Jake's View

Hong Kong boasts world's most expensive homes … and cheapest

PUBLISHED : Tuesday, 10 November, 2015, 1:38am
UPDATED : Monday, 16 November, 2015, 4:43pm

Hong Kong has topped London and New York to become the world's most expensive city to buy a home despite a softening sentiment towards the market, according to an inaugural global survey on prices in leading cities by CBRE.

Business, October 23

It seems everyone who sets up shop as a property agency these days feels obligated to do a survey on housing prices and they all tell us that we have priced ourselves out of our market.

Let's consider some alternative facts. For starters, the Housing Authority at present owns 778,000 rental flats, comprising 35 per cent of our total housing stock and the raw numbers in the latest HA accounts indicate that the average rent level of these flats was only HK$1,350 a month.

This right away says that although we have some of the most expensive housing on earth, we also have some of the very cheapest and we have more of that cheapest than we do of the expensive.

These public housing tenants also need not worry that their rents will go up. What with rebates and other concessions they are on average paying no more than they did 20 years ago and there is no movement afoot anywhere to make them pay more. For legislators to suggest it would be political suicide.

Then you get public sale housing, homes provided by the government until 2003 at about half the cost in the market. There are 325,000 of these, or about another 15 per cent of the total stock. The owners face restrictions in reselling them but their profits, either realised or unrealised, are still huge. These people also get no tears from me.

Of the other 50 per cent in the private market, figures from various sources suggest about 35 per cent is owned and 15 per cent rented. The owners have ridden the market all the way up and are on balance entirely comfortable. They may have sold from time to time but most bought right back in again somewhere else.

The private renters, well, yes, that can be a sad story and I shudder to think where I might now be if I had not obeyed my wife's orders and signed that down payment cheque many years ago. Whew! There but for the grace of God …

My point here is simply that for all the heavy burdens that some people undoubtedly carry or face if they want to buy their own homes, the large majority of Hong Kong people are not seriously stressed by their housing costs.

There is another way of looking at it. High as housing prices may be, mortgages are still obtainable here. There are economies where they are not.

I recall visiting Indonesia as an investment analyst years ago and being dismayed at how housing was effectively split between mansion and squatter slum. If you did not have the full price in cash in your hand from your own resources, you could not buy. Government was reluctant to give banks the power of foreclosure and without it they could not offer mortgages. Things have changed now but the damage to Indonesian society still resonates.

And high prices, I must have said this a thousand times in this column, are predominantly a matter of the size of monthly mortgage payments. With interest rates at rock bottom levels, affordability ratios are little more than half of what they were at the peak in 1997 although prices are almost twice as high.

Finally, an observation on volatility. The chart compares the long-term trend of housing prices in Hong Kong with those of Boston. Boston rises and eases, Hong Kong rockets and crashes. I see no reason to believe that things have fundamentally changed. Patience is a virtue.