The exorbitant cost of Hong Kong’s housing market has always headlined news. Prices have doubled from what they were in 2009, and the city continues its rank amongst the world’s most expensive. However forecasts by researchers predict a screeching halt in price hike, with potential to even fall from 5 to 30% depending on opinion.
Before 2011, the increase in property price was induced by mismatch between supply and demand. This gap has begun to close and according to the government figures 86000 private homes are under construction as of September 2015. According to estimates, 15000 to 18000 of these saleable units will soon be available for sale, this represents a 40% increase in supply over recent years and this increased supply will naturally limit the ability of developers to charge premiums for new builds.
Researchers also cite various reasons for the incoming drop in home prices in Hong Kong. The stagnating Chinese economy and global trade through Hong Kong, the fall in visitor arrivals from the Mainland – leading to slowing of retail sales in Hong Kong- and the looming interest rate hike by the US Federal Reserve, are plausible causes offered.
Furthermore, the Hong Kong government has undertaken measures to address the relative unaffordability of Hong Kong’s housing sector. Draconian measures have been implemented to curb speculative interests in the Hong Kong housing market. These measures include doubling stamp duty, introducing special property taxes on non-Hong Kong permanent residents and raising down payments for mortgages. The government measures have been somewhat successful and the government is continuing to address the housing problem. The Hong Kong government is also looking to increase the supply of housing by releasing land and developing outlying areas of Hong Kong like East Kowloon and East Lantau shortly.
In spite of all of the above, interest in the Hong Kong real estate sector remains strong. The Mainland Chinese and other savvy investors continue to regard Hong Kong as an eminently desirable destination. For this reason, demand for high-end luxury real estate continued to endure astrophy properties at ultra-luxurious developments around the city, like Opus Hong Kong and 28 Barker, were snapped-up at soaring amounts during 2015.
It’s not only in the luxury sector that market sentiment remains robust regardless of the impending doom and gloom. Local buyers instead of speculators are the main participants in Hong Kong’s real estate sector today, and buoyant sales at recent launches like Yuccie Square in Yuen Long belie this fact.
Additionally, Hong Kong remains a favored global business destination. Insurance and banking firms, sovereign wealth funds, multinational companies and Mainland companies continue to set up shop in the SAR as they acquire commercial real estate in Hong Kong. So even if there is a slowdown in the residential property sector, the office sector will be resilient.
The US Federal Reserve has recently hiked interest rates by 0.25% for the first time in nine years. Real estate pundits who constantly track the Hong Kong property aver that this small increase is not likely to significantly impact buyers’ mortgage payments. Even if the Fed goes on to increase the rates 100 basis points in 2016 as predicted, the monthly interest payments will go up only marginally on every HK1 million borrowed. This small increase is not expected to affect market sentiment adversely. The economic growth trends on the Mainland and the government’s efforts to increase housing supply are in fact the principle determining factors that influence Hong Kong’s property market.
Nobody has a crystal ball to predict what will be the state of the Hong Kong real estate market in 2016. However, given the above factors and estimates, we can safely conclude that there will always be a demand for Hong Kong’s real estate and if there is fall in prices as predicted, the fall is not likely to be dramatic or even drastic.