The Property Market in Hong Kong

Nowadays, the property market in Hong Kong differs greatly from the overall market in China. It exists on its own. Some experts state that the Hong Kong property marker is quite a unique phenomenon.  Even during the crisis of 2009, the real estate costs did not reduce. They even grew on 30 per cent. Furthermore, in 2010 they reached 50% more.  It is believed that the property market in Hong Kong is the most expensive in the world. For example, one could buy a mansion with an area of 395 square meters for 100 thousand dollars per square meter.  People buy property in Hong Kong because of the good credit offers and the low tax policy. Furthermore, a good infrastructure also attracts a lot of people to buy some estate, all over the world. Today, houses and plots are the most popular. One can easily buy a nice lot and build a house of his/her dream there. Besides, the process of construction will not take a lot of time. Dubai is a good example of a similar and fast-developing real estate market. There, the property has always been in a great demand and today is not an exception.  Hong Kong has already oversold Japan in the sales grow rate. Additionally, experts predict a further growth of the Hong Kong property market. But the problem is that one has to fight his/her right to buy the property there. After all, a lot of people dream to get a real estate there. Furthermore, today, more and more people consider the Hong Kong property market as an illogical one and predict a price bubble.

Thus, to find out whether the Hong Kong property market is an illogical one and if there really exists a danger of a price bubble; it is necessary to investigate the history of Hong Kong as well as its property market.

In 1842, Hong Kong was captured by the Great Britain and it remained its colony until 1997. According to the Sino-British Joint Declaration, Hong Kong is given a wide autonomy until 2047. Today, the local authorities retain sovereignty over all matters and affairs on its territory, except for the defense and foreign policy. When Hong Kong was a colony, its governor was appointed by the Queen of the Great Britain. However, after the return under the jurisdiction of China, it is headed by the Chief Minister of the Administration of Hong Kong.  The Chief Minister is chosen by the special committee, consisting of more than 800 business leaders.

Today, Hong Kong is one of the biggest world’s financial centers.  Its economy is characterized by the low taxation, good-located port trade and perfectly operating international financial market.  It is also an important center for international finance and trade. The concentration of the corporate headquarters is the highest in the Asia-Pacific region. Today, Hong Kong is the richest city in China. The thing is that the GDP per capita is the biggest in the country. Furthermore, it is higher than in such developed countries as the United Kingdom, France, Germany and Japan.

Continuing the policy of the British administration, the Hong Kong government gives priority to the free market as well as private sector management of the economy.

Hong Kong has a small amount of arable lands and natural resources. Therefore, it is forced to import most of its food and raw materials. Hong Kong takes the eleventh place in the list of the biggest competitors in the trade world.  The total value of all its import and export exceed the gross domestic product of its territory. In 2006, more than 114 consulates operated in Hong Kong. It is more than in any other city of the world. Its currency is the Hong Kong dollar. The interest rate is established by the separate city’s banks. The Hong Kong Monetary Authority controls all the markets of China when there appear some destabilizing factors.

Today, the service sector provides more than 90 per cent of the Hong Kong’s Gross domestic product. Due to the rapid economic growth and the fast industrialization, Hong Kong entered into four "Asian tigers" or "dragons", along with Singapore, South Korea and Taiwan. In 2006, GDP per capita reached 38, 127 U.S. dollars.

Today, in the city live more than seven million people on the territory of 425 square miles. The city land is rather limited and very valuable. Thus, the government leads a wise policy as to its use.

Since the last century, the property market in Hong Kong started to grow very rapidly. Every month, since 1995, property prices started to break new records. Joyce and Sandy state:

According to data released by the Rating and Valuation Department yesterday, the overall price index of private residential units hit the highest point, 210.6, in August, a 2.1 per cent increase from July's 206.1.The index uses the 1999 price level as the base point of 100.The index climbed over the 1997 peak (172.9) last year and since March has been setting new records every month. The biggest growth has been in smaller homes. Prices for the two smallest categories - flats smaller than 430 sq. ft. and between 430 sq. ft. and 750 sq. ft. - rose 2.3 per cent from July to August. In terms of actual prices, flats smaller than 430 sq. ft. sold for an average of HK$10,305 per sq. ft. on Hong Kong Island that month, also a record in that category. Meanwhile, the overall rental index rose from 144.7 to 146.5, a 1.2 per cent rise in the same period, slower than the 2.2 per cent from May to June and 1.5 per cent from June to July.

