose by 21.9% in 2017 from a year earlier, to 17,791 units, according to the RVD. On the other hand, housing starts dropped a third to 17,000 units in 2017 from a year earlier, according to the Transport and Housing Bureau.

AVERAGE HOUSE PRICES, JANUARY 2018

  AVERAGE PRICES (USD/sq. m)* YEAR-ON-YEAR CHANGE (%)
PROPERTY SIZE HONG KONG KOWLOON NEW TERRITORIES HONG KONG KOWLOON NEW TERRITORIES
Less than 40 sq. m 21,694 17,884 16,795 13.95 15.00 17.21
40 – 69.9 sq. m 21,782 17,880 14,578 14.48 18.06 15.91
70 – 99.9 sq. m 26,189 20,268 15,715 10.60 6.54 14.77
100 – 159.9 sq. m 29,050 22,213 15,587 18.90 2.52 32.52
Greater than 160 sq. m 37,526 46,508 12,125 6.67 31.43 8.59
*Figures were originally in HKD (converted to USD using the exchange rate: HKD7.84=USD1) Source: Ratings and Valuation Department (RVD)

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. House prices have been accelerating since.

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

Hong Kong’s property prices are expected to continue rising by double-digit figures in 2018, amidst strong domestic and foreign demand, booming stock market, record-low unemployment and strong economic growth. Jones Lang LaSalle forecasts Hong Kong home prices to surge as much as 20% this year. Another report released by Cushman & Wakefield projects a 10% growth in Hong Kong home prices.

Hong Kong´s economy grew by 3.8% in 2017, sharply up from 2016’s 1.9% growth and the fastest pace since 2011, amidst rising exports, strong domestic demand and rebounding tourism. The economy is expected to expand between 3% and 4% this year, according to Paul Chan, HK’s finance secretary.

Hong Kong property market remains the world’s most unaffordable

In 2009, while property prices were taking a nosedive across the U.S., Hong Kong’s housing market was going into overdrive.

  • In 2009, residential property prices surged by 28.5% (26.5% inflation-adjusted)
  • In 2010, house prices rose by 21% (17.7% inflation-adjusted)
  • In 2011, house prices rose by 11.1% (5.1% inflation-adjusted)
  • In 2012, property prices skyrocketed by 25.7% (21.2% inflation-adjusted)
  • In 2013, property prices rose 7.7% (3.3% inflation-adjusted)
  • In 2014, property prices rose 13.6% (8.2% inflation-adjusted)
  • In 2015, property prices rose by just 2.4% (0.1% inflation-adjusted)
  • In 2016, property prices rose by 7.9% (6.6% inflation-adjusted)
  • In 2017, property prices surged 14.8% (12.9% inflation-adjusted)

For the eight year in a row, Hong Kong’s property market is rated the world’s most unaffordable by the 814th Demographia International Housing Affordability Survey: 2017. Average home prices were 19.4 times gross annual median household income in 2017, from 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 2017 Cost of Living Survey, which ranked Hong Kong as the world’s second most expensive city for expatriates to live in.

Based on the 2017 UBS Real Estate Bubble Index, Hong Kong remains in “bubble-risk territory” despite the introduction of market cooling measures. “In Hong Kong, regulatory steps to reduce the dynamics of price growth proved ineffective,” UBS noted. “Residential market prices reached an all-time peak in midyear, thanks to insatiable investor demand and speculative price expectations.”

New market-cooling measures

In May 2017, the Hong Kong Monetary Authority (HKMA) imposed new restrictions on bank lending to property developers, 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%.

In addition, a 30-person Land Supply Task Force was set up last year 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$257,902), 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.

Property sales soaring

During 2017, the total number of property transactions in Hong Kong increased 12.6% to 61,591 units from a year earlier while sales values surged 30% to HK$556.35 billion (US$71.12 billion), according to the RVD.

Hong Kong property sales

Then during the year to January 2018, the number and value of property transactions rose by 60% and 82%, respectively. However, this conceals that opposing trends seen in the primary and secondary markets.

In January 2018:

  • Primary market property sales fell by 14.6% to 1,249 units from a year earlier, while total transaction values dropped 3.1% to HK$6.64 billion (US$850 million), according to the Hong Kong Monetary Authority (HKMA).
  • Secondary market property sales surged 60.9% to 5,893 units from a year earlier, while transaction values increased 69.9% to HK$22.86 billion (US$2.92 billion).

Interest rate hikes

Hong Kong interest rates

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 1.75% in December 2017, the fourth time in 13 months following a similar move made by the Fed. Despite this, the best lending rate remained unchanged 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.

In January 2018, the average interest rate on new mortgage loans approved with reference to best lending rate stood at 2.7%, down from 2.8% in the previous month but up from 2.6% a year earlier. Over the same period, the average fixed interest rate for new mortgage loans increased to 8.8%, from 5.5% in December 2017 and 3.5% in November 2017.

New mortgage lending rising sharply

In January 2018, total residential mortgage loans outstanding rose by 7.8% to HK$1.21 trillion (US$154.79 billion) compared to a year ago, according to Hong Kong Monetary Authority (HKMA). In 2017, the size of the mortgage market was equivalent to about 46.3% of GDP, up from 44.9% of GDP in 2016.

Hong Kong outstanding loans

New residential mortgage loans approved rose by more than 26% to 9,680 in January 2018, from 7,678 in the same period last year. Likewise, the value of newly approved residential mortgage loans was HK$38.12 billion (US$4.86 billion) in January 2018, sharply up from just HK$28.28 billion (US$3.61 billion) in a year earlier.

