City Weekend

Soaring Hong Kong home prices push first-time buyers off the property ladder

Many people face the prospect of never being able to own their homes, but even for those who do buy, the process has become increasingly frustrating

PUBLISHED : Saturday, 04 February, 2017, 9:00am
UPDATED : Saturday, 04 February, 2017, 12:00pm

“It is awfully stressful,” says Martin Wu, a 21-year-old University of Hong Kong student and frustrated prospective home buyer.

“You start to think about when the day will come when you can afford your own home and what you will need to do to achieve it. I do not want to say it is unachievable, but when I think about how much I will have to save over the years, I cannot comfortably tell myself that it will happen. It is just the uncertainty.”

Wu, who is doing a master’s degree in urban planning, lives with his family in Pok Fu Lam. Years ago, his parents were able to buy their home as the local housing market was less intense, but now Wu, like many other young Hongkongers, faces the prospect of never becoming a homeowner.

Through the roof: prices of new Hong Kong properties to climb further, while secondary market prices slip

He says the city needs more subsidised Home Ownership Scheme (HOS) properties – just 2,657 were put up for pre-sale in February 2016, with the cheapest priced at HK$1.49 million. The scheme was set up in the early 1990s to provide flats for sale at subsidised prices to low- and middle-income families who would not otherwise be able to afford to buy.

Despite enjoying drama classes in school, Wu chose to pursue a career in urban studies because he felt it would be more financially stable. He feels guilty about any purchases he makes because he thinks the money should have gone towards his savings.

“I grew up here, so if I had a chance I would stay here,” Wu says. “The pace of life is exciting and my family is here. I studied in the UK for one year; I would not have come back to Hong Kong if I did not plan on working here in the longer term.

“I would like to have the option of buying [a home]. I think people in Hong Kong are living less as a result of this housing situation.”

Like Wu, many prospective buyers in Hong Kong, particularly young people, are struggling to get onto the housing ladder in the world’s most expensive property market. Additionally, the buying process with estate agents has become increasingly frustrating, buyers report.

The Estate Agents Authority (EAA) reported a year-on-year increase of 72 per cent in complaints last year in relation to first-hand residential properties.

Major gripes included failures to honour the process of a rebate; issuing non-compliant advertisements; offering loans to clients; and providing misleading mortgage information.

Grievances with estate agents appear directly tied to the sky-high prices.

EAA chairman ­William Leung Wing-cheung revealed last month that the number of complaints relating to overseas properties had also sky-rocketed because “the local ­residential market is stagnant”.

Hong Kong was ranked the world’s priciest home market for the seventh consecutive year in the Demographia International Housing Affordability Survey’s study of 406 cities around the world.

The study found the city’s apartments cost 18.1 times gross annual median income in the third quarter of 2016.

Home prices reached a record high in November last year, after climbing for eight consecutive months.

During the same month, Chief Executive Leung Chun-ying imposed a 15 per cent stamp duty on non first-time buyers in an attempt to cool the market, but prices have continued to soar.

In 2015 the Hong Kong Monetary Authority announced that properties priced at HK$7 million or less required a 40 per cent down payment, up from 30 per cent – another attempt to cool the market.

But the tactic is hitting young first-time buyers the hardest, a consequence which Monetary Authority chief executive Norman Chan Tak-lam admitted was inevitable.

Lawmaker James To Kun-sun said the city’s consistently high property prices were making homes unaffordable for average people, while cranking up the heat on estate agents to sell.

He said the number of property transactions had been relatively low, putting pressure on agents.

“They have their very heavy burden – pressure from the company, family expenditure, from their wives or husband, or kids,” he said. “That’s a lot of pressure on all those tens of thousands of agents to offer to surrender to Satan.”

The volume of overall property transactions has declined since 2010, according to figures from Hong Kong-based real estate agency Midland Realty.

Last year there were 73,004 transactions, a drop of 4.14 per cent from the year before, and a decrease of 55.14 per cent since 2010.

The overwhelming pressure on agents to sell in a difficult residential market is leading to some adopting “dirty tactics”, industry observers report.

According to To, some agents are so eager to make money that they will offer spoken agreements to share their commissions with buyers in order to lower the overall purchase price of a property, before backing out.

He said another common assurance that did not come to fruition involved misleading developer rebates, an important selling point for buyers in light of the higher stamp duty. But he said it was hard to prosecute after promises were broken as such offers were made under the table and not written into legally binding contracts.

