Hong Kong Property Market: Boom Or Bust In 2018?

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Hong Kong Property Market: Boom Or Bust In 2018?

Will prices go even higher in this high-flying property market? We take a look at the outlook for the year ahead.

Published on 20 December 2017

No matter whom you speak to in Hong Kong, the ever-looming question on everyone’s mind is what’s going to happen to the property market? Overall it’s had a strong run since the Great Recession, and before that the SARS pandemic. Never really depreciating greatly overall and always in demand.

If you’re an owner of a Hong Kong property, you’re blessed with the lack of land scenario, however for first-time buyers who don’t have pockets full of cash, getting on the ladder has proved ever more difficult.

As an investor, if you can afford to purchase a property in Hong Kong, there has been an abundance of mixed signals regarding the outlook for 2018. This year has seen the amount of new residential units supplied and the number of transactions for units in the city remaining fairly even, according to Centaline Property Agency. Since 2007 the number of transactions has easily surpassed the number of new units annually. The Transport and Housing Bureau says that 98,000 new apartments will be available on the market throughout the next three to four years. It may not be enough to bring down prices. Does that equate to a bubble?

Market outlook

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UBS’s Global Real Estate Bubble Index puts Hong Kong in bubble territory, directly under London with a 1.74 rating. Anything greater than 1.5 equates to a bubble risk. In September, Hong Kong’s Financial Secretary Paul Chan warned prospective buyers to “be very careful” as the city’s property market is in a “dangerous situation”, adding that prices may experience a correction after an over 20% surge this year.

Although some are sounding the alarm, many real estate companies operating in Hong Kong are predicting prices will rise next year. Colliers International Group are expecting in the range of 8% to 10%. While Knight Frank are a bit more conservative with a 5% to 8% price growth estimate.

The Hong Kong Interbank Offering Rate (HIBOR) is also low at the moment – below 1% – and many banks are offering mortgages fixed to this. This can equate to mortgages depending on the building of below 2%. While money stays relatively inexpensive, it’s inevitable that people will continue to purchase property. It’s important to note that any changes in US interest rates will affect borrowing costs in Hong Kong due to its currency peg.

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Individuals are still moving to and investing in Hong Kong as a whole. Mainland Chinese in particular are spending some of the largest sums of money to purchase land to develop, many times outbidding their local counterparts who not so long ago would have had very little competition. Even Singaporean companies have gotten in on the action this year with a Sino Land Company consortium purchasing residential land and setting a US$2.2 billion record while they were at it. The continued strong international demand should keep prices heading in an upward trajectory for the foreseeable future.

It’s not just new homes that are always available at higher prices. According to the Midland Realty Index, secondary property values have also been steadily increasing. Since 2003, there hasn’t really been a major dip, sending property prices in a consistent upwards trajectory. This, in turn, helps bump up the price of new homes when developers bring them to market.

The bottom line

For all intents and purposes, it looks as if 2018 will be another record-setting year for the Special Administrative Region. The Hong Kong property market continues to defy odds with its lack of land and strong international demand. One of the only financial areas that could cause a temporary issue is if US interest rates rise, as is expected, then we could see a temporary cooling in purchases due to higher lending costs. However, if this occurs it is likely to be short-lived. As long as individual investors value Hong Kong strategically, the demand for its real estate should remain strong.

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