http://www.scmp.com/news/hong-kong/article/1648791/local-buyers-push-home-prices-higher
Mainland interest waning after stamp duty increases, agency figures show
Local buying is the key driver sending Hong Kong home prices to fresh highs, according to a survey, with demand from mainland buyers dropping to a six -year low in the third quarter and likely to shrink further.
Centaline Property Agency figures show that mainlanders buying flats as individuals accounted for 7.8 per cent of sales of new homes costing less than HK$12 million in the third quarter, down from 10.9 per cent in the second quarter and a peak of 35.5 per cent in the third quarter of 2011.
"Mainland buyers will continue to retreat from Hong Kong as their interest in buying has been reduced by the high stamp duties," said Wong Leung-sing, an associate director of research at Centaline. "It indicates that soaring mass-market home prices have mainly been driven up by local demand."
Mainlanders' overall spending on new Hong Kong flats fell to its lowest level since the fourth quarter of 2008, data showed. The survey found that mainlanders bought 8.6 per cent of new homes in the third quarter, down from 12.3 per cent in the second.
"Chinese buyers have virtually withdrawn from the Hong Kong property market," Wong said.
The survey counted all buyers with Putonghua names as mainlanders, he said, pointing out the figure would also include mainlanders who had secured permanent resident status after living in Hong Kong for seven years.
The Hong Kong government introduced a buyer's stamp duty of 15 per cent on non-permanent residents and those buying through companies in October 2012 in an attempt to curb rising prices.
Stamp duty was also doubled, to up to 8.5 per cent, on purchases of property valued at more than HK$2 million, except by first-time buyers.
In the secondary market, mainlanders accounted for 3.1 per cent of sales, down from 3.8 per cent in the second quarter.
They accounted for 22. 6 per cent of sales of new homes worth more than HK$12 million in the third quarter, down from 26.5 per cent in the second quarter and a peak of 49.3 per cent in the first quarter of 2011.
Monday, December 15, 2014
Wednesday, December 3, 2014
Hong Kong's housing market facing a slump in 2015
http://www.scmp.com/property/hong-kong-china/article/1645542/hong-kongs-housing-market-facing-slump-2015
Anyone looking for blue skies and sunshine in Hong Kong's property market could be disappointed. It's hard to find an analyst who can put a positive spin on prospects for next year, with predictions of price dips of at least 5 per cent in 2015. Some, such as Barclays property specialist Paul Louie, have forecast a plunge of as much as 30 per cent.
After four years of steady increases which have now slowed, analysts see a severe correction looming, as the combination of a surge in new supply, the effects of government-imposed cooling measures and next year's inevitable interest rate hike combine in a "perfect storm", according to Louie.
Hong Kong brokerage CLSA is slightly less pessimistic, expecting property prices to slump 15 per cent by the end of next year as the government's market-cooling measures bite.
"Prices will correct a little more if interest rates are raised and the economy weakens," Nicole Wong, CLSA's regional head of property research, says of the group's recent report on the Hong Kong and mainland property markets.
CLSA says Hong Kong property prices were already 3 per cent off their February peak. The brokerage had been expecting a 10 per cent decline by the end of next year but has now revised downwards to 15 per cent for 2015, given the increase in US Treasury bond yields and the Hong Kong government's decision to bring forward the presale of units due for completion next year.
On a positive note, Wong says property prices should not fall dramatically, even if interest rates go up and housing supply rise significantly next year.
"Property prices have started a mild decline," she says. "The pricing of new projects released recently is close to or lower than that of second-hand homes. It is a signal that a correction will happen."
The rate of growth in residential prices has already slowed, rising only 4.28 per cent year-on-year to the end of July, according to the Ratings and Valuation Department. This contrasts sharply with the 18.92 per cent year-on-year increase in July 2013.
This follows four years of rapid growth when prices jumped 117.2 per cent from December 2008 to December 2012, driven higher by a flood of liquidity after the global financial crisis.
But even a late summer upswing, when August saw sales of new homes leap 82.33 per cent year-on-year to 6,212 units, has failed to boost confidence. Louie says he doubts the volume of sales can be sustained, describing home prices as "very unaffordable". He expects a 30 percent correction by the end of 2015.
In recent years, the market has been propelled upwards by measures such as strict government controls on development, tight land supply, low interest rates and currency stability. This resulted in rises for 2009 of 28.5 per cent, 21 per cent in 2010, 11.1 per cent in 2011 and 25.7 per cent in 2012.
To curb price exuberance, November 2010 saw the government introduce a 15 per cent flip tax to stop speculation, and the stamp duty was raised to 8.5 per cent on units worth HK$20 million or more.
October 2012 introduced a buyer's stamp duty of 15 per cent charged on property bought by foreigners.
In February last year, the stamp duty on purchases over HK$2 million was doubled, but that measure lasted only a little over a year and ended in May.
So what lies ahead? Analysts see a number of drivers depressing property prices next year. "The possibility for an interest rate hike to finally come in late 2015 or early 2016 is one," says Mizuho Securities Asia analyst Shen Jianguang, adding that Hong Kong's interest rate rise may lag behind that in the US by a few months, but not by more.
Increasing housing supply is another factor, after beleaguered chief executive Leung Chun-ying committed to providing 470,000 new housing units in 10 years, including public and subsidised housing. "Long-term, it's hard to achieve this goal, but it means more supply is likely in the next few years," Shen says.
Another factor will be weaker economic momentum, "especially due to weakness in the retail sector and flagging visitor numbers amid the end of the tourism-driven boom in the past four years".
On the plus side, a consumer survey by City University shows that sentiment for the property market remains strong despite the Occupy Central protests, Shen says. In addition, renting is still more expensive than buying, pushing potential buyers to enter the market for smaller units.
There's also some discounting of new housing stock by developers. "The primary market is offering new supply on the cheap compared to existing housing," Shen says. "Generally, we expect housing prices to go down by 5 per cent in 2015, but it's unlikely to be more than that."
Wednesday, November 19, 2014
4 Top Hong Kong Property Picks
Hong Kong Property Sector 2015 outlook: Be Selective
Credit Suisse
Credit Suisse
| Summary of Credit Suisse forecasts for 2015 | ||||
| % YoY changes in assumptions | Cap rate (%) | |||
| FY14 | FY15E | FY14 | FY15E | |
| Residential (price) | 7 | -15 | 3.00-4.55 | 3.25-4.80 |
| Office (rent) | 5 | 15 | 4.75 | 5 |
| Retail (rent) | 0 | 0 | 4.75 | 5 |
Price corrections likely to be pushed forward to 2015
The price fall expectations did not materialise in 2014 as a combined result of persistently low interest rate and the DSD relaxation during the year. We forecast that in 2015 residential prices will correct by 15% YoY, and office and retail rents will change by +15% and 0% YoY, respectively. We expect a cap-rate expansion of 25 bp across the residential, office and retail property assets in 2015.
