Hong Kong Housing Market Mellowing

The Ratings and Valuation Department (RVD) is reporting that house prices are starting to cool in Hong Kong following measures employed by the government to avoid a bubble. …

The Ratings and Valuation Department (RVD) is reporting that house prices are starting to cool in Hong Kong following measures employed by the government to avoid a bubble. Prices for homes surged by more than 20% in 2010 and 2011 due to lack of supply, low interest rates and interest from foreign buyers, but the government’s increase in land supply and other measures have helped bring down those numbers. The RVD report shows prices were down 34.9% in June from the same period last year and lower price increases in recent months. An economic slowdown is also contributing to the market cooling, although Hong Kong’s unemployment rate remained at a low of 3.4% in the first quarter of 2012. For more on this continue reading the following article from Global Property Guide.

Following government measures to slow speculation, Hong Kong residential property prices rose only 6.7% (2.39% in real terms) during the year to May 2012, according to the Ratings and Valuation Department (RVD).  In June 2012, home sales volumes were 34.9% down on the same period last year.

The Hong Kong government had increased land supply for residential developments in late-2010, after dwelling prices surged by 31.3% during the year to March 2010, fuelled by low interest rates, lack of new supply, and an influx of foreign buyers.

Price rises continued, but at a slower pace, in 2010 and 2011, with above 20% increases each year.

Price corrections of less than 15% the mass residential property market, and less than 10% in luxury properties, are expected in the next 12 months, according to Knight Frank.  Deutsche Bank AG, on the other hand, predicts that property prices in Hong Kong could fall as much as 20% over the year as increasing housing supply emerges.



HK$ per sq. m.
US$ per sq. m.
Nominal change (y-o-y)
Real change (y-o-y)

(Less than 40 m2 )

Hong Kong


New Territories














(40m2 to 69.9 m2 )

Hong Kong


New Territories











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(70 m2 to 99.9 m2 )

Hong Kong


New Territories














(100 m2 to 159.9 m2)

Hong Kong


New Territories














(more than 160 m2and above )

Hong Kong


New Territories













Source: Ratings and Valuation Department (RVD)

Declining housing sales

Hong Kong’s total domestic sales and purchase agreements fell 37.8% in 2011 to 84,462, from 135,778 in 2010. Transactions fell 20.3% on the primary market, and 39.8% on the secondary market.

These declines reflect the government actions such as the Special Stamp Duty (introduced in November 2010), the Hong Kong Monetary Authority’s (HKMA) lowering of LTV ratio and other credit tightening measures to slow speculation activity in the housing market.

Stable housing supply, more land sales

Housing supply is still tight in Hong Kong. Housing vacancies fell 0.4 percentage points from 4.7% of the total stock in 2010, to 4.3% in 2011. Housing completions fell to 9,449 units in 2011, from a four-year high of 13,405 units in 2010, partly due to limited housing land supply.

Housing supply is expected to rise to 11,888 units in 2012, and 14,928 units in 2013. Most of the new supply is in the New Territories.

Since 2002, housing completions have been falling, as the Government (which owns virtually all land in Hong Kong) tightly limited the supply of new land for housing.

  • In 2009, completed dwellings decreased 18.2% to 7,157 units.
  • In 2008, completions dropped 16.2%,
  • In 2007, completions dropped 36.7%.

The tight supply of new houses has arguably contributed to the steep property price rises of recent years.

The Government designated around 52 residential sites in the 2011-2012 Land Sales Programme.  Around five were sold by the government through public tender in Q1 2011, according to Colliers. The Government offered four more residential sites for sale by public tender in Q2 2012. Around 400 residential units are expected to be produced from these four sites.

Shrinking mortgages, low interest rates

The Hong Kong Monetary Authority (HKMA) still retains its best lending rate at 5%. It dropped from 5.25% to 5% in December 2008, when the Fed Funds rate declined from 1% to 0.13%, and has been unchanged since then.

Total outstanding residential mortgages were up by 4.6% during the year to May 2012 at HK$815.9 billion (US$105.2 billion), according to HKMA’s recent Residential Mortgages Survey, but proportionally this is a slight decline to 42.3% of GDP, from 42.5% of GDP in 2010.  Mortgage growth is sharply down on last year’s growth of 15.5% y-o-y to May 2011, and on the previous year’s growth of 13.7% to May 2010.

