Hong Kong Real Estate Market Overview

Hong Kong’s housing market woes persist, amidst a chronic supply shortage, weak demand, and a struggling economy.

Hong Kong’s residential property price index fell sharply by 8.95% in May 2023 from a year earlier, worse than the prior year’s 2.13% decline, according to the Ratings and Valuation Department (RVD). It was the sixteenth consecutive month of y-o-y fall.  When adjusted for inflation, residential property prices were down by 10.77% over the same period.

Variations in price movements per property size and region.

• Apartments smaller than 40 sq. m: prices fell by 8.8% y-o-y in May 2023, to an average of HK$164,716 (US$21,080) per sq. m.
• 40-69.9 sq. m. apartments: prices were down by 9.8% y-o-y to HK$162,685 (US$ 20,820) per sq. m.
• 70-99.9 sq. m. apartments: prices dropped 3.7% y-o-y to HK$196,266 (US$25,118) per sq. m.
• 100-159.9 sq. m. apartments: prices fell by 8.3% y-o-y to HK$230,570 (US$29,508) per sq. m.
• Apartments with sizes bigger than 160 sq. m: prices rose strongly by 21.6% y-o-y to HK$242,857 (US$ 31,080) per sq. m. in May 2023

During 2022, the number of property transactions in Hong Kong fell sharply by 39.4% y-o-y to 45,050 units, in stark contrast to the annual growth of 24.1% seen in 2021, according to the RVD. Likewise, sales volume declined by 44.4% to HK$407.72 billion (US$52.12 billion) last year, following a 33.9% increase in the prior year. While demand remains weak, property sales showed some improvements in the first four months of 2023, with both the number and volume of transactions rising by 33.3% and 27.7% y-o-y, respectively.

Residential construction activity is improving. Completions rose strongly by more than 47% y-o-y to 21,168 in 2022, in sharp contrast to a decline of 31.1% in 2021, according to figures released by RVD. It was the highest level recorded since 2004. But this is not enough to address the chronic housing shortage in the city – a problem that has dragged on for over two decades.

AVERAGE HOUSE PRICES, MAY 2023
Property size	Average prices (per sqm)						Year-on-year change
	Hong Kong		Kowloon		New Territories		Hong Kong	Kowloon	New Territories
	HKD	USD	HKD	USD	HKD	USD	%	%	%
Less than 40 sqm	164,716	21,080	137,774	17,632	132,142	16,911	-8.8	-12.3	-11.1
40-69.9 sqm	162,685	20,820	146,596	18,761	125,412	16,050	-9.8	-7.2	-7.3
70-99.9 sqm	196,266	25,118	158,717	20,312	136,041	17,410	-3.7	-5.5	-5.3
100-159.9 sqm	230,570	29,508	197,112	25,226	121,074	15,495	-8.3	5.1	-0.5
Greater than 160 sqm	242,857	31,080	188,342	24,104	125,519	16,064	21.6	-21.0	0.3
Sources: Ratings and Valuation Department (RVD), Global Property Guide

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.

Like the housing market, the overall economy struggled in 2022. Hong Kong’s economy suffered a 3.5% contraction last year, according to official government figures, following an expansion of 6.3% in 2021, and declines of 6.5% in 2020 and 1.7% in 2019, as weakening global demand and strict Covid restrictions hurt consumer spending and exports.

To boost economic activity, the HK government recently unveiled a number of measures, including offering cash handouts to residents, cutting salaries tax, and attracting more workers and foreign investments. With this, the economy grew by a modest 2.7% y-o-y in Q1 2023, recovering from annual contractions of 4.1% in Q4 2022, 4.6% in Q3, 1.2% in Q2, and 3.9% in Q1, supported by improved tourism and domestic demand.

The HK economy is projected to grow by between 3.5% and 5.5% this year, according to Financial Secretary Paul Chan.

Hong Kong’s house price annual change

Hong Kong property market remains the world’s most unaffordable

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.

HOUSE PRICE INDEX, Y-O-Y CHANGE (%)
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	1.9	-0.6
2019	5.5	2.6
2020	0.2	1.1
2021	3.7	1.3
2022	-15.0	-16.7
Sources: Ratings and Valuation Department, Global Property Guide

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 2023. Average home prices were 18.8 times the gross annual median household income in 2022, down from 20.7 times in the prior year and the lowest level since 2016.

Despite the substantial improvement, “Hong Kong’s current housing affordability remains more severe than that of any other market over its period of coverage by Demographia (12 years),” said the report. “Hong Kong has been given a clear responsibility by the central government to improve housing affordability, and increase house sizes.”

Similarly, in Mercer’s 2023 Cost of Living Survey, Hong Kong was ranked as the world’s most expensive city for expatriates to live in, followed by Singapore and Zurich.

