Real Estate Market Trends in Hong Kong – 2015

a9urIt’s a well-known fact that real estate is a choice asset class in Hong Kong. Studies, which track luxury real estate trends have concluded that Hong Kong along with cities like London and New York is at the top of the list of the world’s most favored real estate markets.

The SAR’s safe living environment, transparent legal systems and quality options for education feature are the biggest draws for people looking to invest in Hong Kong’s real estate arena.  Additionally, domestic demand for real estate in Hong Kong is also very robust.  As a result, Hong Kong real estate sector is almost always in the news.

So how has the real estate market fared recently? Records indicate that 2014 was a quite a bumper year for residential real estate in Hong Kong. A flurry of secondary market transactions saw prices of resale flats surge by as much as 10% during the year with small and medium-sized dwellings recording the highest price increases.

The pent-up demand and the relaxation of some of the property cooling measures were the main factors that contributed to the price rise. In fact, Hong Kong’s property market in 2014 easily outstripped the Hang Seng index, which grew at a meager 1.3%.

Given this rosy picture, end-buyers and investors cannot help but ask how will the real estate market in Hong Kong behave during 2015?

Fed Interest Rate Hike

The US Federal Reserve is on track to raise interest rates from the near zero levels in June of 2015. When this happens most real estate gurus aver that property prices in Hong Kong will begin a downward march.  Some pessimists even go on to state that house prices could tumble as much as 10 to 15%.  Some pundits, however, rush in to add that when the US Fed raises interest rates China will most likely ease its monetary policy to prop up its economy. If this sequence of events plays out according to predictions, there may be a negligible effect on house prices in Hong Kong.

2011-Uranium-Market-TrendsRelaxation of property cooling measures

One of the main reasons for the price surge in 2014 was the Hong Kong government’s relaxation of the Double Stamp Duty. Before the easing of this measure, all second-home buyers had to pay a double stamp duty if they didn’t manage to sell their old units within six months of purchasing a new home. This cooling measure was originally implemented as a measure to increase supply in the secondary home market and to spur buyers who were upgrading to sell their homes instead of holding on to them. The government in May 2014 relaxed this rule and allowed buyers more grace time to sell off their old units.

This relaxation led to a tightening of supply and the subsequent price rise of smaller flats though the sales momentum also picked up.

However, in February 2015, the Hong Kong government during the announcement of the annual budget brought in another property market cooling measure. This measure relates to buyers of properties valued under $7 million HKD. These buyers will now   to pay a larger down payment as the loan-to-value ratio was capped at 60% instead of the present range of 60 to 70%.

The government also targeted second homebuyers with yet another measure, which affected their borrowing ability.  The government lowered the maximum debt service ratio or the monthly repayment amount as a percentage of monthly income from 50% to 40%. 

The Hong Kong government is closely monitoring the real estate market in the SAR and seems to react swiftly to changing scenarios. 

Hence, if the prices of homes in the Hong Kong real estate market do tumble as predicted in 2015, it is quite likely the government will step in once again and perhaps relax some other cooling measures to preserve the stability and financial health of the market.

Government Land Auctions well received

In September 2014, developers enthusiastically bid for and bought land at record prices during government-sponsored land auctions.  Such enthusiasm indicates that Hong Kong developers continue to be confident about sales and the long-term prospects of the local real estate markets.

Prices of luxury units sales stable

As far as the luxury residential sector is concerned most experts agree that the market for luxury units in Hong Kong has somewhat bottomed out.  An interest rate hike would, in fact, stabilize prices of these units further.

While nobody can correctly predict how the real estate market will behave in 2015. Here at Engel and Volkers, we tend to keep a firm finger on the pulse of local and international real estate market trends so that we can advise our client’s accordingly.