Hong Kong home prices surge to all time high in January

PUBLISHED : Tuesday, 28 February, 2017, 3:13pm
UPDATED : Tuesday, 28 February, 2017, 11:26pm

Home prices in Hong Kong, the least affordable city in the world, hit another all time high in January, government data showed on Tuesday.

The home price index in January rose 0.62 per cent to 309 from 307.1 in December, extending a 10 month-rise, according to data from the Ratings and Valuation Department. Prices rose 10.75 per cent on a year-on-year basis.

Prices have continued to rise despite government efforts to cool the sizzling property market.

In November, Hong Kong raised the stamp duty to 15 per cent of transaction values across the board, exempting local residents who do not own any property.

When the correction happens, it won’t be a huge one.

Large units of 70 to 99.9 square metres saw prices up 0.73 per cent in January on month, while small units in size of 40 square metre or below rose 0.59 per cent.

The rental index in January rose to 174.7, a gain on 1.04 per cent from December. It rose 3.5 per cent year on year, according to the Ratings and Valuation Department.

Denis Ma, head of research, Hong Kong at property consultancy JLL, said low interest rates are still adding fuel to the real estate market, while the launch of smaller, more affordable units has further boosted demand.

JLL forecasts that home prices will increase less than 5 per cent in 2017 given the incoming interest rate hikes and the possibility of new cooling measures.

“It could be a little bumpy,” Ma said. “But generally it looks like there is enough demand and the price will continue to go up.”

Ma said the aggressive land-bidding recently reflects bullish sentiment among developers, especially those from mainland China.

Last week, two Chinese developers paid a record HK$16.86 billion (US$2.17 billion) for a plot of residential land at Ap Lei Chau, topping market valuations by almost 50 per cent, making it Hong Kong’s most expensive lump-sum sale to date.

The price translates to HK$22,118 per square foot in land cost. Property agents expect apartments on the site to sell for at least HK$32,000 per sq ft, a record for the district.

The aggressive bidding prompted owners of large apartments across the city to raise their prices by more than 10 per cent, while developers also increased prices of unsold units,

“After you buy the land in sky-high deals, you will be very reluctant to lower your property prices,” Ma said.

However, some analysts believe the price appreciation is likely to end in the coming months amid growing supply.

Home prices are expected to fall 5 to 10 per cent in 2017 amid new supply of about 20,000 units, according to credit rating agency Standard&Poor’s.

Property cooling measures and tightening capital controls on the mainland can also create pressure on property prices, said S&P analyst Matthew Chow.

“The government definitely needs to do something,” Chow said. “They will likely roll out some demand-side policies going forward to keep prices under control.”

Chow said the Hong Kong Monetary Authority might also lower the loan-to-value ratio to curb home buying.

“At the same time, liquidity is still abundant and Hong Kong households do have strong balance sheets,” Chow added. “When the correction happens, it won’t be a huge one.”