Housing prices in Hong Kong back at record high levels: JLL

How should the new administration tackle the issue?

Hong Kong will have new leader in Carrie Lam as the former bureaucrat secured 67 percent of the 1,163 votes cast on Sunday 26th March, JLL said in a statement on Hong Kong's leadership change and its impact on real estate.

"Ms Lam will be sworn into power on July 1 and will immediately face challenges in the real estate sphere, including tackling high residential property prices," it said.

Hong Kong remains one of the least affordable housing markets in the world, with a typical apartment costing 18.1 times the gross annual median income, according to Demographia.

“Anything over a multiple of 5.1 is usually deemed as being ‘severely unaffordable’,” says Denis Ma, JLL’s Head of Research in Hong Kong, noting that government initiatives to rein in prices failed to dent the enthusiasm of buyers.

“In fact, our latest data indicates that housing prices in the city are now back at record high levels, even after the government raised stamp duty on all residential purchases to 15 percent last October; first-time homebuyers, exempted,” adds Ma.

The increasing land supply and 93,000 new apartments that will be made available in the next three to four years will help alleviate demand. Rising U.S. interest rates could also have some impact on housing prices says Ma.

“While ample liquidity has meant most commercial banks have kept lending rates unchanged, they will likely have to start raising rates if the U.S. continues its tightening policy.”

Hong Kong faces increasingly stiff competition from mainland Chinese cities for commercial space with Shanghai most recently surpassing Hong Kong as the largest office market in Greater China, according to JLL’s latest Offices 2020 report, set to receive 11 million square-meters of Grade A office space by 2020.

“The lack of high quality commercial stock on the market has been a challenge,” says Ma. “However, with the government ramping up land supply and building a new CBD in Kowloon East, investible stock in the city is set to significantly increase in the coming years.”

Mainland Chinese companies are also starting to choose to use Hong Kong as a springboard to move into global markets. For the past five years, leasing demand from People’s Republic of China (PRC) companies has doubled as a percentage share of all new lettings.

The opening of new cross-border investment channels such as the Stock-Connect share trading programme and Mutual Recognition of Funds Scheme (MRF) are similarly bringing in more financial services firms to the city; both PRC and non-PRC players.

“Over time, we expect more foreign professional service firms to establish and grow their operations in order to meet the growing pool of PRC companies in Hong Kong,” says Ma.

As the most ‘free’ economy in the world for the last 23 years, Hong Kong’s role as a gateway between China and world remains largely intact. The government’s laissez-faire economic policies and proximity to the mainland continue to make it an ideal location for foreign businesses to run their China operations.

The completion of mega infrastructure projects like the Hong Kong–Zhuhai–Macau Bridge and the Hong Kong-Shenzhen-Guangzhou Express Rail Link in the coming years will result in greater connections with China and further opportunities for Hong Kong.

“Hong Kong must continue to leverage its position as an important city within China. To that end, it needs to continue to make itself attractive to both PRC and foreign companies,” says Ma. “If the demand is there, the investors will follow.”