Maximum loan-to-value (LTV) ratios were lowered by the HKMA’s latest residential mortgage tightening (June 2011):

  • Maximum LTVs for residential properties worth between HK$10 million (US$1.3 million) and HK$12 million (US$1.6 million) are now 50%;
  • LTVs for property transactions between HK$7 million (US$0.9 million) and HK$10 million are now 60%, with the maximum loan amount capped at HK$5 million (US$0.6 million);
  • The maximum LTV ratio for properties below HK$7 million is now 70%, with the loan amount capped at HK$4.2 million (US$ 0.5 million);
  • The maximum LTV ratio is at least 10 percentage points less, if the borrower’s principal income is not derived from Hong Kong;
  • All net worth-based mortgages had maximum LTV ratios lowered, from 50% to 40%.

In monetary terms, approvals for primary market transactions were up by 39.7% during the month to May 2012, while those for the secondary market dropped by 1.5%.

Rental yields are low

Hong Kong’s rental yields are extremely low. For instance, gross rental yields for Property Class A to C (properties with an area of 99.9 m2 and below) ranged from 2.8% to 3.6% in May 2012, according to the RVD’s latest figures. Yields for Property Class D and E (areas of 100 m2+) are around 2.6% and 2.2%, respectively.

The house price index in Hong Kong rose by 131% from 2001 to 2011, but the rental index rose by just 40%.

In May 2012, the average rent in Hong Kong for Property Class A (less than 40 sq. m.) was HK$328 (US$42.3) per sq. m., while the average rent for Property Class E (160 sq. m. and above) was HK$447 (US$57.6) per sq. m., according to RVD.

Demand for luxury residential properties with monthly rents of HK$80,000 and above has become weaker, with rents declining on South Side (5.3%) and The Peak (4.5%) during  the three-month period to February 2012. Overall luxury rents from December 2011 to February 2012 for The Peak, Mid-levels and South Side, were down 3.2% q-o-q to HK$45.26 (US$5.84) per sq. ft., according to Colliers. Landlords are now more willing to renew tenancies at rents set two years ago.

Hong Kong is not a ‘typical’ market. It is a place where the rich choose to park assets in the form of apartments, as part of a diversified asset-safeguard strategy – like Monaco and Singapore.  Such markets typically have lower rental yields than more ‘normal’ housing markets.

According to the latest Global Property Guide research in April 2011, the highest average yield of 3.4% was generated by residential properties from the New Territories. In Mid Levels, in a posh residential area in the Hong Kong Island, the average rental yield is about 3.3%. Meanwhile, properties in Hong Kong’s most prestigious neighbourhood, The Peak, yield an average of 2.13%. Yields estimated by the RVD are comparable to Global Property Guide figures.

Large public housing sector

Hong Kong has one of the largest public housing sectors in the world. Around 3.4 million people or 47.7% of HK’s total population lived in public housing in 2011. In 2011/12, around 11,186 public rental units were produced, down by 18% from the previous fiscal year, according to the Hong Kong Housing Authority.

Public housing in Hong Kong began as early as the 1950s as a way to provide citizens affected by wars and calamities temporary housing. In the 1970s, the government changed its policy to provide permanent public housing.

The Hong Kong Housing Authority (HKHA) offers three ways to assist low-income families to purchase homes:

  • Home Ownership Scheme (HOS): HOS flats are subsidized by the government. Selling under the HOS scheme was temporarily stopped from 2003 to 2006, and was resumed in 2007.
  • Tenants Purchase Scheme (TPS): The scheme offered those in public rental flats to buy the properties at below market cost. However, selling under the TPS scheme was halted in 2005.
  • Home Assistance Loan Scheme (HALS): Since 2003, the government offered low-income families interest-free loans payable up to 20 years. After government evaluation, the HALS was stopped in 2004, and the HKMA only maintains the payments of the loans.

Economic slowdown in Hong Kong

The spill-over effects of the uncertainty in global market, mainly due to the lingering euro zone sovereign debt crisis, has already been felt in Asian economies, and Hong Kong is not an exception. Hong Kong’s real GDP is expected to expand by only around 1%-3% in 2012.

During the first quarter of 2012, Hong Kong’s economy grew by 3.2% y-o-y (0.4% in real terms), after the 6.8% (3% real) y-o-y GDP growth it experienced in Q4 2011, according to the Census and Statistics Department (CSD).

Exports fell by 4.8% during the year to June 2012, and imports also fell by 2.9% according to the CSD. It is expected that Hong Kong’s export outlook will remain challenging in the short term.

After contracting by 2.6% during the global financial crisis in 2009, Hong Kong’s economy bounced back in a big way as it expanded by 7% in 2010.  In 2011, the economic growth slowed to 5%.

Domestic private consumption increased by 5.6% y-o-y due to improved incomes and stable job conditions from the past year. Inflation is expected to ease from 5.3% in 2011 to 3.8% in 2012, according to the IMF.

Unemployment in Hong Kong remained low in the first quarter of 2012, at 3.4%.

This article was republished with permission from Global Property Guide.


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