Hong Kong housing prices hit record highs, but could still climb higher

Hong Kong’s residential prices are now as much as 75.9 percent higher than the market peak in 1997 after the city was handed back to China 20 years ago, according to JLL’s Land and Residential Market Review report.

PRC developers continue to pour into Hong Kong’s land sales market, snapping up all of the residential sites tendered by the government so far this year. PRC developers borrowed up to 47 percent of the amount paid to acquire land, while some local developers’ borrowed as much as 275 percent of the land price.

“We believe the government’s latest tightening measures will limit the gearing ratio and increase the cost of land acquisition and property developments,” said Lau Chun-kong, international director and head of valuation and advisory services in Asia at JLL.

In terms of consideration, the share of residential sites awarded to PRC developers has increased from 1 percent in 2011 to 100 percent so far this year.

With prices hitting new record highs, developers have increasingly sought to build smaller units, to keep lump sums affordable. The average size of new flats under construction stands at about 600 square feet (on saleable area), the smallest since 2001. A typical flat now costs about HKD7 million ($899,000), compared to HKD4 million ($513,000) in 1997.

Capital values of mass and luxury residential will rise 10 percent to 15 percent in 2017, but rental of luxury residential will drop 0 percent to 5 percent. Leasing activity gathered pace through the first five months of 2017, though ongoing downgrading trends led to a hike in vacancy levels in the top-end of the market. Still, luxury residential rents were able to edge up 0.8 percent over the same period.

Sales activity will be focused in the primary market over the next six months due to the new measures, benefiting developers.

“This will continue to benefit developers with a line-up of new project launches, against an expanding supply pipeline, and developers will actively readjust to any future government policy, whilst remaining eager in their new launches,” said Joseph Tsang, managing director at JLL.