Both the mortgage delinquency ratio (more than 6 months) and the rescheduled loan ratio were unchanged in January 2018, at 0.02% and 0% respectively.

Hong Kong’s rental yields falling; rents rising

Hong Kong rental yields

Rental yields are generally falling, for all property classes. In January 2018:

  • Property Class A (properties with an area of 40 sq. m. and below) rental yields were 2.7%, down from 2.9% a year earlier.
  • Property Class B (40 to 69.9 sq. m.) rental yields were 2.4%, down from 2.6% a year earlier.
  • Property Class C (70 to 99.9 sq. m.) rental yields were 2.3%, down from 2.5% a year earlier.
  • Property Class D (100 to 159.9 sq. m.) rental yields were 2.1%, down from 2.3% a year earlier.
  • Property Class E (160 sq. m. and above) rental yields were 1.9%, slightly down from 2% a year earlier.

Hong Kong prices rents

The extremely low rental yields in Hong Kong 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.

Rents are generally rising in Hong Kong, with smaller-sized apartments registering the biggest rent increases.

In January 2018:

  • Rents for apartments smaller than 40 sq. m. rose by 13.4% y-o-y, to an average of HK$481 (US$61) per sq. m. per month.
  • Rents for 40-69.9 sq. m. apartments rose by 8.8% y-o-y, to HK$420 (US$54) per sq. m. per month.
  • Rents for 70-99.9 sq. m. apartments increased modestly by 2.8% y-o-y, to HK$434 (US$55) per sq. m. per month.
  • Rents for 100-159.9 sq. m. apartments fell by 6.8% y-o-y, to HK$410 (US$52) per sq. m. per month.
  • Rents for apartments larger than 160 sq. m. increased by a meager 0.5% y-o-y, HK$438 (US$56) per sq. m. per month.

AVERAGE RENTS, JANUARY 2018

  AVERAGE RENTS (USD/sq. m)* YEAR-ON-YEAR CHANGE (%)
PROPERTY SIZE HONG KONG KOWLOON NEW TERRITORIES HONG KONG KOWLOON NEW TERRITORIES
Less than 40 sq. m 61 44 39 13.4 3.6 9.7
40 – 69.9 sq. m 54 45 34 8.8 11.4 10.3
70 – 99.9 sq. m 55 46 34 2.8 4.3 8.9
100 – 159.9 sq. m 52 50 35 -6.8 19.8 13.9
Greater than 160 sq. m 56 68 34 0.5 60.4 16.9
*Figures were originally in HKD (converted to USD using the exchange rate: HKD7.84=USD1) Source: Ratings and Valuation Department (RVD)

Residential construction activity is mixed

Completions rose by 21.9% in 2017 from a year earlier, to 17,791 units, according to the RVD. From 2007 to 2016, completions averaged 10,900 units per year, down from an average of 25,000 units from 2000 to 2006.

Hong Kong completions

During 2017:

  • Class A completions soared by 75%, to 6,891 units.
  • Class B completions rose by 7%, to 7,665 units.
  • Class C completions rose by 27%, to 1,794 units.
  • Class D completions dropped 20.2%, to 1,058 units.
  • Class E completions dropped 49.5%, to 383 units.

On the other hand, housing starts dropped a third to 17,000 units in 2017 from a year earlier, according to the Transport and Housing Bureau.

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 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.

As such, 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 Mo-po. “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.

In 2016, the total housing stock stood at 1,158,765 units, a 1.2% increase from the previous year, according to the RVD.

Robust economic growth

Hong Kong gdp inflation

Hong Kong´s economy grew by 3.8% in 2017, sharply up from 2016’s 1.9% growth and the fastest pace since 2011, amidst rising exports, strong domestic demand and rebounding tourism.

Merchandise exports increased 18.1% from a year earlier in January 2018, after a y-o-y rise of 6% in December 2017, while merchandise imports also rose by 23.8% after registering an annual growth of 9% in December 2017.

Tourism is now recovering. Visitor arrivals were up 3.2% to 58.47 million people in 2017 from a year earlier, after y-o-y declines of 2.5% in 2015 and 4.5% in 2016, according to the Tourism Board. Mainland Chinese, who accounted for about 76% of arrivals in Hong Kong, increased 3.9% y-o-y to 44.45 million people.

The economy is expected to expand between 3% and 4% this year, according to Paul Chan, HK’s finance secretary.

Hong Kong’s small open economy depends largely on variables it cannot control – tourist spending, trade income, and foreign money inflows. With an average real GDP growth rate of 7.4% from 2004 to 2007, growth slowed to 2.1% in 2008, and then contracted by 2.5% in 2009. The economy bounced back strongly, with real GDP growth rates of 6.8% in 2010, and another 4.8% in 2011, according to the IMF. The economy then grew by an average of 2.4% annually from 2012 to 2016.

In January 2018, inflation was 1.7%, up from 1.3% in the same period last year, according to the Census and Statistics Department. Hong Kong´s inflation rate averaged 3.7% from 2011 to 2017.

HK’s headline inflation rate is projected to rise to 2.2% this year, according to finance secretary Chan.

Hong Kong´s jobless rate remains low. Unemployment was 2.9% in Q4 2017, down from 3.3% in the same period last year, 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.

Old Entries

Comments

Be the first to comment on this article!

Login or Register to submit a comment!
In order to promote open and spam-free conversations, Global Property Guide moderates commetns on all articles. You can expect that your comment will be published within 24 hours.