Hong Kong’s property bull market still intact, prices to rise another 10pc in 2018, analysts say
Hong Kong’s housing market is not signalling the exuberance normally associated with a bubble, according to analysts, who say further price gains should be expected this year, even as starter homes have already become unaffordable for some young buyers.
“We’ve been asked frequently how long can this upturn last and our findings show that the Hong Kong property market remains at a low-to-medium risk level,” said Nigel Smith, managing director of Colliers International Hong Kong. “The demand is still pretty strong.”
Mass residential property is likely to rise 8 per cent to 10 per cent this year, according to Colliers International. Midland Realty is also upbeat on local property, forecasting average prices will jump 10 per cent this year, while smaller units, ranging between HK$6 million to HK$7 million (US$636,942 to US$891,719) is likely to see a larger increase of 15 per cent.
“The burden of down payments, particularly on millennials, is huge and blocks them from getting on the property ladder,” said Sammy Po, chief executive at Midland Realty's residential division.
Hong Kong home prices have been surging for 23 consecutive months, the longest stretch of gains for a property bull market in a quarter century. New home prices reached an average of HK$16.08 million for the quarter ending in March, according to Ricacorp Properties. It is the second-highest quarterly figure in terms of unit prices since the agency’s records began in 1996.
An individual earning HK$16,800 per month, equivalent to the city’s median monthly salary, needs about 32 years’ worth of income to afford a 40 square meter flat on Hong Kong Island, while a new home would require 79 years’ worth of income.
Analysts say they do not think the property market has entered a bubble, even as prices appear to be high based on historical data.
“The market is supported mostly by genuine end user demand. The very low liquidity level suggests that speculative activity is limited. Most purchases remain in a positive carry situation, with rental yields surpassing mortgage rates,” said Marcos Chan, head of research CBRE Hong Kong, Southern China and Taiwan. “Interest rates remain at a historically low level and the market is underpinned by healthy economic and income growth.”
“The residential property market is not in a critical stage yet,” said Daniel Shih, director of research at Colliers International Hong Kong. “We cannot say whether the market is overheating simply depending on price.”
Hong Kong home prices rose 6.9 per cent in the six months ended in February, according to Colliers International. Colliers said the market tends to see an adjustment when the six-month price growth rate moves beyond one standard deviation of its average.
Based on the statistics from 1996, the average six-month growth rate in Hong Kong is 2.8 per cent, within one standard deviation of negative 6.5 per cent and 12.1 per cent.
Peter Churchouse, chairman at Portwood Capital and a veteran analyst of Hong Kong's property sector, said transaction volume did not signal an overheating.
Monthly residential transactions averaged 7,049 for the first 11 months of 2017, within the normal range of between 6,000 and 8,000 per month based on data since 1996.
However Po warned that preferable top up financing extended by developers has led to high leverage.
“Down payments under the developer’s mortgage scheme can be as low as 10 per cent and the initial interest rate is in line with the bank, around 2.25 per cent,” said Po. “But it creates uncertainty in the future. After the first two to three years, buyers need to pay a much higher interest rate, which can be up to 5 per cent. If they cannot pass the much tougher stress testing conducted by banks and transfer their mortgage at that time, the burden will be huge,” said Po.