What Do Record-Breaking Land Prices Mean to Home Seekers?

stephen or

Sun Hung Kai Properties has just purchased a Kai Tak plot at a record HK$25.2 billion, making the average per-square-foot price HK$17,800. As the news broke, home owners with properties to sell immediately started raising their asking prices.
In particular, many home owners at The Latitude in San Po Kong have upped the home prices by one or two million, displaying an aggressive attitude. 

Despite the Fed interest rate hikes earlier this year, Hong Kong has not seen its interest rate rise as expected. Compounded with the fact that Hong Kong’s banks have been fiercely competing for the mortgage market share, with some even offering fixed-rate mortgages, home seekers with sufficient financial abilities are encouraged to enter the market at a fast pace, which in turn has stimulated home sales. However, because they are not under any pressure from interest rate hikes, home sellers have no reason to lower their asking prices, resulting in the situation of small supply with high prices in the secondary market. Meanwhile, thanks to high loan-to-value ratios, the primary market continues to enjoy a large demand and high sales.

Ever since the Sino-US trade war kicked off, Hong Kong’s housing market has cooled down as the public is expecting the economy to be negatively impacted while developers halt the sales of large housing estates. Starting from late March, the US 10-year Treasury note has hit 3%, and the Hong Kong dollar has reached the weaker end of its trading range several times. Naturally, buyers don’t want to purchase homes at the height of property prices and are exercising extra caution. 

On the other hand, we see that Sun Hung Kai has bought the Kai Tak site in the city’s biggest recorded land sale, and a new development in the same area with an average per-square-foot price of HK$22,000 has sold 50 units in a flash recently. I reckon many of these buyers must possess a strong financial footing, because even a studio unit in said development demands at least HK$7.2 million, and a two-bedroom apartment starts at HK$10 million. A buyer would need approximately HK$6 million for the down payment and taxes, which is far beyond what average home seekers can afford. 

Hong Kong’s current real estate market consists of two large sectors, one being the private market, the other being the saleable subsidised housing (including the Home Ownership Scheme and Green Form flats). The private market is then divided into several subcategories including luxury homes, large units and small- to medium-size units. There are also lots of old walk-ups awaiting renewal, and despite their often less-than-ideal locations and facilities, the prices have gone up so much that their LTV ratio has reached 90%, with most buyers being young families or investors. 

In the subsidised housing market, the latest batch of HOS offerings has received around 166,000 applications. It’s easy to see that for average Hongkongers, HOS or Green Form flats have become the only feasible home-buying option. 

The record-breaking land price is good news for some and bad news for others. Personally speaking, I’m afraid that going forward, HOS and Green Form homes may be the only hope for the common folk.  

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