Breaking the previous record for a government land sale, a plot of waterfront housing land at Cheung Sha Wan was sold for HK$17.28 billion last week, which immediately poured fuel into Hong Kong's already sizzling hot property market and spurred the home buying spree to go from bad to worse. A luxury housing development atop the Peak has gone for $132,000 per square foot, breaking Asia's record in square footage terms. This prompts worries that it may fuel prices of medium- and small-sized flats to further hike madly.
In fact, the home buying spree is so zealous that it is not limited to new homes but tends to gradually spread to the second-hand housing market. In recent weeks record-breaking transactions have been frequently reported in all districts, and second-hand housing market is also "ready to start moving". Amid the sizzling hot atmosphere in private property market, competition to buy government subsidised homes becomes even fiercer. The application for Subsidised Sale Flats projects, Terrace Concerto in Tuen Mun and Mount Verdant in Tseung Kwan O, launched by the Hong Kong Housing Society (HKHS) was closed yesterday. The HKHS has received a total of 85,740 applications, representing an over-subscription of 137 times, market response being more enthusiastic than expected.
In face of the territory-wide housing purchase rush, authorities concerned had better get prepared to launch new adjustment and control measures including tightening remortgage lending so as to reduce the risk of buying homes "dependent on parents". In fact, right now, it increasingly becomes common for parents to financially help their children buy their first homes. The parents do not scruple to remortgage their self-occupied homes for bank loans, which practically increases banks' lending risk. At the same time, plans for public-private cooperation in housing development should be worked out and put into practice as soon as possible. This is a feasible way to make good use of idle farmland in the hands of property developers and increase supply of plots of residential land in a short period of time. This will be of help to curb the blind buying spree in private housing market.
The current home buying spree is alarming. In the first 10 months of this year, primary sales reached nearly 16,000 units in accumulation with the total value exceeding $200 billion, breaking the record of the whole of last year in terms of value. Total primary sales are expected to reach $250 billion for the whole of this year. From this one can get a rough idea of the sizzling hot property market.
However, behind this home buying spree there is great potential risk. Hong Kong's residential housing price on average has gone up over 10% so far this year, far higher than economic growth and increase in citizens'incomes. As a result, the gap between housing price and citizens' purchase power has further widened. But new homes still sell like hot cakes, mainly because developers offer up to 80% high loan-to-value (LTV) mortgage loans and parents' are willing to financially help their children buy homes. In this way, quite many buyers just managed to buy their first homes.
The current housing market gives the impression of having full support, but in reality this is just seemingly so on the surface. There is considerably huge hidden risk. It is worrisome that such buyers may not have sufficient strength to resist the assault and shock produced by a downturn in the property market in future, hence the risk of their defaults on paying mortgage instalments or of foreclosures is relatively high. Once the property market enters a downturn cycle, housing prices may possibly suffer a deeper downside adjustment.
As a matter of fact, right now there are many political and economic uncertainties in the external environment. Black swans may appear and grey rhinos may attack at any moment, causing the flow of global capital to take sharp turns. Financing cost in turn would sharply increase. Under such circumstances, the world economy inevitably would be dragged down and Hong Kong's property market would hardly be an exception.
As a matter of fact, the world economy is constantly troubled by various political and economic uncertainties in the European Union and United States. In addition to the great uncertainty whether White House's tax-cut plan will get passes by the Congress, the collapse of coalition talks in Germany between Union-parties (comprising of the Christian Democratic Union (CDU) and Christian Social Union (CSU)) led by Chancellor Angela Merkel and the Free Democratic Party (FDP) and Green Party cast a shadow on the future prospect of German government. This is unfavourable for economic recovery in Europe, prompting capital to flow into safe-haven US-dollar assets. As a result, Euro devalues against the US dollar.
The chance for the Unites States to once again increase interest rates next month is quite high. Difference of interest rates between Hong Kong and U.S. will further expand, increasing the pressure for Hong Kong to increase interest rates. Hong Kong's property market will inevitably be affected.
21 November 2017
