In a report last week, Deutsche Bank said housing prices in Hong Kong could slump by 48 percent over the next 10 years while vacancy rates could spike to 9 percent.
The bank based its predictions mainly on demographical changes. The city’s young population, or those aged between 25 and 44, will decline to 26 percent of the total population by 2025 from the current 29 percent, it said. By contrast, the proportion of those above 60 will surge to 30 percent by then from 22 percent at present.
The bank expects Hong Kong to be the second worst hit region in Asia by the aging population issue behind Japan. Housing demand will decline as a result.
But while the bank focused mainly on internal factors, it failed to address the crucial policy issue.
The economic integration between mainland and Hong Kong has become a big trend. Analysts should also take the mainland market into consideration.
Since 2009, the Hong Kong government has adopted a slew of tightening measures to manage housing demand, such as additional stamp duties. It could scrap those measures to unleash housing demand.
Also, the Hong Kong Monetary Authority has launched eight rounds of counter-cyclical measures to tighten mortgage loans. It could reverse those measures once the housing market starts to slacken off.
While it is a real risk that market demand could suddenly plunge once the housing bubble shows signs that it is about to burst, like what we have witnessed during the market downturn between 1998 and 2003, the demand structure has changed a lot since then.
Currently, the Hong Kong market is experiencing massive external demand from mainland China. Housing prices in major mainland metropolises such as Beijing, Shanghai and Shenzhen are coming close to Hong Kong’s.
However, Hong Kong still offers unique attractions, such as in healthcare and education, and as such, local properties are still very attractive to relatively well-off mainlanders.
If faced with a much weaker property market, the Hong Kong government could resume its immigration investor scheme to bring strong capital inflow into the city’s housing market.
This article appeared in the Hong Kong Economic Journal on June 9
Translation by Julie Zhu
[Chinese version 中文版]
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