HK sunsetThe Hong Kong residential property market has, historically, been amongst the most volatile markets in Asia.

Certainly, over the last twenty five or so years, prices have swung as much as 75-80% up or down. There was a peak in the run up to the handover of the Territory to the PRC in 1997, down to a trough in 2008; up to another peak early this year. The latest rally mainly on the back of low interest rates and the effects of QE—plus a huge influx of money from the Mainland finding its way into Hong Kong real estate.

 

Prices and rentals are almost notoriously high as the demand for living space in one of Asia’s most liveable, yet most confined cities, remains unabated. Until recently, a small unit of, say, 45m2 in one of the better high rise housing estates was routinely costing around US$ 525,000-600,000, or over US$ 12,500/m2 in some cases. On the leasing side, monthly rentals were ranging around US$ 2,000-2,500 per month.

Of course, that’s before one looks at the prices of luxury properties in favoured residential areas which can reach US$ 50,000/m2 and beyond.

 

The HKSAR Government has, for some years, recognised the social issues involved with many of its populace unlikely to be ever able to purchase their own property and has recently actively instigated certain measures to cool the market. For example, in October 2012, Government introduced a 15% tax on property purchases made by foreigners, and later raised special transaction taxes to as much as 20% on those properties sold within three years of purchase.

Yet, its detractors argue that one of the key remedies is in the Government’s hands if it can increase the land supply more efficiently and effectively. Other people argue that it is not a governmental responsibility to intervene in a “free” market.

 

Still, coupled with the attempts by the PRC Government to cool down the Mainland property markets, sentiment in Hong Kong has changed and the last few months have seen the volume of purchases drop dramatically. Loan to value/price ratios have been tightened up by banks and, generally, an air of caution permeates the mass market. Prices seem to have dropped 3-5%.

So where does this leave the first time Hong Kong purchaser? Most people looking to acquire property will endeavour do so once they are about to get, or are just, married (25-30). However, a deposit for purchase may be 20-30% of the purchase price—a large amount of money for anyone.

 

Relatives and families often help raise such deposit, but having dual incomes are usually a necessity for mortgage repayments which, typically, can be US$2,000-2,500 plus per month.

Most commentators expect prices in the residential market to decline throughout 2014 and beyond, with varying forecast percentages of such decline being bandied around. Some estimate a decline in excess of 10-15%, yet the Hong Kong market has an amazing ability to defy predictions and to bounce back very quickly.

 

Prudence suggests that, if you are looking for a place to live for the long term, careful shopping around and a detailed study of the price trends in the areas in which you wish to live may still be worthwhile in order to facilitate a purchase in the coming months.

If you can afford it that is!