To address this, the EAA conducts compliance inspections and spot checks, with the number of total inspections increasing by almost 8 per cent to 3,055 in 2016.

These inspections played an important role, To said, and the EAA should continue to study buyer complaints so that they can tackle the problem “directly and in a focused way”.

But bad estate agents are not the only problem – steep property prices make the city’s young people pessimistic about ever owning a home.

We have to give young people hope. Many of those we surveyed said home ownership was a basic need
Chan Shui-ching, Hong Kong Federation of Youth Groups

A survey of young people aged 18 to 34 by the Hong Kong Federation of Youth Groups last year found 26.6 per cent of respondents expressed interest in buying property, down from 55.1 per cent 10 years ago. Respondents said the high prices were putting them off, and many did not want to spend most of their income on long-term mortgage plans lasting more than 20 years.

Despite this, the majority (61.1 per cent) said they considered having their own home to be an important life goal.

Young Hongkongers, if they do not move overseas, tend to live with their families until marriage, and even then high property prices mean they will often be restricted to renting.

Chan Shui-ching, spokeswoman for the research centre at the Hong Kong Federation of Youth Groups, said young people wanted more rent-to-buy schemes, more subsidised housing and loan assistance schemes.

“We have to give young people hope for the future,” she said. “Many of those we surveyed said home ownership was a basic need. But many also felt this was an unrealistic goal. They feel like they do not have economic power.”

Currently, the Hong Kong Mortgage Corporation offers the Mortgage Insurance Programme, which aims to reduce the initial down payment for buyers. Banks that take part in the scheme offer buyers insurance coverage for up to 20 per cent of the property’s value, meaning they can offer mortgage loans of up to 80 per cent. But this can still mean that a buyer faces a lengthy mortgage repayment period.

After the collapse of the housing market in 1997, the Hong Kong Housing Society, a non-profit organisation, was allocated HK$18 billion to offer housing loans to eligible families and singletons through the Home Starter Loan Scheme. Between 1998 and 2002, about HK$14.8 billion was loaned to 33,000 applicants, but the scheme was closed in April 2002.

The organisation did not respond to the Post’s requests for comment about why the scheme was closed, and what future policies and initiatives might be introduced to support first-time buyers.

A spokeswoman said it had been “serving the needs of the Hong Kong community in housing and related services in line with the government policy.”

Tips on finding an agent

The Estate Agents Authority has issued new guidelines to assist in appointing estate agents.

Buyers are first advised to search for a licensed agent on the authority’s website.

Upon selecting an agent, both parties should enter into a written “estate agency agreement”, through which the buyer officially appoints the agent to oversee the transaction of the residential property.

The agreement between both parties should include a section listing the agent’s responsibilities. It should also require the agent to disclose any pecuniary advantage or other benefits accruing to him or her.

Buyers can negotiate with the agent how much commission will be paid, or whether this will be calculated as a percentage of the final property purchase. Buyers have no obligation to pay the commission if the transaction fails through no fault of their own.

Buyers should ask for all copies of documents signed with the agent as well as receipts for any payments made. They should also ensure that they give agents clear instructions in relation to offers and counter-offers.

Estate agents must indicate the address of the property, the floor area size, the year of completion, any user restrictions, the terms of the government lease and the mortgage details.

Help for new buyers around the world

Australia: first-time home buyers can be eligible for a grant of up to A$26,000 (HK$154,290). Buyers in Sydney, New South Wales, for example, can qualify for a A$10,000 grant for new homes which cost up to A$750,000, ­provided they live in the property for at least the first six months of ownership.

United Kingdom : help-to-buy equity loan requires the buyer to put down a 5 per cent deposit, with the government offering an ­interest-free loan on a further 20 per cent. The final 75 per cent is covered by the mortgage. The catch is that it’s only available on newly built properties worth up to £600,000 (HK$5.9 million). The government has announced plans to launch a starter home scheme, offering a 20 per cent discount on a property to first-time home buyers aged 23 to 40.

Canada: government allows first-time home buyers to borrow up to C$25,000 (HK$149,000) from their ­Registered Retirement Savings Plan to use as a tax-free down payment. It has to be paid back within 15 years. First-time buyers are also eligible for a C$750 tax credit, which ­allows buyers to recover some of the costs incurred from their purchases such as legal fees and home inspections.

United States: a number of grants are available, including under the American Dream Downpayment Initiative. The initiative offers a maximum grant of US$10,000 to first-time home buyers who have below-average incomes, to help close costs and down payments.