Excessive land supply leads to housing price dip?

Photo Source:Carrie Lam's Office Facebook

With the results of the Chief Executive election out, people are turning their attention back to their daily lives, particularly their concerns of the soaring housing prices and property shortages.

Real estate professionals like myself have probably wished for someone other than Carrie Lam to be a new Chief Executive, because we’d like to see the current property market control measures loosened. Alas, with Lam set to take office, she is very likely to continue these “spicy” measures, or even introduce more draconian regulations to address the unrelenting price hike.

It doesn’t take an expert to know that in order to meet all Hong Kong people’s living needs, there should be a sufficient supply of land, otherwise there is no way for the housing prices to sustain at a reasonable level. On the other hand, we also see a large number of property owners and investors who fear the possibility of excessive land supply resulting in a nosedive—or worse, a complete collapse—of property value. If this happens, there will be another set of tragedies awaiting home owners as many will likely be in debt.

However, as I see it, there’s only a slim probability of this scenario. Although the Hong Kong press often paints a bleak picture on the future of mainland housing market, we as news consumers have to stay cautious and analytical with media reports and comments. The reality is, home buyers purchasing a second property in a first-tier city in Mainland China are required to make a 70-80% down payment, which begs the question: if you are able to do so, why would you sell your other properties short? And if there aren’t a large number of property owners willing to sell their homes for cheap, why would the housing market collapse? 

I understand that for many mainlanders who prefer making property purchases in Hong Kong, the purpose is not only to redirect their assets in order to avoid the possible further depreciation of RMB. Due to home purchase restrictions, some mainland home buyers with multiple properties choose to invest their idle assets in the Hong Kong housing market. Their Hong Kong homes not only serve as a convenient accommodation when they are in Hong Kong, but can also make more profit from rent money compared to mainland houses.

It is obvious that for now, China’s economy is stronger than many Hongkongers have previously thought, so it’s safe to assume that wealthy mainlanders will continue to make the decision to invest in Hong Kong’s housing market. Since they tend to make high-percentage mortgage down payments, it is unlikely that their purchases will lead to a large-scale bubble-burst. It is basically the same phenomenon of Hong Kong people buying homes in Japan, Australia and Canada, and the raised stamp duty is only a way to postpone these purchases, not to prevent them from happening.

Hong Kong is a small city, therefore even if there is a temporary excess of land supply, mainland bargain hunters will be able to stop the Hong Kong housing market from collapsing—given, of course, no massive unrest or war takes place in the region.