Aussie Property Has Nothing on Hong Kong

Think Aussie property is seriously overvalued?

Then you’ll think property in Hong Kong is ridiculous!

Hong Kong Property Prices on the Rise

Property in Hong Kong is showing no signs of cooling. City dwelling prices have climbed 11% this year. And that’s coming off continuous growth since 2009.

Hong Kong property prices

Source: Bloomberg

Surely this market is in bubble territory, no?

Well, it depends. You could argue the bubble is being perpetuated by greedy developers, bidding up land to build more and more houses. However, you could also reason that prices are rocketing up simply because the demand is there.

Like the Aussie property market, there are real factors contributing to property growth, not just speculators bidding prices up.

Property Demand and Supply

The first is demand and supply. At the moment, there are around 20,000 new private residential units coming onto the market each year.

This is barely enough to cover the 20,000 rural people in China moving to urban areas. According to Bloomberg, the number of unsold apartments in Hong Kong fell to its lowest level since 2015.

Hong Kong transactions

Source: Bloomberg

Low Interest Rates

The second factor is cheap cash. Interest rates in Hong Kong, like Australia, are still very low. But not only are mortgages easily serviceable, developers are doing their best to sell as much as possible.

As reported by Bloomberg:

Sun Hung Kai Properties Ltd. is offering buyers finance of as much as 120 percent of the purchase price: 90 percent toward buying the new property, and 30 percent to pay down their existing mortgage.

The flats are priced about 11 percent higher than a March sale at the same development, according to BOCOM International Holdings Co. Other developers offer rebates to buy furniture or interest-only loans for the first three years.

Turning to Mum and Dad

And the third is parents. Like down under, coming up with the deposit is the hardest part of purchasing a property in Hong Kong. Buyers need to come up with as much as a 40% down payment.

And many young Chinese wanting to break into the market are looking to mum and dad. Bloomberg continues:

Hong Kong’s de-facto central bank has warned young buyers are increasingly turning to their parents, with home purchases being financed partially by proceeds from refinancing mortgages. That also makes it harder for others whose families aren’t asset-rich to get on the property ladder.

The average number of monthly refinancing’s rose to 3,100 in the first three quarters of this year from 2,200 in 2016, according to HKMA data.

Cheers,

Härje Ronngard,

Junior Analyst, Markets & Money

PS: Aussie property prices continue to defy gravity. Those who have tried to predict the top have been wrong thus far. And that’s because property prices still have a long runway of growth ahead.

If you want to read more about long-term booming property, check out our Markets & Money report, ‘Why Australian Property Is On The Verge Of A Decade Long Boom’.


Harje Ronngard is a Junior Analyst at Markets and Money. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. It’s not good enough to be right on average when it comes to investing. The market is volatile and it only takes one bad day to ruin your portfolio. You don’t want to end up like the six foot man that drowned in the river that was five foot deep on average. It’s why Harje is constantly reminding investors of their downside risk here at Markets and Money. He does so by simply asking just two questions.  What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Markets and Money readers. Right now Harje is focused on managing research and investments over at the Legacy Portfolio. An investment publication designed to significantly grow investor’s wealth over time with deeply undervalued businesses. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home amongst Matt’s high yielding income plays.


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