Hong Kong's Residential Property Market Analysis 2024

Hong Kong's housing market woes persist, amidst a chronic supply shortage. However, property demand is now showing some signs of improvement, as interest rates started to fall and property market cooling measures were lifted.

Table of Contents

• Housing Market Snapshot
• Historic Perspective
• Demand Highlights
• Supply Highlights
• Rental Market
• Mortgage Market
• Socio-Economic Context

Housing Market Snapshot

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Hong Kong's residential property price index fell sharply by 12.52% in Q3 2024 from the same period last year, its eleventh consecutive quarter of year-on-year decline, according to data released by the Ratings and Valuation Department (RVD). It was one of the biggest year-on-year price falls in the past two decades. When adjusted for inflation, residential property prices were down by 14.38% over the same period.

Variations in price movements per property size and region:

• Apartments smaller than 40 sq. m: prices fell sharply by 12.97% y-o-y in Q3 2024, to an average of HK$130,919 (US$16,824) per square meter (sqm).
• 40-69.9 sq. m. apartments: prices were down by 9.43% y-o-y to HK$138,949 (US$17,856) per sqm in Q3 2024.
• 70-99.9 sq. m. apartments: prices dropped by a huge 14.32% y-o-y to HK$171,396 (US$22,025) per sqm.
• 100-159.9 sq. m. apartments: prices fell slightly by 1.27% y-o-y to HK$202,242 (US$25,989) per sqm in Q3 2024.
• Apartments with sizes bigger than 160 sq. m: prices fell by 6.1% y-o-y to HK$252,255 (US$32,416) per sqm in Q3 2024.

Hong Kong's house price annual change

Demand is now improving, buoyed by falling interest rates and the removal of housing market restrictions. In the first nine months of 2024, the total number of property transactions in Hong Kong rose by 7.4% y-o-y to 38,001 units, following annual declines of 4.5% in 2023 and 39.4% in 2022, based on figures released by RVD. Likewise, sales volume increased by 2% y-o-y to HK$ 327.26 billion (US$ 42.05 billion) over the same period, an improvement from annual contractions of 4.5% in 2023 and 44.4% in 2022.

Despite this, residential construction activity remains weak. Completions plummeted by 34.6% y-o-y to 13,852 in 2023, following strong growth of 47.1% in 2022, according to figures released by RVD. Then in the first nine months of 2024, there were 10,921 dwelling units completed in Hong Kong. About 56% of which are properties with an area of 40 sq. m. and below.

Hong Kong continues to suffer a chronic housing shortage - a problem that has dragged on for over two decades.

From 2008 to 2013, Hong Kong's dwelling 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, but bounced back in the second half, 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, house prices surged again by 41.5% (35.5% inflation-adjusted) from H2 2016 to H1 2018.

The housing market slowed from the end of 2018 until the first half of 2019 due to macro uncertainties and social unrest. After a short-lived recovery in the second half of 2019, the housing market struggled again in 2020 due to pandemic-related travel restrictions and lockdown measures imposed worldwide. Then in 2022, things got worse, with house prices plunging by 15% (-16.7 inflation-adjusted), following a modest increase of 3.7% in 2021 and a meager growth of 0.2% in 2020. In 2023, the market remained depressed, with house prices falling further by 7% (-9.2% inflation-adjusted).

HK's housing market will remain weak in the medium term, with house prices expected to fall further this year. CBRE, S&P Global, Morgan Stanley, Citigroup and UBS, among others, project house price falls between 5% and 10% for the whole year of 2024.

Hong Kong's service-oriented economy grew by a modest 3.2% in 2023 from a year earlier, in stark contrast to the contraction of 3.5% recorded in the prior year. To boost economic activity, the HK government unveiled a number of measures last year, including offering cash handouts to residents, cutting salaries tax, and attracting more workers and foreign investments.

In the third quarter of 2024, the HK economy recorded a real GDP growth rate of 1.8% over a year earlier, following annual increases of 3.3% in Q2 and 2.8% in Q1, according to government figures. It is now the seventh consecutive quarter of year-on-year growth. However, on a seasonally adjusted quarter-on-quarter basis, real GDP contracted by 1.1% in Q3 2024, after growing by 0.3% in Q2 and 2.5% in Q1.

Overall, the government forecasts the HK economy to grow by 2.5% this year.

Historic Perspective:

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Hong Kong property market remains the world's most unaffordable, but bubble risks declined sharply

Hong Kong's housing boom in the past decades 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.

Despite improved affordability because of the recent decline in house prices, Hong Kong's property market remains the world's most unaffordable for the twelfth year in a row, according to the Demographia International Housing Affordability Survey 2024. Average home prices were 16.7 times the gross annual median household income in 2023, down from 18.8 times in 2022 and 20.7 times two years ago. In fact, it is now the lowest level since 2016.

