Does Hong Kong have a housing crisis? The answer depends on whether you own a flat

Hong Kong has the dubious distinction of being the world’s most expensive real estate market, a title it has retained for the past seven years.

In 2017, there was no shortage of warnings of a property bubble, complaints of how homes were seriously unaffordable for the grass roots and worries that demand for rental flats would continue to outstrip supply.

The Post looks back at developments in the past year to explain why housing was – and is likely to remain – a dispiriting topic for many aspiring home seekers in Hong Kong.

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So how much have prices gone up this year?

The latest available government statistics from October showed Hong Kong’s private residential property prices had not dropped since March last year.

Between this January and October, prices spiked by 11 per cent, according to the government’s private domestic price indices, which track overall trends in the property market.

The rental index, which had been consecutively increasing from November last year, had also gone up by 7 per cent since the start of this year.

In fact, the city’s private home prices increased by 430 per cent since 2003, making it the world’s most expensive urban centre among 406 cities to buy a home in, according to the Demographia International Housing Affordability Survey.

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The survey showed that in the third quarter of last year, a family earning what was then the gross annual median income of HK$300,000 would have to save their full salary for 18.1 years to afford the median home price of HK$5.5 million.

At that price, they would only get a flat smaller than 500 sq ft in many areas of the city.

Wow, that sounds dire.

Hold on, there is more. You should look at what some flats are fetching.

In May, a 437 sq ft flat in Harbour Glory in North Point was sold for HK$17 million, or HK$38,100 per sq ft, the most expensive among flats under 500 sq ft.

Last month, a 4,242 sq ft flat in Mount Nicholson on The Peak sold for a whopping HK$560 million, or HK$132,060 per sq ft. In square footage terms, the property is the most expensive residence in Asia. The buyer of the flat also bought a second adjoining unit, at a price of HK$132,059 per sq ft.

Prices of government subsidised housing – which first-hand owners can sell in the private market after five years and reimburse the government for the discounts it gave them – also went up.

In May, a 431 sq ft flat in Kornhill Gardens in Quarry Bay was sold for HK$7 million, becoming the most expensive second-hand subsidised flat under 500 sq ft in terms of price per square footage.

The priciest subsidised flat above 500 sq ft was a 592 sq ft home in Charming Garden in Mong Kok, which was sold in April for HK$8.8 million.

Even homes that were previously public rental flats sold like hot cakes. Up till 2006, tenants could purchase their rental flats and after five years, sell them in the private market and return the government the discount they received originally.

In September, a 146 sq ft public rental flat in Tak Tin Estate in Lam Tin was sold for HK$2.3 million, becoming the most expensive of its kind in terms of price per square footage.

Watch: Hong Kong’s 2017 in review

What? How did we get here?

A mix of structural and external factors have contributed to the red-hot property market.

The Hong Kong government owns all land in the city and leases a limited amount each year to developers to build housing or commercial buildings.

Developers pay the government a hefty amount upfront, known as the land premium, which reflects the expected value they can derive from the site after it is developed.

Thus, they are motivated to set prices higher after development, to score fatter profits.

This year, many mainland developers with deep pockets have entered the fray to bid for land sites in Hong Kong. It has become apparent that they do not play by the book and to outbid others, may end up offering prices much higher than what the sites are valued at.

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There is also a trend of developers building tiny flats that fetch far higher prices than larger flats on a per square foot basis.

The smallest flats built in 2017 were only 150 sq ft, in AVA 61 in Cheung Sha Wan developed by Way Creation Limited. Last year, the smallest flat was a 128 sq ft flat in T Plus in Tuen Mun.

Demand – and prices – has been fuelled by low interest rates and insatiable demand from foreign buyers, especially mainlanders.

It remains to be seen if the recent interest rate hike, that would make mortgages more expensive, would result in prices easing in any way.

Watch: Top 5 Hong Kong stories from 2017

Hmm, how expensive are these sites then?

Last month, a waterfront site at the former industrial area of Cheung Sha Wan was sold to a consortium of five companies from Hong Kong and the mainland for HK$17.28 billion, making it the city’s most expensive residential plot.

The site was awarded to Sky Asia Properties, owned by a consortium comprising Sino Land, mainland-based Shimao Property Holdings, Wheelock Properties, K Wah International and SEA Holdings.

