16 February 2019
Prices of starter homes have been rising much faster than those of blue-chip estates, narrowing the gap between the two. Photo: HKEJ
Prices of starter homes have been rising much faster than those of blue-chip estates, narrowing the gap between the two. Photo: HKEJ

Hong Kong’s starter-home boom may soon be over

Hong Kong’s housing market has been picking up since the 2008 financial crisis. Private housing prices surged 195 percent between late 2008 and the end of January this year, translating into an annual increase of 14.3 percent.

However, flats with a saleable area below 400 square feet have posted a price gain of 227 percent in the eight-year period, more than 30 percentage points above the overall market rally.

By contrast, flats with a saleable area over 1,600 square feet only rose 95.9 percent, lagging the broad market.

In fact, small flats have constantly outperformed the market since government tightening measures have distorted market demand.

The Hong Kong government has unveiled eight rounds of counter-cyclical measures to curb home prices since 2009.

The authorities have mainly targeted medium and large flats initially. For example, in August 2010, it cut the mortgage loan ratio from 70 percent to 60 percent for houses worth above HK$12 million.

Since November 2010, lenders have been required to offer mortgage loans of no more than HK$4.8 million for flats worth below HK$8 million. The mortgage insurance program only accepts applications for flats worth below HK$6.8 million.

These measures have directed market demand to smaller flats or starter homes. That has led to a starter-home market boom.

Two indicators show that the starter-home market is getting bubbly.

First, the price premium between starter homes and so-called blue-chip housing estates such as Taikoo Shing has kept narrowing.

For example, the price gap between Taikoo Shing and certain starter-home estates such as City One Shatin, Sha Tin Center and Tai Hing Gardens is falling close to the bottom over past 20 years.

Second, these starter homes are getting more expensive and thus less and less affordable to potential buyers.

Although there is no clear definition of starter homes, it is generally considered to be those selling between HK$4 million and HK$5 million.

But even at those price ranges, it’s becoming harder for homebuyers to finance their purchase.

At present, for apartments exceeding HK$4.5 million, the maximum borrowing limit is 80 percent. Further uptick of starter home prices means buyers need to come up with more down payment, and this cannot continue for long.

This article appeared in the Hong Kong Economic Journal on Mar. 15

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal chief economist and strategist

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