"Hong Kong is the least affordable market in Demographia International Housing Affordability, with a median multiple of 16.7, and the only market covered in China," said the Demographia report. "This is an improvement from the pre-pandemic 20.8 in 2019, the result of declining house prices and

improved incomes. Hong Kong has had the least affordable housing in each of the 13 years of coverage by Demographia."

Similarly, in Mercer's 2024 Cost of Living Survey, Hong Kong was ranked as the world's most expensive city for expatriates to live in, followed by Singapore, Zurich and Geneva.

However, according to the 2024 UBS Global Real Estate Bubble Index, Hong Kong is now down to the moderate bubble-risk territory because of the recent sharp house price declines.

"In the last four quarters, real housing prices in Hong Kong recorded a double-digit decline. In inflation-adjusted terms, house prices are back at levels last seen in 2012. The number of transactions fell sharply, and mortgage growth came to a standstill in the last four quarters," said the UBS report.

"High interest rates, anemic population growth, and a lack of buyer optimism all contributed to weak housing demand. However, residential rents and household incomes posted moderate gains in the previous year, contributing to lower imbalances. Bubble risk declined sharply in the last four quarters, and the city is now only in moderate bubble-risk territory," added UBS.

Demand Highlights:

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Property sales increasing again

In the first nine months of 2024, the total number of property transactions in Hong Kong rose by 7.4% y-o-y to 38,001 units, following annual declines of 4.5% in 2023 and 39.4% in 2022, based on figures released by RVD. Likewise, sales volume increased by 2% y-o-y to HK$ 327.26 billion (US$ 42.05 billion) over the same period, an improvement from annual contractions of 4.5% in 2023 and 44.4% in 2022.

As a result of the government lifting all market cooling measures earlier this year, Mainland Chinese homebuyers flocked to the Hong Kong property market between January and September 2024, driving transaction levels to record highs.

Though there were wide variations in sales movements in the primary and secondary markets during the first nine months of 2024:

• Primary market property sales were up strongly by 34.1% y-o-y to 11,920 units, following a modest growth of 4.2% in 2023 and a huge contraction of 41.6% in 2022, based on data from RVD. Likewise, total transaction values increased by 26.4% to HK$135.05 billion (US$17.35 billion), following annual growth of 16.3% last year and a huge fall of 52.5% two years ago.
• Secondary market property sales fell slightly by 1.6% y-o-y to 26,081 units in Jan-Sep 2024, after declining by 7.2% in 2023 and 38.7% in 2022. Also, transaction values were down by 10.2% y-o-y to HK$192.21 billion (US$24.7 billion), following annual falls of 12.2% in 2023 and 40.8% two years ago.

This is in line with the recent figures released by the Land Registry, which showed that a total of 54,780 properties changed hands in the first ten months of 2024, up by 8% from the same period last year, in contrast to a 2.7% fall in 2023. Similarly, the total value of property transactions increased slightly by 1.8% y-o-y to HK$427.2 billion (US$54.9 billion) over the same period, an improvement from an annual decline of 13.8% in the whole year of 2023.

Property market curbs scrapped

To revive the struggling housing market, Hong Kong removed all extra stamp duties in February 2024, following pressure to lift long-standing housing market cooling measures, according to finance chief Paul Chan.

The decade-old property cooling measures have been lifted, including the Buyer's Stamp Duty targeting non-permanent residents, the New Residential Stamp Duty for second-time buyers, and the Special Stamp Duty aimed at homeowners who sold their property within two years.

"After prudent consideration of the overall current situation, we decide to cancel all demand side management measures for residential properties with immediate effect, that is, no Special Stamp Duty, Buyer's Stamp Duty, or New Residential Stamp Duty needs to be paid for any residential property transactions starting from today," said Chan. "We consider that the relevant measures are no longer necessary amidst the current economic and market conditions."

In October 2023, Chief Executive John Lee announced a partial easing of extra stamp duties - the first time that the property cooling measures were relaxed in over a decade. Among the property market curbs relaxed:

• The Buyer's Stamp Duty (BSD) and the New Residential Stamp Duty (NRSD) were halved from 15% to 7.5%.
• The Special Stamp Duty (SSD) - equivalent to 10% of the property price - that was previously imposed on transactions involving property held for less than three years will now only apply to transactions for property held for less than two years.
• All stamp duties on property purchases by newly-arrived foreign talents in Hong Kong are suspended, but it is subject to the new residents obtaining permanent residency.
• Stamp duties paid by second-home buyers and non-locals were also halved from a maximum of 30% to 15%.

Earlier in September 2022, the Hong Kong Monetary Authority (HKMA) relaxed its stress-test requirements for new mortgage borrowers by 100 basis points, effectively making the test easier to pass. The recent move came amidst falling property demand, after homebuyers saw their purchasing power fall by HK$1 million (US$128,500) since January 2022, following increases in both HIBOR and banks' prime rates.