Economic fundamentals intact, but unexciting (1) Employment outlook: we have noted a modest drop in job vacancies, especially in retail, hospitality and F&B sectors since 2Q13. There is a possibility of a modest increase in the unemployment rate, and this might in turn slow down the momentum of home purchases by first-time buyers and upgraders. (2) Interest rate is likely to rise from 2Q15: Credit Suisse Economics team expects interest rates might start going up in 2Q15. (3) A challenging year for retail: retail sales normalisation appears to be structural, not cyclical, along with the continued anti-corruption campaigns.
Residential supply analysis
We have carried out a detailed analysis of residential completions that will take place over 2015-20E: (1) by completion year: an average of 12,900 units p.a. of residential completions are expected over 2015-20E, with a momentary surge in completions in 2018E; (2) by developer: SHKP, CKH, and Henderson Land are the top three developers in terms of market share (by units) in 2015-20E, accounting for 51% of the total supply; (3) by district: Yuen Long, TKO, Tsuen Wan and Kai Tak are the districts with the most abundant supply, accounting for 42% of the total supply in 2015-20E, and by (4) by land acquisition year: the residential completions during 2015-17E are mostly driven by the land bought in 2012 or before. The cheaper land bought in 2013 or after would be reflected in the completions in 2018 and beyond.
Retail: Lacklustre state likely to continue
In 2015, we expect the retail rent growth momentum to further decelerate and merely stay flat YoY, as a combined result of: (1) leases signed for the aggressive expansion back in 2012-13 being due for renewals in 2015; and (2) market risks emerging from the street protests in Hong Kong; however, this could be partly offset by (i) rental renewal pressure in 2015, proxied by the magnitude of positive rental reversion staying the lowest since 2011; and (ii) a potentially two-tiered performance of street stores and shopping malls, and the outperformance of shopping malls because of their proactive management.
Stock selection. Our pecking order among sub-sectors is office landlords, followed by developers and retail landlords. Our Top Picks for 2015 are Hongkong Land ( H78.SG ), Henderson Land ( 0012.HK ), Sun Hung Kai Properties, and Wharf Holdings ( 0004.HK ).
Hongkong Land is our top pick, as we expect a rental boom in Central office in FY15.
We like Henderson Land, given its improving asset turnover, expected progress in the land conversion arbitration system, and the continuous share purchase by the chairman. We like SHKP for its quality and diversified portfolio in Hong Kong and China, and impressive execution at project launches.
Among retail landlords, we only prefer Wharf, with the ripening of its IP portfolio in China and enhanced returns upon the asset enhancement initiatives (AEI).
Other rating changes: We downgrade Link REIT ( 0823.HK ) to UNDERPERFORM(from Neutral) on a rising interest rate scenario; downgrade Hysan Development (0014.HK ) to NEUTRAL (from Outperform) amid a challenging outlook for the retail sector. The key investment risks to our calls are a quicker-than-expected turnaround in the Chinese economy and its property sector, delay in interest rate hike, and higher-than-expected market risks driven by street protests.
Valuation summary
| Hong Kong - Developer s | Ticker | Rating | Share price (HK$) | Target price (HK$) | up/down % | Market cap (US$bn) |
| Cheung Kong | 0001.HK | O | 140.4 | 161 | 15% | 42 |
| SHKP | 0016.HK | O | 116.4 | 140.64 | 21% | 41 |
| Henderson Land | 0012.HK | O | 52 | 62.48 | 20% | 20 |
| Wheelock | 0020.HK | O | 37.2 | 46.61 | 25% | 10 |
| New World Dev | 0017.HK | N | 9.7 | 10.45 | 8% | 11 |
| Sino Land | 0083.HK | O | 13 | 15.3 | 18% | 10 |
| Kerry Properties | 0683.HK | O | 26.8 | 31.63 | 18% | 5 |
Source: Credit Suisse estimates
Valuation summary
| Hong Kong - Investors/REITs | Ticker | Rating | Share price (HK$) | Target price (HK$) | up/down % | Market cap (US$bn) |
| Wharf | 0004.HK | O | 55.8 | 69.22 | 24% | 22 |
| Swire Properties | 1972.HK | N | 25.1 | 28.39 | 13% | 19 |
| HKLand (US$) | HKLD.SI | O | 6.9 | 9.09 | 31% | 16 |
| H ang Lung | 0101.HK | N | 23.2 | 25.54 | 10% | 13 |
| L ink REIT | 0823.HK | U | 48.8 | 39.05 | -20% | 14 |
| Hysan | 0014.HK | N | 36.9 | 40.07 | 9% | 5 |
| Hopewell | 0054.HK | O | 27.8 | 35.43 | 27% | 3 |
| Champion REIT | 2778.HK | O | 3.5 | 4.36 | 24% | 3 |
| Great Eagle | 0041.HK | U | 25.5 | 20.5 | -20% | 2 |
Source: Credit Suisse estimates
-- Joyce Kwok, Wayne Lee, Kelvin Tam, Jinsong Du (Analysts)
Monday, October 27, 2014
Stability will only return when Hong Kong ends its property tyranny
http://www.scmp.com/comment/insight-opinion/article/1616266/stability-will-only-return-whenhong-kong-ends-its-property?page=all
Andy Xie says Hong Kong must restructure its property market to help ordinary people - rather than milking them for the benefit of the business elite - if stability is to return
Sky-high property prices are the root cause of the ongoing social instability in Hong Kong. When the average household would have to put aside all their salary for 10 years to afford to buy the space for a bed - never mind eating and drinking, and other living expenses - or that incomes have grown by only 10 per cent in a decade, where is the hope for ordinary people, especially the young? Unless Hong Kong restructures its property market to serve the people, instead of milking them to the last drop, the city won't see stability again.
Hong Kong has been run like a medieval city state. A business elite at the top has the dominant voice on how wealth and income are created and distributed. Hong Kong's system encourages people to make money with maximum economic freedom and low taxes.
Tight land supply adds to the problem - often a result of hoarding by a few of the big boys. The banking system is structured to load people with a mountain of debt, which means people must work even harder to keep their tiny apartment.
The system worked when incomes were rising rapidly. When China was not fully open up to the world, Hong Kong had plenty of opportunities as a bridge between the two, and could charge a hefty premium for the service. After China joined the World Trade Organisation, those opportunities as a middleman vanished. Taxing people with ever higher property prices couldn't work anymore. But Hong Kong's system didn't adjust to the new reality. The ensuing instability is hurting everyone. The city's ruling elite, through uncontrollable greed, have done themselves in.
In contrast, Singapore has been run like a proper dictatorship. The system doesn't do stupid things to hurt its ruling class. It focuses its greed on foreigners and distributes the spoils among the people through good public housing, quality education and health care, and a nice pension. Most Hong Kong people seem to like Singapore.