The deal, involving a total developable area of 987,000 sq ft, translates to HK$17,500 per square foot and it is not hard to imagine how much developers would ask for when they begin marketing the development.

Commercial sites are also fetching eye-watering prices. In May, Henderson Land bought a commercial plot in Central for a record HK$23 billion, making the site also the most expensive commercial plot in the world.

Aiya, aren’t there cheaper homes for Hong Kong people to live in?

There is public housing – both rental flats and subsidised flats for sale. But supply has always lagged demand.

Watch: Explaining Hong Kong’s housing crisis

How exactly?

Let’s talk about public rental housing first. As of September, there were about 153,000 single elderly or families with two or more members waiting for rental flats, with the average waiting time reaching 4.6 years.

There were another 127,000 non-elderly singles in another queue with lower priority. There is no official average waiting time for this queue but applicants could wait for a decade or longer.

But only one-quarter – or some 73,000 – of the flats that are needed will be built in the next five years.

Subsidised housing for sale includes flats under the two-tier Home Ownership Scheme (HOS).

White-form applicants are tenants of public rental flats or first-time homebuyers who are usually better off and meet criteria such as having a household income below HK$26,000 a month for singles or HK$52,000 for families of two or more.

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Green form applicants are public housing tenants, who are also eligible for the Green Form Subsidised Home Ownership Scheme, where prices are lower than in the HOS scheme.

The scheme was announced two years ago to encourage tenants to own homes, thus vacating their rental flats for those in the waiting list.

In 2017, there were just over 2,700 HOS flats for sale, with 2,100 provided by the government’s Housing Authority, the main provider of public housing in the city, and 620 by the non-profit Housing Society.

But the authority received some 105,000 applications for the flats – 50 times its supply – and the society received some 88,000 applications, or 141 times its supply.

There were no green form HOS flats for sale this year.

The government’s housing target for the next decade is to build 280,000 public flats – 200,000 rental flats and 80,000 subsidised flats for sale.

Supply sounds paltry compared to demand. What’s the government doing about it?

Recently, the city’s leader Carrie Lam Cheng Yuet-ngor said she never pledged to correct surging property prices when she became chief executive on July 1 this year.

Instead, what she hopes to reverse is the lack of affordable flats with her administration looking to boost land supply to achieve that.

Lam set up a Task Force on Land Supply in August to study 12 options to increase land supply. Based on the city’s projected long-term growth, the task force concluded that it faces a shortfall of 1,200 hectares of land for housing and economic development beyond 2030.

Some of the options under study are highly controversial, such as developing the city’s scenic and ecologically important country parks and creating a 1,000-hectare island to the east of Lantau Island.

The task force will start a public consultation on these proposals next March.

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In her policy address in October, Lam also introduced a series of policies to boost home ownership, including building “starter-homes” for young families earning too much to qualify for HOS flats but too little to afford private flats.

She also proposed building more green form HOS flats to allow more Hongkongers to get on the property ladder and to allow HOS flat owners to sell their properties after five years to white form applicants without having to pay back the discounts they received from the government, in the hope that they would act on the promise of greater returns.

The Housing Authority is also in the midst of a study on the extent to which it can increase the supply of subsidised flats without affecting its pipeline of public rental flats.

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Will these measures work?

It’s clichéd to say so but views are mixed.

Supporters praise the establishment of the task force as being able to initiate a society-wide debate and subsequently reach a consensus on long-term land supply.

But critics say it is merely paving way for the government to conduct large-scale reclamation, ignoring other options such as developing degraded agricultural land, and using large areas of land in the New Territories for indigenous villagers to build small houses.

Others complain that all the options are about long-term developments, which will not help to solve the immediate housing crisis.

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Detractors also say the starter-home scheme, which only involved about 1,000 flats in the first phase, is too insignificant to have an impact.

Some have questioned if public rental tenants, who pay cheap rent, would want to pay for green form HOS flats, which would be of the same quality as their rental flat. Critics also fear it will take months for tenants to vacate, increasing the waiting time.

Similarly, some question whether HOS flat owners would want to sell their flats, even if without paying back the discounts, at a time when private flats are so expensive. If they sell, some argue, they would not be able to buy a private flat of similar size with their proceeds.