Several rounds of market-cooling measures

Before the recent relaxation of property curbs, the HK government implemented several rounds of housing market-cooling measures in the past years to reduce speculative buying and regulate house price growth.

To discourage developers from hoarding, in June 2018 Carrie Lam introduced a vacancy tax on unsold homes that are not leased or have remained unoccupied six months after receiving an occupation permit. The tax rate is two times the rental income or 5% of the home's value.

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, restricting loans to property developers to a maximum of 40% of a site's value, replacing the earlier limit of 50%. Also, the number of loans allowed for residential property with a value less than HK$10 million (US$1.28 million) was reduced from 60% to 50% and those with a value exceeding HK$10 million (US$1.28 million) were also cut from 50% to 40%.

In addition, 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 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$257,000), 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.
• 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.

Supply Highlights:

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Residential construction activity remains weak

Completions plummeted by 34.6% y-o-y to 13,852 in 2023, following strong growth of 47.1% in 2022, according to figures released by RVD.

During 2023:

• Class A completions (properties with an area of 40 sq. m. and below) fell by 21% y-o-y to 7,806 units, following a surge of 88.2% in 2022.
• Class B completions (40 to 69.9 sq. m.) dropped 39.1% y-o-y to 4,667 units last year, in contrast to an annual increase of 15.8% in 2022.
• Class C completions (70 to 99.9 sq. m.) continued to fall by a huge 48.2% y-o-y to 1,060 units, following a 4.4% decline in 2022.
• Class D completions (100 to 159.9 sq. m.) fell by 85.1% to just 157 units, after a growth of 322.5% in the prior year.
• Class E completions (160 sq. m. and above) fell by 68.9% from a year earlier to 162 units, in contrast to a surge of 330.6% in the prior year.

Then in the first nine months of 2024, there were 10,921 dwelling units completed in Hong Kong. About 56% of these are properties with an area of 40 sq. m. and below.

The stock of flats in Hong Kong totaled 3,005,000 units in 2024, up by 6.5% from 2,821,000 units in 2019, according to the Housing in Figures 2024 report released by the Housing Bureau. Of these, 1,311,000 units are public permanent housing while the remaining 1,695,000 units are private housing.

How to solve Hong Kong's chronic housing shortage?

Increasing supply is the key.

"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 on Land Supply chairman Stanley Wong Yuen-fai.

The government recently unveiled Hong Kong's first major reclamation project since 2003, at an estimated cost of HK$20.5 billion (US$2.63 billion). Scheduled for completion by 2030, it will reclaim 130 hectares off northern Lantau and extend Tung Chung's new town to provide 49,000 flats for 144,000 people, plus 870,000 sq.m. of commercial floor area.

"It will greatly help solve the current shortage of housing," said Financial Secretary Paul Chan. Besides this, the government's 10-year housing strategy aims to provide land for 28,000 public flats annually, alongside 18,000 private homes.

Following Chinese President Xi Jinping's call on Hong Kong to provide "more decent" homes for the poor, the HK government has recently unveiled a HK$26.4 billion (US$3.39 million) light housing project that plans to build about 30,000 temporary apartments over the next five years. This will give people an option to move out of cramped quarters, like the city's infamous "coffin homes", while waiting for public housing. However, the new scheme has faced public backlash because of its high cost and since it is seen as merely a band-aid solution to the city's festering housing crisis.

In October 2024, the government released its Long Term Housing Strategy Annual Progress Report 2024, setting its 10-year supply target at 440,000 units. This goal includes a target of 308,000 units for public housing and 132,000 units for private housing. At the same time, the Housing Bureau will propose three key areas for improvement:

1. Maintain a supply-led approach with flexibility to enhance housing availability.
2. Strengthen the housing ladder to encourage homeownership among young people.
3. Ensure the efficient use of public rental housing (PRH) resources and encourage PRH tenants to progress on the housing ladder.

Some development projects are also underway that could dramatically increase the city's housing stock.

"Two major projects could add substantially to Hong Kong's housing stock. The "Northern Metropolis," virtually adjacent to neighboring Shenzhen would add more than 900,000 new housing units over the next two decades, with a target of more than 40% to be completed by 2032," said the Demographia International Housing Affordability 2024 report. "Another project, Lantau Vision Tomorrow would add more than 200,000 new housing units on reclaimed islands near Hong Kong International Airport. This significant addition of housing units could moderate Hong Kong's still high housing costs."

The total housing stock stood at 1,269,831 units in early 2024, up by only 1% from the previous year, according to the RVD.

Rental Market:

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Rental yields gradually increasing, but still low by international standards

While Hong Kong's rental yields are gradually rising, they remained extremely low by international standards, which can be attributed to the surge in property prices in the past decade. 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.