Hong Kong has the most expensive property market in the world. The city’s apartments cost 18.1 times gross annual median income. This means that if you take the average HongKonger, it would take him a hypothetical 18.1 years to buy an apartment if he saves every penny. This is assuming that there won’t be inflation and apartments won’t be any more expensive than today in 18 years. But why is property so expensive?
1. Only 2.3% of land is allocated for private housing
The most obvious reason is the scarcity of land. But only 25% of land in Hong Kong is developed. According to the Planning Department, only 2.3% of land is set aside for private housing, 1.4% for public housing, and 3.2 % for rural settlement. This means by only 7% of all land in Hong Kong is set aside for residential purposes. To give you a better idea, see the chart below as published by the Planning Department.
2. 41% of land is set aside for country parks and reserves
As 41% of land is allocated for country parks, Hong Kong is still short of 200 hectares for building public flats. There had been Government plans to allocate some of that land for housing developments but previous plans have been stalled by series of judicial reviews instigated by lawmakers and conservationists. Government plans to rezone country parks for residential housing had not found consensus amongst the public.
3. Public auctions & tenders constituted 73.9% of land premium
The latest Government figures from April to June 2016 show that sale by public auctions and tenders account for 73.9% of land premiums. In the past year, the HNA Group, a PRC conglomerate, spent over HK$27.2 billion to buy four plots of land in Kai Tak, a total of 398,268 sq. ft. of land. The average price of the plots was about HK$13,000/sq. ft. After construction costs, completed flats must be priced at HK$23,000/sq. ft. just to break even.
4. Mass outflow of currency from mainland into Hong Kong
The impending rise of US interest rates has given fear to PRC investors of RMB devaluation. They fear that their mainland assets will shrinking. To protect their assets, one way out is to move their money out. New comers in the property market like HNA Group aim to take money out of the mainland to mitigate political and depreciation risk. The fact is that many local developers are no match in terms of financial strength.
The above are just some of the larger economic factors which contribute to the high property prices in Hong Kong. They are just the tip of the iceberg. We haven’t even considered local supply and demand, cultural norms, special stamp duty’s effect on the primary market, mortgage regulations tightening, etc. Anyways, just few days ago, a friend of mine was looking for a flat and she told me that a 300 sq. ft. subdivided flat in Mongkok now costs HK$20,000 a month.