Are Hong Kong Apartment Prices inadvertently Being Pushed Up by Government Scheme?

Hong Kong apartment prices are amongst the most expensive in the world. The administration in Hong Kong decided to reduce the volatility of the property market. While this move had constructive origins, there may have been some unintended consequences.


The government sought to increase the number of affordable houses. To accomplish this, it adjusted the ratio that existed linking public and private housing. The government adjusted it from 60:40 to 70:30. This adjustment was made public last year on 21st December. In January this year, the ratio change caused a major rebound in the prices of property.


Hong Kong apartment seekers are now desperately scrapping over a private market that is hugely diminished. According to analysts, the world’s most costly real estate market has soared in value due to the government’s plan. Brand new figures reveal that Hong Kong apartment prices are now at an all-time high after a ground-breaking comeback.


Alvin Cheung Chi-Wai is an associate director at Prudential Brokerage. He indicates that the government’s intention was good. However, it has resulted in a pool of private homes that is even smaller than before.


Embed from Getty Images


Buyers surmise that private homes will reduce in supply leading to higher cost. Thus, they are rushing to buy units. At the same time, the income cap for public housing is very low. As a result, not many home buyers can benefit.


It is the opinion of numerous observers that flawed implementation has undermined the positive intention of the public housing scheme.


The property team at UBS Research for China and Hong Kong is led by John Lam. He’s indicated that by raising the supply of public housing, the government is only a minor contributor to the upward movement of housing prices.


The expectations of many people concerning macro policies have caused a change in sentiment. This is especially the slowdown of increment in interest rates. Thus, the change in ratio is more indirect to buyers’ sentiment.


Notably in June last year, Hong Kong propped up its key interest rates by 25 basis points. This was to match a move made by the US Federal Reserve.


Since the year began, the interest rate policy that was proposed by the Fed has gone dovish. This has caused a market consensus which encourages no further raises for the rest of the year.


The minimum qualification income threshold for couples to become entitled for a public rental house is HK$18,690 (US$2,380) per month. This income threshold has disqualified many couples from making an application. Towards the end of March, a quarter of a million applicants had already accumulated to create a 5.5 year waiting list.


The Census and Statistics Department has reported that within 50 important Hong Kong apartment housing estates, the average cost of a pre-owned flat has already reached HK$15,352 per square foot. This was after hopping up 24%.


Ricarcorp Properties have exclaimed that this was the biggest monthly growth ever seen! According to these statistics, a used house of 431 square feet (40 square metres) now costs HK$6.6 million (US$841,000). In Hong Kong, this is actually the median size of a Hong Kong apartment for rent.


Embed from Getty Images


The commercial real estate firm CBRE has indicated that this amount of money can actually buy 3 homes of the same size in New York. This price has already gone above the record which was set in July of HK$15,303 per square foot. This price was achieved before the entire real estate market received a correction that was delivered by an increase in the United States interest rates. The gloomy economic outlook at the time also contributed to the price correction.


Since this year began, house prices have enjoyed an astonishing recovery. Seeing as some units in residential areas have soared in price by 20%, many experts are predicting a lasting rally.


This collection of data has heaped considerable pressure on Carrie Lam Cheng Yuet-ngor, the Chief Executive of Hong Kong. One of her most crucial policy priorities is to ease the housing shortage in the most expensive city in the world.


At CGS-CIMB Securities, the head of Hong Kong and China research and property is Raymond Cheng. He has estimated that approximately 4,000 fewer private residences will be constructed annually. This is due to the new target of bringing down the cumulative supply.


Hong Kong Apartment


Seeing as demand is unlikely to soften, potential buyers will experience rising prices since there’ll be fewer private homes in the next two or three years. As a result, the launches of new homes have expectedly received enthusiastic, positive responses.


In comparison with developers who are releasing private homes, the government takes at least an extra year to release funded homes. This directly means that the total supply may be less in the near future.


Ricacorp tracked several housing estates. They include Whampoa Garden, Park central in Tseung Kwan O and Fairview Park in Yuen Long. In these estates, homes were bought and sold for cash amounts which were more than their preceding peaks.


Astute property investors and local home seekers have been lured back into the Hong Kong apartment real estate market by an optimistic sentiment. A company from Taiwan purchased 13 units at Nan Fung’s LP6 project which is located in Lohas Park. The firm paid a purchase price of HK$193 million as well as HK$60 million in taxes.


According to Ricacorp, the prices of Hong Kong apartment for rent will continue to rise for the rest of the year. This will bring the total increase to 15%. Furthermore, a decade-long bull run in this segment has been predicted by Swiss Bank UBS.