Hong Kong, along with Toronto, Frankfurt, Zurich, and Munich, also tops the 2022 UBS Global Real Estate Bubble Index. “Buying a 60 square meter (650 square foot) apartment exceeds the budget of those who earn the average annual income in the skilled service sector in most world cities. In Hong Kong, even those who earn twice that income would struggle to afford an apartment of that size,” said the UBS report.

“A 15-year secular boom once saw Hong Kong record the strongest price growth among all cities in the study. However, this phase ended in mid-2019. Since then, the market has broadly stagnated as the lack of affordability, economic woes, and pandemic restrictions all took a major toll on demand. Despite several big transactions in the luxury market, Hong Kong recorded a nominal price correction of roughly 4% between mid-2021 and mid-2022. This marks the weakest growth rate of all cities analyzed and means imbalances have somewhat declined,” said UBS.

“Nevertheless, the market remains in bubble risk territory as household leverage rose and rents fell by more than prices,” UBS reiterated.

Property sales plummeting

During 2022, the number of property transactions in Hong Kong fell sharply by 39.4% y-o-y to 45,050 units, in stark contrast to the annual growth of 24.1% seen in 2021, according to the RVD. Likewise, sales volume declined by 44.4% to HK$407.72 billion (US$52.12 billion) last year, following a 33.9% increase in the prior year. 

Both primary and secondary markets experienced a sharp decline in demand during 2022:

• Primary market property sales plunged by 41.6% y-o-y to just 10,315 units, after rising by 15.2% in 2021, based on data from RVD. Likewise, total transaction values dropped dramatically by 52.5% to HK$109.72 billion (US$14.03 billion), in contrast to the 36% growth recorded in the prior year.
• Secondary market property sales fell rapidly by 38.7% to 34,735 units, after increasing by 27.1% in the prior year. Also, transaction values were down by a huge 40.8% y-o-y to HK$ 298 billion (US$38.1 billion), in contrast to an increase of 32.9% in 2021.

While demand remains weak, property sales showed some improvements in recent months. Both the number and volume of transactions rose by 33.3% and 27.7%, respectively, in the first four months of 2023 as compared to the same period last year.

Residential construction activity rising again

Completions rose strongly by more than 47% y-o-y to 21,168 in 2022, following a decline of 31.1% in 2021 and a surge of 53.1% in 2020, according to figures released by RVD. It was the highest level recorded since 2004.

Over the same period:

• Class A completions (properties with an area of 40 sq. m. and below) skyrocketed by 88.2% y-o-y to 9,881 units, following a decline of 43.1% in 2021.
• Class B completions (40 to 69.9 sq. m.) increased 15.8% y-o-y to 7,668 units last year, in contrast to an annual fall of 14.4% in 2021.
• Class C completions (70 to 99.9 sq. m.) continued to fall by 4.4% y-o-y to 2,046 units, following a 23% decline in 2021.
• Class D completions (100 to 159.9 sq. m.) surged by more than 322% to 1,052 units, after a fall of 67.2% in the prior year.
• Class E completions (160 sq. m. and above) more than quadrupled from a year earlier to 521 units, in contrast to a 68% fall in the prior year.

The stock of flats in Hong Kong stood at 2,949,000 units in 2022, up by 7.4% from 2,745,000 units in 2017, according to the Transport and Housing Bureau.

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$3.36 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.

The total housing stock stood at 1,256,722 units in 2022, up by only 1.5% from the previous year, according to the RVD.

Several rounds of market-cooling measures

To reduce speculative buying and regulate house price growth, the government has introduced several rounds of housing market-cooling measures in recent years. But 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$128,000) since January 2022, following increases in both HIBOR and banks’ prime rates.

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 was reduced from 60% to 50% and those with a value exceeding HK$10 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$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.

Interest rates rising rapidly

The HKMA kept its base rate unchanged at 5.5% in June 2023, following ten consecutive rate hikes in the past fifteen months. The HKMA moves in lockstep with the Fed, giving the local currency’s peg to the US dollar.

Hong Kong’s currency has been pegged at around HK$7.8 per U.S. dollar since October 1983, so when the US Federal Reserve interest rates move, so too do Hong Kong’s interest rates.

As such, major banks’ best lending rates are also increasing in Hong Kong. HSBC Holdings PLC and Hang Seng Bank raised their best lending rate to 5.75% while in Bank of China (Hong Kong), China Citic Bank International, Standard Chartered Bank, and Bank of East Asia, it now stands at 6%.

Despite the recent pause, HKMA’s chief executive Eddie Yue Wai-man reiterated that there might be more interest rate hikes in the future. “The high-interest rate environment in the US may last for some time, and the Fed may hike rates again,” which would compel the city to raise its key rates further, said the central bank’s chief executive. “The interest rate path in the US will remain uncertain.”