By George Steer
Hong Kong is the city with the most skyscrapers over 150 metres tall and the most ultra-high-net-worth individuals. And, for the ninth year running, it is ranked by US planning consultancy Demographia as the world’s least affordable housing market.
Recent public anger against a bill that would have allowed extradition to mainland China has led to tensions and a series of violent protests on the territory’s streets. The impact of the tension on the housing market, which already faces its own challenges, is yet to be seen.
According to Demographia, the median price for a Hong Kong home is 20.9 times median annual household income, up from 19.4 in 2018’s report. On average a regular home in the city costs $1.2m, or $2,091 per square foot, while the average price for prime property stands at $6.9m, according to CBRE’s Global Living 2019 report.
House prices increased by 5.5 per cent in the year to last November, according to the report. This was despite a short downturn in the second half of 2018 — tied to uncertainty over US-China trade relations, rising US interest rates (the Hong Kong dollar is pegged to the US dollar) and slowing economic growth in China, according to Simon Smith, head of Asia research at estate agent Savills.
The fundamental problems remain a chronic undersupply of new homes and constant demand. With the US Federal Reserve in March signalling an end to interest rate increases for the time being, prices are expected to continue rising.
They are also being buoyed by an influx of wealthy Chinese from the mainland, the stabilisation of the renminbi and the revival of the Hong Kong stock market, which has a strong bearing on property prices across the city.
“Hong Kong is a market suffering from low new supply relative to burgeoning demand for accommodation,” says Liam Bailey, global head of research at estate agent Knight Frank. “A considerable portion of future supply will have to come from expensive land reclamation projects.
“It is unlikely that the territory will experience a notable reversal in pricing in the near term, despite the more uncertain outlook for Chinese and US relations.”
So far, new government housing initiatives, including a proposed vacancy tax on developers and a promise to increase the number of affordable homes in the city, have failed to rein in prices.
Similarly, says Smith, several stamp duty rises and tighter borrowing rules, have had limited impact.
The latest government figures show 20,968 new units were completed in 2018, the highest annual rate since 2004, according to Savills. However, the new homes are not big: according to the company’s research, 34 per cent of new-builds last year were so-called “nano” units — apartments with a saleable area smaller than 40 sq m.
The government, like the occupants of these nano flats, has little room to manoeuvre. “Our expectation is that price rises will be maintained into 2020,” says Bailey.
But investors be warned: in September last year, research from banking group UBS suggested Hong Kong was the city at the greatest risk of a housing bubble.
Photographs: Sister F; Dreamstime; Bloomberg