Real Estate Market Outlook 2018

Hong Kong

Another year has come and gone. Luckily, the financial market didn’t suffer any major setbacks that some had feared. According to Centadata and government statistics, home prices in Hong Kong rose by 13-14% in 2017, which is close to my previous prediction of 15%.

Before looking ahead into 2018, we have to analyse the driving factors that have been pushing Hong Kong’s real estate market to its current state in the past decade. First is the current low interest rate, however, it’s likely to increase in the coming year. It’s expected that the U.S. will have several interest rate hikes, and Hong Kong will probably follow suit in the second half of 2018. The second contributor is property supply which will double in 2018 from 10,000 to 20,000 units. In addition, the banks have seen an excess of capital caused by quantitative easing in the past few years; however in 2018, both Europe and the U.S. will gradually reverse their quantitative easing measures which will lead to a shrinking balance sheet for global banks.

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Judging solely by these changes, it’s only logical to come to the conclusion of forecasting a dip in home prices. However, I think reality will turn out to be the opposite. After over a decade of increases, home prices are entering the last phase of a booming market as they believe that home prices will continue to rise, a large number of homebuyers are rushing into the market, and will enlist the help of their parents if they can’t afford a home themselves. As a result, 65% of Hong Kong properties are bought without a mortgage, while the local banks have HK$12 trillion in deposits, leading to the continuous extension of an already flourishing housing market.

Car parking spaces can also be used as an indicative driver of the Hong Kong market. A friend of mine recently bought a home above a MTR station for personal use, however, a lack of parking spaces available means that his only option is to buy a second-hand parking spot for over HK$4 million. I questioned why he didn’t consider renting a parking space, and he explained that the owner could terminate the lease or to raise the rent exponentially on his/her accord. I then asked if giving up the car was an option, my friend responded saying that he’s used to owning a private car. Finally, I asked if he could afford the HK$4 million price tag. But the truth is that he didn’t leave himself with any other option. In the current state of the market, buyers have to forget about the return on investment; you will buy it if you can afford it and if you can’t afford it, you simply won’t buy it.

>> Property Prices vs. Property Supply

With the booming property market slowing down and even with the increased supply, the demand of buyers cannot be satisfied, buyers will continue to enter the market as long as they remain optimistic about the market prospect and are financially capable of buying and owning a home.

Taking all these factors into consideration, I believe that home prices will continue to rise in 2018, and probably at an even faster rate. The annual increase can be up to 20%, while the first half of the year will likely see a more dramatic surge than the second half. As always, those seeking homes at the end of the booming market should stay cautious and be mindful of the risks involved.

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