Hong Kong has seen a significant recovery in its property market recently, with thousands of homebuyers eagerly scrambling for newly constructed residential units.
Despite an uncertain economic outlook, factors such as a continued low interest rate environment and attractive mortgage terms offered by banks and other financial firms have created a climate where homebuyers are willing to do anything as they compete for new apartments.
Last Saturday, three new private housing estates launched units for sale simultaneously, attracting a total of 30,000 prospective buyers, almost 10 times the number of flats that were available. Meanwhile, a newly completed luxury housing estate that went on sale a few days ago received a whopping 16,000 applications for the 300 flats on offer.
As Hong Kong people are desperate to snap up new homes regardless of warnings that residential properties in the city are still very much overpriced, it points to a few things.
First, although many so-called Gen-Xers and millennials favor mobility and a carefree life, the majority of our citizens, old or young, still see homeownership as a main goal in life regardless of the overall economic environment.
Second, the deep-rooted “buy now, think later” mentality still very much prevails among our citizens, who tend to believe in the notion that property prices will always go up in the long run and hence it is always better to buy now rather than later, even though you might not be financially secure enough to become a homeowner at the moment.
And third, the recent home-buying stampede indicates that even though property prices in the city remain beyond the affordability of most people, many still consider the prices acceptable, or at least they believe that the advantages of buying still outweigh the disadvantages.
There’s no doubt that the desire for homeownership remains strong as ever in our society. However, the question is, does the recent buyer frenzy necessarily mean the property market is on a steady road toward recovery?
Well the answer is both yes and no. Yes it does, because there is still a huge demand out there for housing, and the low interest rate environment is likely to remain so in the short- to medium term.
At the same time, no it doesn’t, because it is questionable whether the current demand and buying power can sustain in the long run, particularly when the economic outlook is grim and given that the supply of new flats will be continually on the rise over the next few years.
According to government estimation, around 93,000 new homes will be coming onto the market over the next three to four years, which means there will be more than 20,000 new flats available every year until 2020.
This calls into serious question whether the market can absorb all the new supply.
To make things worse, while average prices of homes sold in the city recently stood at roughly HK$10 million, the average mortgage loan size was at only HK$3 million. It suggests that most homebuyers are using either their own or their parents’ savings to complete the transactions.
This is definitely not a good sign as far as the long-term absorption capacity of our housing market is concerned.
The recent buyer frenzy in the housing market suggests that the effect of the so-called “double spicy-measures” adopted by the government since 2012 to curb skyrocketing property prices is fading, and that there are a lot of variables in the local housing market that are beyond the control of the administration.
That said, we believe the only thing the government can do right now to promote healthy growth in the property market is to improve the city’s governance and boost the economy in order to boost the overall incomes of the general public.
That will help enhance the financial soundness of people and improve long-term home affordability.
This article appeared in the Hong Kong Economic Journal on Sept. 2.
Translation by Alan Lee
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