When you think about it, medieval city states like Florence and Venice flourished using the same policies. They used strong militaries to protect their trade monopolies and, sometimes, just looted others when opportunities arose. Because their ruling elite had the wisdom to distribute the loot among all contributors, their enterprises or scams lasted for centuries. Their luck finally ran out when rising nation states built bigger militaries.
Both Hong Kong and Singapore are leftovers of the British colonial era. They have enjoyed much higher incomes than their giant neighbours by arbitraging their inefficiencies. The business model is not so different from Venice or Florence centuries ago. As their neighbours change, they must adapt to sustain their income premium. Instead of building ships or making semiconductors, Singapore has switched to casinos and private banking. Maybe these businesses don't smell so good, but they bring in the money to buy social peace.
Hong Kong hasn't adapted. When the old model doesn't work, the instinct here is to squeeze supply further. When the price is too high, let's carve a flat into several smaller ones. Wouldn't that make housing affordable? Hence, mini-flats have now become popular for speculators. But, even mini-flats are unaffordable. What's next? Should people learn to sleep standing up or hanging upside down?
The usual excuse against change is that Hong Kong doesn't have land. This is a big lie. Only 4 per cent of Hong Kong's land is given over to residential use. There is the same amount of reserved development land, and big developers hold a considerable chunk of it. Singapore has been developing mainly on reclaimed land. It has a real physical shortage, but has kept public housing cheap and spacious. Land isn't a constraint to Hong Kong's development.
What stands in the way is Hong Kong's ruling elite, a leftover from the colonial era, hanging onto the old model no matter what. Since they don't have other sources of competitiveness, changing would mean the end to their privileged status. This is why meaningful change won't happen through consultation among the elite. Some force has to impose the change. If Beijing wants stability in Hong Kong, it must focus on property, which means ditching its business friends.
In addition to artificially controlled land supply, interest rates play a role in the price cycle. But this confuses the debate. The interest rate cycle introduces volatility. So, if the US Federal Reserve raises rates to 3 per cent within three years, Hong Kong's property prices may fall by 50 per cent over that time.
Yet housing still wouldn't be affordable. When the price begins to fall suddenly, the debate will surely shift, and political support for limiting supply will return. Hong Kong could repeat the cycle.
Ruling Hong Kong requires a long-term vision, not the zig-zagging we've seen since the handover. During the Asian financial crisis, Hong Kong abandoned its expanded, but still modest, public housing programme, laying the seeds for today's instability. Policy responses now should focus not only on short-term issues.
Thursday, October 16, 2014
Hong Kong Home Prices Seen Firm as Volume Drops Amid Protests
http://www.bloomberg.com/news/2014-10-16/hong-kong-home-prices-seen-firm-as-volume-drops-amid-protests.html
Hong Kong’s existing home transactions dropped amid pro-democracy protests now in the third week. Prices are holding firm.
The number of homes changing hands fell about 20 percent so far this month, compared with the same period in September, as buyers and sellers become more cautious, according to Sammy Po, residential chief executive at realtor Midland Holdings Ltd. While some homeowners have been more willing to accept prices cuts of as much as 3 percent since the protests began, most haven’t budged, Po said.
Home prices, which hit new highs last month, won’t be significantly affected by the political standoff that saw as many as 200,000 protesters occupy Hong Kong’s key roadways, said property broker Savills Plc. Homeowners aren’t in a hurry to offload their properties, even as some potential buyers are deterred by the city’s political uncertainties, according to Citigroup Inc.
“It’s a normal reaction for people to take a wait-and-see approach,” said Wong Leung-sing, an associate research director at Centaline Property Agency Ltd., Hong Kong’s largest privately held realtor.
Existing home prices, tracked by Centaline, dropped 0.4 percent in the week ended Oct. 5 after the protests started on Sept. 26. Prices, which declined as much as 5.2 percent since the government doubled a property tax in February last year, have rebounded 7.3 percent this year.
Forecast Cut
Protesters are demanding elections of Hong Kong’s chief executive free from the influence of China in 2017. The rally that started outside the government headquarters has spread to main arteries in the city’s main business district and prime shopping areas, and has prompted Bank of America Corp. to cut its economic growth forecast for Hong Kong this year.
“If it persists and worsens, it will affect people’s livelihood and the economy,” said Midland’s Po. “Then the weakened purchasing power will affect the property market.”
The chance of the movement seriously disrupting Hong Kong’s economy is slim whereas the probability of rising interest rates is much higher and likely to have a greater impact on housing demand, said Nicole Wong, regional property research head at CLSA Ltd.
Hong Kong rates track those in the U.S. because the local currency is pegged to the U.S. dollar.
“The market will likely remain in its current state -- rising prices amid low volume -- until rates increase,” said Wong, who called for home prices to drop 10 percent next year and a further 5 percent in 2016.
Political Outlook
Three projects have been offered by developers since the start of the protests, including a 1,092-unit project by New World Development Co. (17) and Henderson Land Development Co. (12) All three have had “decent sell-through rates,” Ken Yeung and Oscar Choi, Citigroup analysts, wrote in an Oct. 14 note.
The Hang Seng Property Index tracking returns of nine developer stocks, declined 1.9 percent since Sept. 26, compared with the 2.8 percent drop in the benchmark index.
Developers have lured buyers from the existing home market with discounts and subsidies, narrowing the premium that usually is paid for new flats, since the government slapped on three rounds of taxes aimed to control surging prices. New World, for example, offers as much as a 6 percent cash discount as well as rebates on property taxes at its Pavilia Hill residential development, one subway stop from the prime shopping district of Causeway Bay.
The protest movement “isn’t particularly germane to prices or volume,” said Simon Smith, senior director of research and consultancy at Savills, citing government measures as the main damper on transactions. “We’ll have to reconsider if the disruptions last considerably longer. As yet, it’s far too early to say.”
To contact the reporter on this story: Michelle Yun in Hong Kong at myun11@bloomberg.net
To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net Tomoko Yamazaki
Hong Kong’s existing home transactions dropped amid pro-democracy protests now in the third week. Prices are holding firm.
The number of homes changing hands fell about 20 percent so far this month, compared with the same period in September, as buyers and sellers become more cautious, according to Sammy Po, residential chief executive at realtor Midland Holdings Ltd. While some homeowners have been more willing to accept prices cuts of as much as 3 percent since the protests began, most haven’t budged, Po said.
Home prices, which hit new highs last month, won’t be significantly affected by the political standoff that saw as many as 200,000 protesters occupy Hong Kong’s key roadways, said property broker Savills Plc. Homeowners aren’t in a hurry to offload their properties, even as some potential buyers are deterred by the city’s political uncertainties, according to Citigroup Inc.
