The Hong Kong property market is fascinating and here is why.
It is easy to get wrapped up in the property world of where we live. Thailand’s market has come on leaps and bounds over the years. The number of condominiums in Bangkok has been rising and spreading throughout the capital with the expansion on the mass transit networks. There has been significant growth in the available properties in tourist destinations such as Phuket and Koh Samui. And the quality of projects has ramped up a few gears with some luxury projects achieving record breaking prices. There is a lot of talk about when it comes to property in Thailand.
However, there are some markets that are always a good topic of conversation. Whether that is the safe haven of London. The ‘cooled down’ Singapore or Hong Kong property where prices continue to escalate. The latter two arouse a fair bit of interest partly due to their vicinity to Thailand and being the financial powerhouses of the region. But whilst the cooling measures implemented in Singapore have worked resulting in a market that has bottomed out, in Hong Kong there is an entirely different story being told.
In fact the figures are astounding according to JLL’s ‘Land and Residential Market Review’ report. Today values in Hong Kong are 75 percent higher than in 1997 the year when Hong Kong was handed back. The mainland Chinese have become huge infiltrators of this market having withdrawn initially in 1997. Having only accounted for one percent of the market in 2011, they are now behind every single residential developments of this year. And to top this off, they are substantially well funded. Compared to local developers that need on average to borrow 275 percent in order to acquire land, those from the People’s Republic of China require a mere 47 percent in comparison.
Whilst prices have surged over the last two decades, land has been squeezed as interest remains high for this property hotspot. As a result unit sizes have become smaller in Hong Kong with an average size of just 55 square metres. This is the smallest since 2001 and illustrates just how developers are trying to profit from this market. Costing on average THB 30.5 million, this is nearly double the average price achieved in 1997. But interestingly investors are better positioned for these investments than ever before. At the end of last month the mortgage payment to private household income was 47 percent. A much healthier picture considering that this was 100 percent in 1997. So despite prices being significantly higher, investors are having no problems with meeting these price tags.
So what can we learn from this market?
Primarily there is the need to adapt. Developers are altering unit sizes and investors are putting themselves in a better position to be able to afford property. There is no doubt that Bangkok that this is already happening. The limited supply of land is pushing values up and units are getting smaller. However, due to financing issues and the wealthier segment of the population having no problems providing funds for their investments, developers are focusing their attention on this sector identifying its potential. Whether Thailand will reach a point where cooling measures need to be implemented is yet to be seen, however in the case of Hong Kong, the effects of these have been slow off the market. This is surely one lesson that can be learnt to help other markets across the world.