Hong Kong Real Estate Defying Gravity
$JLL, $HSBC, $JPM
Hong Kong’s steaming housing market shows no signs of cooling down anytime soon.
Prices in the City have climbed 11% YTD defying skeptics waiting for the bubble to burst and government attempts to rein in the world’s most expensive housing market through a raft of taxes and mortgage curbs.
The frenzy has intensified in recent months as investors have poured money into property.
Buyers have set new records for everything from luxury homes in the exclusive Peak neighborhood to undeveloped residential land. There have also been blockbuster deals for commercial property in the heart of Hong Kong Central.
“Now it is very hot, because of the hot money rushing in,” said Raymond Ho, deputy senior director of residential development and investment at Savills Plc. “There is more record-breaking coming.”
Runaway growth has put the city in bubble risk territory, according to the UBS Global Real Estate Bubble Index.
Even so, mass-market home prices will rise 8 to 10% next year, according to property consultancy Colliers International Group Inc.
Real estate consultant Knight Frank LLP expects prices of such homes to climb 5% next year, while luxury housing advances 8%.
Below are 5 Key reasons why property Bulls say the city’s housing market will continue to defy expectations of a slowdown, as follows:
1. Demand Outstrips Supply
An average 20,000 new private residential units come to market each year, barely enough to cover the 20,000 Mainland Chinese who become permanent residents each year allowing them to avoid the punitive stamp duties slapped on foreign buyers let alone anyone else. The number of unsold apartments in Q-3 of Y 2017 fell to the lowest marks since Y 2015, according to the data
2. Money is Easy
Cash-rich developers are pulling out all the stops to entice buyers. At its Cullinan West project, where the latest batch of apartments that went on sale Sunday, Sun Hung Kai Properties Ltd. is offering buyers finance of as much as 120% of the purchase price: 90% toward buying the new property, and 30% to pay down their existing mortgage. The flats are priced about 11% 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 1st 3 years.
3. Money is Cheap
In a sign that mortgage wars between banks are raging even amid the prospect of rising interest rates, HSBC Holdings Plc (NYSE:HSBC)is offering to match low rates from rival lenders. Hong Kong’s largest mortgage lender is offering some clients a rate of Hibor plus 1.28% if they get similar terms from other banks. That works out to less than 2%.
4. The Bank of Mom & Dad
The biggest obstacle for new home buyers is coming up with the minimum 40% down-payment required by Hong Kong Monetary Authority loan-to-value ratios. Step in the Bank of Mom & Dad. 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 are not asset-rich to get on the property ladder.
The average number of monthly refinancings rose to 3,100 in the 1st 3 Q’s of this year from 2,200 in Y 2016, according to HKMA data.
Through August, the value of refinancing was equal to almost 50% of primary sales, according to Cusson Leung, head of research for Hong Kong property and conglomerates at JPMorgan Chase & Co. “We have the sense that most of the financing is going into buying property.”
5. Soaring Land Prices
Aggressive bids by Mainland developers keen to build up land banks have pushed Hong Kong prices to records. Non-local developers account for 68% of all government land purchases this year, according to Colliers.
In February, two mainland companies paid a record HK$22,118 per sqt for a waterfront site. Those costs will ultimately result in higher apartment prices once developments are completed, causing neighboring property owners to raise their own expectations.
“People translate a land sale into the final built price, and when it is way above the market everyone will raise their own prices,” said Denis Ma, head of Hong Kong research at consultancy Jones Lang LaSalle Inc. (NYSE:JLL)
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