“It’s a normal reaction for people to take a wait-and-see approach,” said Wong Leung-sing, an associate research director at Centaline Property Agency Ltd., Hong Kong’s largest privately held realtor.
Existing home prices, tracked by Centaline, dropped 0.4 percent in the week ended Oct. 5 after the protests started on Sept. 26. Prices, which declined as much as 5.2 percent since the government doubled a property tax in February last year, have rebounded 7.3 percent this year.
Forecast Cut
Protesters are demanding elections of Hong Kong’s chief executive free from the influence of China in 2017. The rally that started outside the government headquarters has spread to main arteries in the city’s main business district and prime shopping areas, and has prompted Bank of America Corp. to cut its economic growth forecast for Hong Kong this year.
“If it persists and worsens, it will affect people’s livelihood and the economy,” said Midland’s Po. “Then the weakened purchasing power will affect the property market.”
The chance of the movement seriously disrupting Hong Kong’s economy is slim whereas the probability of rising interest rates is much higher and likely to have a greater impact on housing demand, said Nicole Wong, regional property research head at CLSA Ltd.
Hong Kong rates track those in the U.S. because the local currency is pegged to the U.S. dollar.
“The market will likely remain in its current state -- rising prices amid low volume -- until rates increase,” said Wong, who called for home prices to drop 10 percent next year and a further 5 percent in 2016.
Political Outlook
Three projects have been offered by developers since the start of the protests, including a 1,092-unit project by New World Development Co. (17) and Henderson Land Development Co. (12) All three have had “decent sell-through rates,” Ken Yeung and Oscar Choi, Citigroup analysts, wrote in an Oct. 14 note.
The Hang Seng Property Index tracking returns of nine developer stocks, declined 1.9 percent since Sept. 26, compared with the 2.8 percent drop in the benchmark index.
Developers have lured buyers from the existing home market with discounts and subsidies, narrowing the premium that usually is paid for new flats, since the government slapped on three rounds of taxes aimed to control surging prices. New World, for example, offers as much as a 6 percent cash discount as well as rebates on property taxes at its Pavilia Hill residential development, one subway stop from the prime shopping district of Causeway Bay.
The protest movement “isn’t particularly germane to prices or volume,” said Simon Smith, senior director of research and consultancy at Savills, citing government measures as the main damper on transactions. “We’ll have to reconsider if the disruptions last considerably longer. As yet, it’s far too early to say.”
To contact the reporter on this story: Michelle Yun in Hong Kong at myun11@bloomberg.net
To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net Tomoko Yamazaki
Saturday, October 11, 2014
The end of the Hong Kong 'dream'
http://www.aljazeera.com/indepth/features/2014/10/end-hong-kong-dream-201410592243801352.html
Students say connections to the mainland have supplanted meritocracy where good jobs and university spots are concerned.
Hong Kong, China - It used to be a place where anyone who worked hard, excelled in school and possessed an entrepreneurial spirit could rise above their parents' hardship to a better life. That was the Hong Kong dream.
Today, that dream has become a mirage - where meritocracy is seen to be supplanted by business and political connections, where good jobs and university places are keenly contested by the mainland Chinese. Young people in Hong Kong fear they are losing out as the playing field tilts increasingly towards China.
The tens of thousands of people protesting on the streets are not just fighting for democratic reform, they are also struggling for their economic survival in the former British territory returned to China in 1997.
"After 1997, you have to have good connections to get a good job. This is not an equal opportunity society anymore," said 54-year-old Jason Wong, a retired investment banker. "The rich and those in power have a better chance."
The son of a grocery store worker, Wong said he was able to move up in life through hard work and diligence because "social mobility was still easy during his time".
"I come from a poor family. During my generation, if you work hard, you can fight all the way to the top and accumulate your own assets. Everyone has an equal chance to fight for what they aim for," said Wong.
But it is not so now for many in the next generation.
"It is very difficult to move up now," said 27-year-old Bonnie Chau, a secretary who has been demonstrating since the start of the protests. To get a better salary, Chau is studying for a master's degree in corporate governance by attending night classes at the Chinese University of Hong Kong.
Cherished dream
One in five Hong Kong residents, or about 1.3 million people, live under the poverty line, according to government figures.
In a society where families cram into tiny apartments, owning a home is a cherished dream for many young people. But property prices on Hong Kong island, home to some 1.2 million people, are the third-most-expensive in the world after Monaco and London, according to the Global Property Guide website.
"When you don't have a good career, a good property, how can you be loyal to this city?" asked Wong.
Soaring property prices and land shortages, coupled with buying sprees and speculation by rich mainland Chinese, have pushed the cost of an apartment beyond the reach of many here. With starting salaries for new graduates at about $12,000 Hong Kong dollars (US$1,500) a month, it is almost impossible for young people to purchase their own homes.
"After sending money home to my parents, pay the rent, tuition fees and the high cost of living, I have no money to save for the future," says Chau. "An apartment costs around $7m HK [US$900,000]. How can I buy one? I can't even pay for the deposit."
The "one country, two systems" formula agreed on when Britain gave control of Hong Kong to China guarantees the region a high degree of autonomy and freedoms not enjoyed in mainland China, with the right of Hong Kongers to choose their leader set as an eventual goal.
"That is why it is critical for us to be here to fight. We are not seeking independence. We know we are part of China. But we are different from China," said a 24-year-old student who works and studies at the same time. He has ties to the mainland, and asked not to be identified by name.
"We have an independent judiciary and a free press. We are just asking what was promised to us. If we don't fight, we will become just like another city in China."
The mainland moves in
Hong Kong is the world's most service-oriented economy, with the service sector accounting for more than 90 percent of GDP in an economy valued at US$272.5bn in 2013, according to the Hong Kong Trade Development Council.
Since Hong Kong returned to China in 1997, many mainland Chinese companies have listed on the Hong Kong Stock Exchange.
A total of 1,716 companies are listed on Hong Kong's mainboard - Asia's second-largest - and the Growth Market Enterprise, an alternative stock market. Of these, 854, or 49.8 percent, are mainland Chinese companies.
Willy Wo-lap Lam, a China scholar at the Chinese University of Hong Kong, told Al Jazeera that mainland businesses were slowly pushing out Hong Kong businesses.
"This is happening gradually but relentlessly," says Lam. "So they are gradually controlling the economy and they are edging out the local companies. Within 10 to 20 years, it will be totally dominated by PRC [People's Republic of China] companies."
Al Jazeera contacted the Chinese General Chamber of Commerce and pro-business The Better Hong Kong Foundation for comment, but received no response.
Many students Al Jazeera talked to said it is difficult to get a good job with companies based on China's mainland.
"Employment for Hong Kong youngsters is getting more difficult. These mainland companies keep exporting elites from China to Hong Kong to work," said a 21-year-old student, who requested anonymity because his parents are civil servants and he did not want reprisals against them.