Having reached its peak, the prices for property started to fall sharply. In 2000, many investors have decided that the four year fall has already reached its bottom, but soon the prices started to decrease even deeper. For many years, property market was the main source of the Hong Kong economy. However, having reached its peak in 1997, the prices have lowered on 65 per cent in 2003. They said that it was one of the most significant real estate falls ever seen. As a result, the Hong Kong’s property companies lost more than 100 billion dollars. All these years of the constant fall have caused a heavy deflation which was hard to fight. Furthermore, the rent of top-grade offices has also fallen, which in its turn, resulted in the rent costing.

The Hong Kong currency also complicated the recovery period greatly. As the HK dollar was pegged to the United States bank notes, the interest rate could not be changed because of the United States Federal Reserve system. Under such conditions, almost the quarter of all the mortgage holders had to pay out more than their apartments really costed. In addition, the majority of home loans had a floating rate. That fact worsened the situation even more.

Moreover, there were threats that the real estate prices could fall another 25 per cent. The thing is that the Hong Kong’s biggest construction opened in 2004. It was an 88 storey building with a nice view on the harbor. That year, more than 60,000 additional units were also planned to be open. Furthermore, there were many vacant houses as well as offices. Thus, investors were afraid of the further drop of prices.

Though, the Hong Kong property market was falling, its population continued to grow rather promptly. It was caused mainly because of the emigrants from the mainland. The thing is that all these new people had to live as well as work somewhere. Furthermore, the housing prices almost reached their level of the 1980 year. Hong Kong started to look again very attractive for these who wanted to invest. Thus, it was incompetently to consider that the prices would continue their fall.

As it was expected, in 2004 the property market in Hong Kong started to grow rapidly. In 2011, it broke the record of 1997 and continued its growth. Berlinger and Lubin asserted:

Hong Kong real estate has come roaring back after a rollercoaster 15 years.

Sales are setting for records again, despite cooling efforts from the government, and people are worrying about a bubble. Home prices have doubled in the past four years.

Hong Kong is already the most overpriced market in the world, according to buy-to-rent ratios, and home to the most expensive street in the world.

After all, Hong Kong again became one of the most attractive and desirable places on Earth. Annual office rent prices have reached more than 160 dollars per square meter. Today, it is the world’s highest price. Apartments as well as homes are also reaching their peaks. It is expected to rise 55 per cent more and outstrip London prices.

Despite the entire positive points, the first signs of the future collapse appeared in the end of 2011. The real property estate started to fall in price. In December 2011, the number of all housing transactions fell by 10, 3 per cent. It was a 40 per cent collapse compared with November 2008. Premium class housing decreased by 32, 9 per cent. The Hong Kong’s rental market also decreased. In December, 2011 it fell by 2, 5%. Furthermore, the further fall is expected in 2013. The financial secretary, John Tsang declared that he was ready to take some radical steps in order to prevent the future collapse of the market. Yun (2012) states:

I remain highly concerned about the risk of a price bubble” as the low interest environment persists, Tsang said in a Chinese-language blog posting on a government website yesterday. Hong Kong’s housing prices rose more than 70 percent between the start of 2009 and mid-2011 on record low mortgage rates and an influx of mainland Chinese buyers. Prices have risen almost 4 percent this year, after falling about 5 percent in the second half, according to an index compiled by Centaline Property Agency Ltd. Buyers shouldn’t believe that property prices will only rise and never fall, Tsang said.

In order to prevent the price bubble, the government increased taxation for the short-term buyers from abroad. For these who plan to sell the property within six months, the collection will be 20%. Investors planning to sell their property within a year would pay 15% and 10% within the next 12-36 months. In 2011, foreigners bought almost 19, 5% of Hong Kong’s property. The number of foreign buyers has quadrupled in five years.

Thus, the Hong Kong property market is rather illogical. Today, the market is too “emotional” and “hot”. The property market prices have doubled in the last four years. As a result it caused numerous property speculations. It means that sooner or later it may lead to a price bubble, like it was in 1997. Furthermore, Hong Kong has already no space to expend. All these make the recent price records even more ridiculous. In spite of the negative signs of the future collapse, nowadays, it remains one of the most attracting markets in the world. Still, many people want to buy some property there.