“I guess I cannot buy my own room in Hong Kong in my life. Impossible,” said Gina, a university student. She is near graduation this year and has to do part-time jobs while studying. In addition to facing the pressure of her studies, she also felt deeply impotent in the face of high housing prices.

She is not the only Hong Kong youngster who feels powerless. According to a poll conducted by the Chinese University of Hong Kong, more than 80 percent of the public think that current prices far outweigh their affordability.

In the face of high housing prices, the government has also made efforts to improve the problem. From the “Sandwich Class Housing Scheme” of the 1990s to Donald Tsang’s My Home Purchase Scheme to the “Starter Home Scheme” of Carrie Lam, are the government’s initiatives to improve the problem. Still,  Hong Kong people are facing the most unaffordable private housing.

Gina does not think the policies can change her pessimistic attitude to her future job security – there are few people who can successfully enjoy such policies. In the recent few years, what is the reason for the high prices of flats that Hong Kong has been unable to afford for a long time? Is the government’s regulation really effective? Will people like Gina be more and more pessimistic?

Soaring Hong Kong housing prices

Last year’s October, the price indices for HK private domestic topped 300 for the first time. For the whole year it kept rising, and reached 340 in September, with the average transacted price of October figuring $14,323.

Source of data: Midland Realty

 

 Imperfect strategies in tackling overheated housing market

1. Special Stamp Duty (SSD)

2. Starter Home Scheme

Some worried that the requirement for applicants to have a monthly income of between HK$52,000 and HK$68,000 has been set too high.

3. Public Housing

Overall review of the Hong Kong Housing Market

The overflowing demand in contrast to the tight supply has been a problem.

“Housing price and affordability ratio nearly reach an alarming level. Hong Kong’s luxury residential price is the second highest over the world. The purchasing power of USD$1 million can only buy about 230 sq ft of luxury housing in Hong Kong,” said Thomas Lam, head of valuation at property consultancy Knight Frank.

The demand problem and the effect of cooling measures are shown in the following graphs.

Suggestions from the expert

Hong Kong should establish a land supply committee to investigate or advise on long-term supply, said Knight Frank’s Lam.

“We don’t have Plan B of land & housing supply, such as artificial island on open water or other alternative land supply. We need to do some feasibility studies as soon as possible. The reason is New Territories east development, brown field site, etc will take a long process to become a ‘real supply’,” he said.

Meanwhile, he believes the Hong Kong Monetary Authority should review the maximum loan-to-value ratio or stress ratio from time to time, particularly when interest rate goes up.

“This is not a good timing to release any stamp duty as the property price is still very high, but if this happens, the flow of relaxation should be SSD, then DSD and BSD,” he said.

 

Finally, the Hong Kong property market displayed behaviour of bubble this year with a lot of people trying to buy flats and parents helping children fund purchases, etc, said John White, the managing director and lead portfolio manager of property firm Heitman.

He added that the US may have three to four hikes in interest rates next year, increasing borrowing cost and reducing affordability of Hong Kong property, posing a risk to home buyers.

“A bubble burst may occur if the magnitude in interest rate hikes exceeds expectation and Chinese economy lands hard,” said White.