"We know the door is shutting on us. It is so clear for us to see."
Saturday, September 13, 2014
Demand for small flats drives Hong Kong market to new high
http://www.scmp.com/property/hong-kong-china/article/1585833/hong-kong-property-rent-prices-hit-record-july?page=all
Strong demand for small flats helped push Hong Kong property prices to a fresh high for the third consecutive month in July, with analysts expecting gains to continue in the coming months.
The Rating and Valuation Department's monthly price index for private homes climbed to a record 255.6 in July, 2.2 per cent higher than in June.
It cost an average of HK$5.06 million to buy a 431-square-foot flat on Hong Kong Island in July, compared with HK$4.9 million in March. A flat of that size in Kowloon fetched HK$4.18 million, some 8.8 per cent higher than HK$3.84 million in March.
In the New Territories the average price of a flat of that size rose to HK$3.7 million from HK$3.4 million in March.
The rental index rose to 157.7 in July, 0.32 per cent higher than the previous peak of 157.2 set in November last year.
"Property price growth may continue until the end of October or November," independent economist Kwan Cheuk-chiu said. "The government should release a new round of cooling measures in the property market. Otherwise, prices will continue to go up and the property bubble will burst."
The new round of property price rises has been driven by interest in small flats.
The prices of flats smaller than 430 sq ft gained the most in July, with a month-on-month increase of 2.5 per cent. The increase for flats ranging from 431 to 752 sq ft was 2.3 per cent, while flats of 753 to 1,075 sq ft went up 0.89 per cent.
The rental market for smaller flats was also strong. A 35-year-old, 311 sq ft fully furnished unit in Lockhart House, close to Causeway Bay MTR station, is being offered at HK$15,800 a month, or HK$50.80 per sq ft.
That is on a par with a studio flat in central London or a one-bedroom flat in New York's Upper East Side, according to property search engines.
"Rents are going up fast, particularly for small units as they are targeting young professionals," said an agent at Fook Tin Property Agency.
The Centa-City leading index showed that property prices on Hong Kong Island and in New Territories East hit new records for the week of August 25 to 31, after prices in Kowloon and New Territories West hit record highs the previous week.
Prices have also been given a boost since the government eased some of the terms of its doubling of stamp duty in June.
"It was good that the government revised the terms," Kwan said.
"However, it gave a wrong signal to the market that the government will probably relax cooling measures instead of introducing new measures."
Monday, August 25, 2014
Why property is Hong Kong's national sport
Bernie Lo | @cnbcbernie | http://www.cnbc.com/id/101928585
"14 Years To Buy a Flat!" the newspaper headline screamed after the Chinese University of Hong Kong's housing affordability index hit an all-time low. In 2002, a household would need 5 years' savings to buy a modest 40 square meter flat, the survey showed; today they would need 14 years' savings. Hong Kong consistently ranks among the world's most expensive property markets. A series of policy decisions since the 1980s illustrates why Hong Kong was headed down this path from the start.
Pegged for trouble
The modern functioning real estate market only dates back to 1983, when the Government pressured banks into introducing long-term mortgage financing instruments. Before that no true mortgages existed, only short-term funding of 3-5 years. 1983 was also the year the Hong Kong dollar came under tremendous speculative attack and the administration opted to peg it to the U.S. dollar. The peg, which still exists, contributed to massive volatility over that period.
The peg has meant that Hong Kong has no independent monetary policy. It is hostage to the U.S. Federal Reserve; the Hong Kong Monetary Authority (HKMA) has no control over interest rates. At many times, the prevailing rates here have been at great odds with what is needed. For instance, while the U.S. economy may be soft and need low rates, Hong Kong could be bursting with economic activity and because of the peg, experiencing an inordinately low rate environment.
Read More Hong Kong to launch gateway to China stock market
In 1990 the U.S. entered a recession and interest rates were cut; this conversely boosted asset prices in Hong Kong whose economy was fine, and property prices began a multi-year climb. By the mid-90's, to make sure confidence was high ahead of the 1997 handover, money poured in from China and much of it found its way into real estate. By the time the handover arrived, Hong Kong's property market had skyrocketed; an average 115 percent of household income was paying for housing, clearly an unsustainable situation.
Then Thailand devalued its currency and the Asian Financial Crisis raged – currencies crashed, markets careened. Other countries could adjust and cut rates as needed, but Hong Kong, tethered by the peg, was choked. Interest rates could not be adjusted downward. Within a year and a half, property prices had crashed by 45 percent. Subsequent years brought some relief, but then SARS turned Hong Kong into a ghost town in 2003, and prices resumed their descent, now down 60 percent from their all-time highs in 1997.
Easy money boost
What goes down will come up though, and later, U.S. Fed Chairman Ben Bernanke's free and easy money policy was a booster injection for property. Mortgage rates hit lows well below 1 percent during the quantitative easing (QE) process, and even now are only at around 2.5 percent. Many blamed an influx of Chinese money for pumping up prices, but Chinese buyers have never accounted for more than around a tenth of total sales. Furthermore, they focused on the extreme luxury segment of the market.
The government, sensing creeping public outrage, resorted to draconian measures a couple years ago, including doubling the stamp duty (property transaction tax) on many buyers, mainly non-Permanent residents, in order to cool the market, and raised the down payment requirements, in some cases to 60 percent of the sales price. Transaction volumes fell by two-thirds. But prices have only eased about 5 percent.
Activity in recent months has picked up again, as developers learned that by discounting prices in order to compensate for higher down payments and stamp duties, there was plenty of pent-up demand. You now regularly see surveys and studies showing the property market frothier than it ever was even in the go-go days of the late 90's.
Read More Is China property done dirt cheap?
There are many unknowns: when will the Fed actually begin raising rates again after shutting QE, and how will an expected slowdown in the Chinese economy impact HK?
There's also one overhang that cannot be overlooked that dates from the Shek Kip Mei fire of 1953 which destroyed massive shantytowns of mostly Chinese immigrants. The British governor at the time decided to embark on a massive construction program to rehouse those left homeless and marked the beginning of Hong Kong's public housing experiment. Since that time, government-provided rental and subsidized purchase property has come to comprise nearly 50 percent of total housing stock, meaning the government is landlord to half of Hong Kong, leaving the other half to fight it out in the private market. Simple economics tells you that a synthetically shrunken supply will only lead to higher prices.
Saturday, August 2, 2014
Hong Kong Popping Housing Bubbles London Can’t Handle
http://www.bloomberg.com/news/2014-07-29/singapore-popping-housing-bubbles-london-can-t-handle.html
Take a look at the world’s dizzying surges in the price of housing for 12 months at the end of June: London, up 20 percent. Manhattan, 18 percent. Sydney, 15.4 percent.
