The latest housing price index – the Private Domestic Property Price Index – released by the Rating and Valuation Department in May has surged to 393.7, only 0.8 per cent lower than 396.9, the highest index point recorded back in May of 2019. Despite the challenges brought about by the Covid-19 pandemic, the transaction prices of second-hand residential property are peaking again.
The outbreak of Covid-19 in early 2020 and the ensuing lockdown restrictions in major global economies, as well as the uncertainty over central banks’ plans for monetary policy, once again hit real estate market sentiment. However, with the early containment of the pandemic in China and the introduction of public vaccinations in most advanced countries, signs of a gradual economic recovery were observed in Hong Kong, and both first and second-hand flats have seen brisk sales recently.
Although a limited supply of flats is still the main cause, quantitative easing, as formulated by central banks worldwide and spearheaded by the US, provides fundamental incentives for investors to purchase assets and to preserve wealth. This is also contributing to the rise of property prices.
Last year, the Hong Kong chief executive proposed an increase in the loan-to-value (LTV) ratio for bank mortgage lending for residential property in her Policy Address.
For flats with a value of HK$8 million (US$1.03 million) or below, the LTV ratio can be as high as 90 per cent, making these properties the target for most first-time homebuyers. Despite this proposition, the supply side has failed to meet the rebound in demand. According to data from the Buildings Department, just 6,704 private domestic flats commenced construction last year, down 47 per cent year on year, not to mention no new projects were commenced in December last year.
It is therefore clear that, despite the government’s recently formulated long-term housing policy, a crippling imbalance between housing demand and supply still lies ahead for Hong Kong citizens.
Increasingly, more people believe that the later they buy, the more expensive flats will be. In recent years, a widening disparity between the purchasing power of citizens, property prices and the economy has been observed. Apart from the sustained liquidity driven by central banks worldwide, restricted long-term land supply in Hong Kong is an underlying key factor that keeps pushing up property prices.
From a macro perspective, global property prices, including those in the UK, the US, Australia and New Zealand, have rebounded since March due to extensive monetary stimulus programmes and the development of vaccines.
New Zealand, one of the countries least affected by the pandemic, led the world with an annual property price growth of 22 per cent, which was met by the government’s efforts to quash property speculators through the removal of tax incentives. New Zealand is aiming to reduce the growth rate to 0.9 per cent by June next year.
Meanwhile, Singapore led the Asian property market with an annual gain of 6.1 per cent, followed by South Korea and Japan. The rise of global Covid-19 vaccination rates will pave the way for Hong Kong’s property prices to rise further, as well.
Yet, it seems that there is no silver lining as far as solving the high housing price problem goes. While transitional housing and rental subsidies are utilised to meet urgent needs, in the long term, the deep-rooted housing problem can only be eased by speeding up land development and subsidised housing, increasing plot ratios in the New Territories, as well as stimulating public-private partnerships for housing development.
As corroborated by Demographia’s International Housing Affordability survey for 2021, Hong Kong has been the world’s least affordable housing market in terms of property prices for 11 consecutive years, with a median housing price 20.7 times the median household income.
Hong Kong still lacks a forward-looking comprehensive plan on land and housing. It is hoped that the government can devote more time to the issue and put forward coherent policies to solve the high property price problem. Options such as the development of 1,400 hectares of brownfield sites and the utilisation of small plots on the fringes of country parks for development can be further studied with the aim of increasing and revitalising Hong Kong’s land supply and fulfil housing targets in the near future.
Chiu Kam-kuen is international director and CEO of Greater China at Cushman & Wakefield