Then there are Singapore and Hong Kong: down 3.7 percent and 0.6 percent.
Prompted by concerns over potential property bubbles and affordability for the middle class, the governments of the two Asian cities have been reining in home prices by imposing measures including mortgage caps, taxes on property flippers, and levies on foreign buyers as high as 15 percent.
“Hong Kong has successfully cooled down the market in terms of transactions and turnover,” said Raymond Yeung, senior economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “Singapore has been more effective.”
So could New York, London and other global cities facing soaring housing prices pull off the same act?
Not really. Hong Kong and Singapore’s island geographies, preponderance of public housing resulting in two-tier housing markets and citizens willing to tolerate government directives make the cities unique, according to academics and researchers. London and New York have nowhere near the same level of control over their economies and the behavior of their residents.
Having Clout
Singapore and Hong Kong, as a special administrative region of China, have governments with policy-making power over their entire geographic areas, where they are relatively free of political opposition from neighborhood groups or borough councils that stymie directives or mitigate their effectiveness. The Asian cities control the land supply and are the biggest landlords.
That allows them to implement decisive policy measures. For example, in January 2013, the Monetary Authority of Singapore, effectively the central bank and chief regulator, cut the mortgage ratio allowable on purchases of second homes while more than doubling minimum down payments from 10 percent to 25 percent. The banks had no choice but to follow.
“Imagine doing something like this in the U.S. where there are 7,000 banks and many regulators,” said Sumit Agarwal, a professor in economics, finance and real estate at the National University of Singapore. “It’s a nightmare from the policy point of view and would be impossible.”
Hong Kong and Singapore haven’t shied away from using taxes to discriminate against foreign buyers -- something other locales with surging prices have yet to do. Non-permanent residents in both cities are subject to an additional 15 percent tax when they buy property, except in Singapore where Americans are exempted by treaty.
Free-Market
While such actions may seem contradictory to the cities’ stated free-market principles, “affordable housing is part of the legitimacy of any government, and government has a role to play in intervening in the market in periods where there are extreme circumstances,” said Michael Klibaner, who heads Greater China research at real estate firm Jones Lang LaSalle Inc. in Hong Kong.
The U.K. government has tried some measures. After it increased the stamp duty to 7 percent on high-value properties in March 2012, price increases for homes valued from 5 million pounds to 10 million pounds ($8.5 million to $17 million) slowed from 9.7 percent to 5.8 percent in the subsequent year, according to broker Knight Frank LLP.
Bank of England Governor Mark Carney announced another set of measures last month, citing concerns over household indebtedness and the threat of a property bubble. They limit mortgages to less than 4.5 times a borrowers’ annual income and require banks to refuse loans to those failing to prove they could afford a 3 percentage-point rise in interest rates.
Stagnant Prices
They may be working. Prices in the capital stagnated in July, the first month with no growth since December 2012.
Meanwhile, the opposition Labour Party has backed away from a call for a flat tax on properties worth more than 2 million pounds, instead suggesting taxes that rise the more expensive a property is, if they win next year’s U.K. national election.
Labour’s Treasury spokesman, Ed Balls, writing in the London Evening Standard newspaper, suggested a lower band for homes valued at between 2 million pounds and 5 million pounds. Further bands would go up to 10 million pounds and 20 million pounds, with the top rate levied on properties above 20 million pounds. The thresholds would increase in line with average house prices.
Least likely to be deterred are well-heeled buyers from Russia, the Middle East and Asia looking to park their money in tony London neighborhoods, the ones who have helped drive up the prices, said Matthew Pointon, a property economist at Capital Economics Ltd. in London.
“Wealthy people who buy these houses just pay it,” said Pointon, adding that the government isn’t interested in discouraging the influx of money. “The government is always very keen to portray London as open for business to the world.”
Preferential Treatment
Foreigners in Britain enjoy preferential tax treatment over locals, as they are currently exempt from paying capital gains. This benefit will cease when new legislation takes effect in April bringing the U.K. into line with the U.S. and Australia which charge capital gains on non-residents. (Hong Kong has no capital gains tax while Singapore taxes non- residents.)
In Australia, foreigners bought a record 14 percent of new properties in the first three months of the year, based on a survey of property professionals by National Australia Bank Ltd.
In New York, there’s not much likelihood of foreign buyers facing additional costs, said Jones Lang LaSalle’s Klibaner, a native New Yorker.
“If you live in Manhattan, you aren’t going to blame the government for bad policies or become a xenophobe because too many rich Chinese and Russians are buying apartments on Central Park,” he said. “When you want to get on the property ladder, you start in Queens or Brooklyn or New Jersey.”
Election Issue
Still, affordability is very much on middle-class voters’ minds. New York Mayor Bill de Blasio, a self-described progressive who took office in January on a promise of creating more homes New Yorkers can afford, unveiled a plan in May to try to do it.
“This is the first local election in a long time where housing affordability came to the forefront,” said Christopher Mayer, Paul Milstein Professor of Real Estate, Finance and Economics at New York’s Columbia Business School. “This is going to happen in more places.”
The dominance of the private sector in the housing markets of New York and London also leaves them with less leverage than their counterparts in Asia. More than 80 percent of Singapore residents live in government-built flats, according to the website of the city’s Housing & Development Board.
Of those living in Singapore’s public housing, more than 90 percent own their apartments, the result of government policy promoting home ownership through a combination of cheap loans, housing grants and a program that allows buyers to use accumulated government pension contributions for purchases.
Public housing doesn’t carry a stigma in Singapore, where most is located in master-planned towns, with schools, sports and medical facilities in landscaped surroundings.
Laissez-Faire
While Hong Kong may rank No. 1 on the Cato Institute’s global ranking of free economies, its housing policy is anything but laissez-faire. The government auctions its land to developers to trickle out new housing stock when it wants to increase supply. It also owns 76 percent of MTR Corp. (66), the subway operator that is one of the city’s biggest property developers.
“Supply is so limited in both cities, the government is all powerful when it comes to land issues,” said Eddie Hui, a real estate professor at Hong Kong Polytechnic University. “They can be more heavy-handed.”
Foreign Suburbs
Singapore is about two-thirds the size of New York City, and Hong Kong is about 30 percent bigger. Unlike Manhattan, where residents can move to cheaper boroughs or nearby states, the far-flung suburbs of Singapore and Hong Kong are in other countries beyond their borders. (Some Singaporeans have bought homes in neighboring Malaysia, which requires a passport-control stop and a two-hour drive when traffic is heavy to reach the business district.)
“In Hong Kong and Singapore there’s nowhere else to go, so regulation is almost essential if you have a fixed supply of land,” said Columbia’s Mayer.
Singapore began introducing curbs in 2009 after home prices climbed 25 percent in two years through 2008. It stepped up with stricter measures in 2013, including a cap on mortgage payments at 60 percent of a borrower’s monthly income, higher stamp duties and an increase in real estate taxes.
In 2009, when property prices were plunging across the U.S., Hong Kong’s housing market was going into overdrive. A combination of record-low interest rates, a lack of alternative desirable investments due to a lackluster stock market and a flood of mainland buyers plunking down cash for properties sent prices soaring.
Chinese Buyers
Hong Kong began introducing a string of progressively stronger measures starting in November 2010, including a flip tax of 15 percent on properties resold within six months, and a doubling of stamp duties to 8.5 percent on properties worth HK$20 million ($2.6 million) or more.
It also slapped a 15 percent tax on purchases of homes by non-local buyers and companies, a policy aimed to deter mainland Chinese buyers whom many Hong Kong residents blamed for soaring prices.
After climbing 115 percent since January 2008, prices started dropping in the second quarter of 2013. The share of mainland buyers of luxury properties, defined as homes worth more than HK$12 million, fell from 34 percent in the third quarter of 2012 to 13 percent a year later, according to research by Centaline Property Agency in Hong Kong.
Least Affordable
Still, prices on Hong Kong island, roughly the size of Manhattan where about 1.2 million people live, are the third-most expensive in the world after Monaco and London, at $1,920 per square foot, according to the Global Property Guide website. While housing costs about half as much in the northernmost New Territories, where more than half of Hong Kong’s 7.2 million residents live, prices there rose 140 percent from 2008 through 2012.
For all Hong Kong’s successes, it remains the world’s most-unaffordable housing market, with a median home price 14.9 times gross annual median household income, according to a survey released in January by Demographia, a consulting firm in Belleville, Illinois. Singapore was given the survey’s highest rank, “severely unaffordable,” while Knight Frank’s annual wealth report placed it as No. 2 most-unaffordable in the world.
Singapore’s correction looks set to continue. After prices slid for a third consecutive quarter to June, Finance Minister Tharman Shanmugaratnam this month predicted further declines.
Less Bearish
In Hong Kong, analysts are revising previously bearish forecasts. JPMorgan & Chase Co. in a June 4 report predicts a further 5 percent drop in secondary home prices this year compared with an earlier forecast of a 20 percent decline. Citigroup Inc. said June 3 it expects prices of mass-market homes to stay flat.
Things may be picking up. Prices have climbed about 4 percent in the seven weeks since the beginning of June, according to Centaline.
The slump in Hong Kong housing prices may be illusory because transactions have all but dried up as buyers wait on the sidelines for recovery, says ANZ’s Yeung.
“It looks effective on the surface, but this is only depressed demand,” he said.
Meanwhile, the government is taking measures to increase supply. In January, it announced a policy target of 470,000 additional housing units over 10 years for both public and private housing.
Hong Kong isn’t entirely without resistance. In June, an angry mob forced its way into the Legislative Council to protest a plan to relocate villages to make way for high rises.
“Governments in Hong Kong or the U.K. or China all have the same dilemma,” said Hui, the Hong Kong Polytechnic professor. “Home prices are high, and we all know we have to do something. But when they announce measures against our interests we tell them to do it in someone else’s backyard.”
Ultimately, markets may play a greater role in solving the problem of rising prices once global interest rates start rising. At that time, said ANZ’s Yeung, “the global housing bubble, or boom, will come to an end.”
Take a look at the world’s dizzying surges in the price of housing for 12 months at the end of June: London, up 20 percent. Manhattan, 18 percent. Sydney, 15.4 percent.
Then there are Singapore and Hong Kong: down 3.7 percent and 0.6 percent.
Prompted by concerns over potential property bubbles and affordability for the middle class, the governments of the two Asian cities have been reining in home prices by imposing measures including mortgage caps, taxes on property flippers, and levies on foreign buyers as high as 15 percent.
“Hong Kong has successfully cooled down the market in terms of transactions and turnover,” said Raymond Yeung, senior economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “Singapore has been more effective.”
So could New York, London and other global cities facing soaring housing prices pull off the same act?
Not really. Hong Kong and Singapore’s island geographies, preponderance of public housing resulting in two-tier housing markets and citizens willing to tolerate government directives make the cities unique, according to academics and researchers. London and New York have nowhere near the same level of control over their economies and the behavior of their residents.
Having Clout
Singapore and Hong Kong, as a special administrative region of China, have governments with policy-making power over their entire geographic areas, where they are relatively free of political opposition from neighborhood groups or borough councils that stymie directives or mitigate their effectiveness. The Asian cities control the land supply and are the biggest landlords.
That allows them to implement decisive policy measures. For example, in January 2013, the Monetary Authority of Singapore, effectively the central bank and chief regulator, cut the mortgage ratio allowable on purchases of second homes while more than doubling minimum down payments from 10 percent to 25 percent. The banks had no choice but to follow.
“Imagine doing something like this in the U.S. where there are 7,000 banks and many regulators,” said Sumit Agarwal, a professor in economics, finance and real estate at the National University of Singapore. “It’s a nightmare from the policy point of view and would be impossible.”
Hong Kong and Singapore haven’t shied away from using taxes to discriminate against foreign buyers -- something other locales with surging prices have yet to do. Non-permanent residents in both cities are subject to an additional 15 percent tax when they buy property, except in Singapore where Americans are exempted by treaty.
Free-Market
While such actions may seem contradictory to the cities’ stated free-market principles, “affordable housing is part of the legitimacy of any government, and government has a role to play in intervening in the market in periods where there are extreme circumstances,” said Michael Klibaner, who heads Greater China research at real estate firm Jones Lang LaSalle Inc. in Hong Kong.
The U.K. government has tried some measures. After it increased the stamp duty to 7 percent on high-value properties in March 2012, price increases for homes valued from 5 million pounds to 10 million pounds ($8.5 million to $17 million) slowed from 9.7 percent to 5.8 percent in the subsequent year, according to broker Knight Frank LLP.
Bank of England Governor Mark Carney announced another set of measures last month, citing concerns over household indebtedness and the threat of a property bubble. They limit mortgages to less than 4.5 times a borrowers’ annual income and require banks to refuse loans to those failing to prove they could afford a 3 percentage-point rise in interest rates.
Stagnant Prices
They may be working. Prices in the capital stagnated in July, the first month with no growth since December 2012.
Meanwhile, the opposition Labour Party has backed away from a call for a flat tax on properties worth more than 2 million pounds, instead suggesting taxes that rise the more expensive a property is, if they win next year’s U.K. national election.
Labour’s Treasury spokesman, Ed Balls, writing in the London Evening Standard newspaper, suggested a lower band for homes valued at between 2 million pounds and 5 million pounds. Further bands would go up to 10 million pounds and 20 million pounds, with the top rate levied on properties above 20 million pounds. The thresholds would increase in line with average house prices.
Least likely to be deterred are well-heeled buyers from Russia, the Middle East and Asia looking to park their money in tony London neighborhoods, the ones who have helped drive up the prices, said Matthew Pointon, a property economist at Capital Economics Ltd. in London.
“Wealthy people who buy these houses just pay it,” said Pointon, adding that the government isn’t interested in discouraging the influx of money. “The government is always very keen to portray London as open for business to the world.”
Preferential Treatment
Foreigners in Britain enjoy preferential tax treatment over locals, as they are currently exempt from paying capital gains. This benefit will cease when new legislation takes effect in April bringing the U.K. into line with the U.S. and Australia which charge capital gains on non-residents. (Hong Kong has no capital gains tax while Singapore taxes non- residents.)
In Australia, foreigners bought a record 14 percent of new properties in the first three months of the year, based on a survey of property professionals by National Australia Bank Ltd.
In New York, there’s not much likelihood of foreign buyers facing additional costs, said Jones Lang LaSalle’s Klibaner, a native New Yorker.
“If you live in Manhattan, you aren’t going to blame the government for bad policies or become a xenophobe because too many rich Chinese and Russians are buying apartments on Central Park,” he said. “When you want to get on the property ladder, you start in Queens or Brooklyn or New Jersey.”
Election Issue
Still, affordability is very much on middle-class voters’ minds. New York Mayor Bill de Blasio, a self-described progressive who took office in January on a promise of creating more homes New Yorkers can afford, unveiled a plan in May to try to do it.
“This is the first local election in a long time where housing affordability came to the forefront,” said Christopher Mayer, Paul Milstein Professor of Real Estate, Finance and Economics at New York’s Columbia Business School. “This is going to happen in more places.”
The dominance of the private sector in the housing markets of New York and London also leaves them with less leverage than their counterparts in Asia. More than 80 percent of Singapore residents live in government-built flats, according to the website of the city’s Housing & Development Board.
Of those living in Singapore’s public housing, more than 90 percent own their apartments, the result of government policy promoting home ownership through a combination of cheap loans, housing grants and a program that allows buyers to use accumulated government pension contributions for purchases.
Public housing doesn’t carry a stigma in Singapore, where most is located in master-planned towns, with schools, sports and medical facilities in landscaped surroundings.
Laissez-Faire
While Hong Kong may rank No. 1 on the Cato Institute’s global ranking of free economies, its housing policy is anything but laissez-faire. The government auctions its land to developers to trickle out new housing stock when it wants to increase supply. It also owns 76 percent of MTR Corp. (66), the subway operator that is one of the city’s biggest property developers.
“Supply is so limited in both cities, the government is all powerful when it comes to land issues,” said Eddie Hui, a real estate professor at Hong Kong Polytechnic University. “They can be more heavy-handed.”
Foreign Suburbs
Singapore is about two-thirds the size of New York City, and Hong Kong is about 30 percent bigger. Unlike Manhattan, where residents can move to cheaper boroughs or nearby states, the far-flung suburbs of Singapore and Hong Kong are in other countries beyond their borders. (Some Singaporeans have bought homes in neighboring Malaysia, which requires a passport-control stop and a two-hour drive when traffic is heavy to reach the business district.)
“In Hong Kong and Singapore there’s nowhere else to go, so regulation is almost essential if you have a fixed supply of land,” said Columbia’s Mayer.
Singapore began introducing curbs in 2009 after home prices climbed 25 percent in two years through 2008. It stepped up with stricter measures in 2013, including a cap on mortgage payments at 60 percent of a borrower’s monthly income, higher stamp duties and an increase in real estate taxes.
In 2009, when property prices were plunging across the U.S., Hong Kong’s housing market was going into overdrive. A combination of record-low interest rates, a lack of alternative desirable investments due to a lackluster stock market and a flood of mainland buyers plunking down cash for properties sent prices soaring.
Chinese Buyers
Hong Kong began introducing a string of progressively stronger measures starting in November 2010, including a flip tax of 15 percent on properties resold within six months, and a doubling of stamp duties to 8.5 percent on properties worth HK$20 million ($2.6 million) or more.
It also slapped a 15 percent tax on purchases of homes by non-local buyers and companies, a policy aimed to deter mainland Chinese buyers whom many Hong Kong residents blamed for soaring prices.
After climbing 115 percent since January 2008, prices started dropping in the second quarter of 2013. The share of mainland buyers of luxury properties, defined as homes worth more than HK$12 million, fell from 34 percent in the third quarter of 2012 to 13 percent a year later, according to research by Centaline Property Agency in Hong Kong.
Least Affordable
Still, prices on Hong Kong island, roughly the size of Manhattan where about 1.2 million people live, are the third-most expensive in the world after Monaco and London, at $1,920 per square foot, according to the Global Property Guide website. While housing costs about half as much in the northernmost New Territories, where more than half of Hong Kong’s 7.2 million residents live, prices there rose 140 percent from 2008 through 2012.
For all Hong Kong’s successes, it remains the world’s most-unaffordable housing market, with a median home price 14.9 times gross annual median household income, according to a survey released in January by Demographia, a consulting firm in Belleville, Illinois. Singapore was given the survey’s highest rank, “severely unaffordable,” while Knight Frank’s annual wealth report placed it as No. 2 most-unaffordable in the world.
Singapore’s correction looks set to continue. After prices slid for a third consecutive quarter to June, Finance Minister Tharman Shanmugaratnam this month predicted further declines.
Less Bearish
In Hong Kong, analysts are revising previously bearish forecasts. JPMorgan & Chase Co. in a June 4 report predicts a further 5 percent drop in secondary home prices this year compared with an earlier forecast of a 20 percent decline. Citigroup Inc. said June 3 it expects prices of mass-market homes to stay flat.
Things may be picking up. Prices have climbed about 4 percent in the seven weeks since the beginning of June, according to Centaline.
The slump in Hong Kong housing prices may be illusory because transactions have all but dried up as buyers wait on the sidelines for recovery, says ANZ’s Yeung.
“It looks effective on the surface, but this is only depressed demand,” he said.
Meanwhile, the government is taking measures to increase supply. In January, it announced a policy target of 470,000 additional housing units over 10 years for both public and private housing.
Hong Kong isn’t entirely without resistance. In June, an angry mob forced its way into the Legislative Council to protest a plan to relocate villages to make way for high rises.
“Governments in Hong Kong or the U.K. or China all have the same dilemma,” said Hui, the Hong Kong Polytechnic professor. “Home prices are high, and we all know we have to do something. But when they announce measures against our interests we tell them to do it in someone else’s backyard.”
Ultimately, markets may play a greater role in solving the problem of rising prices once global interest rates start rising. At that time, said ANZ’s Yeung, “the global housing bubble, or boom, will come to an end.”
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