When is the right time to Buy Property in Hong Kong?

Hong Kong is a property obsessed city…as anyone who has spent any time here will attest, the subject of property inevitability comes up in a conversation whether you are at a friend’s house for dinner, out for a couple of cocktails, or on a boat with strangers. So the question remains: When is the right time to buy property in Hong Kong?

To answer this question we should look back in Hong Kong’s history to find out how landlords in Hong Kong have become some of the wealthiest and some would argue the greediest in the world.

History of the Hong Kong Property Market

My mother came to Hong Kong in the late 40’s from Shanghai explains Anthony Hindmarsh, director of Q-Homes.  Back then, she would say that Hong Kong was not a wealthy city.  Many people who escaped the communist stronghold in China came on boats leaving most of their belongings back in China.  Only the wealthy were able to secure one way plane tickets along with their smuggled bars of gold. She moved into a flat on 65 Robinson Road in 1947; back then many flats did not have proper plumbing and families would live together, with often 3 or 4 generations in the same rented accommodation with no toilets.  Every morning an  “yeh heung por or night fragrant hags”    would come and clear the bed pans or sputtins.  It was no easy living and many people would find their wages only enough to cover their basic necessitates.  However what it did do was instill a sense of frugality and savings into many of the new immigrants to Hong Kong.

Many of these immigrants opened their own business such as retail or manufacturing and as Hong Kong became more prosperous in the late 60’s and early 70’s, around the time that foreign exports rose, these business owners became more cash rich and bought property

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Image of Hong Kong Harbour from the Peak

Hong Kong experienced various property declines in the 1956 and 1967 riots with many expats leaving Hong Kong due to the instability of the city but many people who stayed back decided that they would take advantage of the property prices and purchase.  As soon as stability returned to the region and demand increased, property prices subsequently rose again and many of these owners now found that they were holding onto equity and were able to leverage that for the purchase of additional properties.  Soon the sale and purchase of property become as speculatory as the stock market, with gains sometimes made in one day as purchases and vendors would sell their equitable interest as “confirmor

The first generation of educated wealthy Hong Kongers were well established in Hong Kong and many owned one or more properties; however, after Tiananmen Square in the mid-80s, many of these owners had who lost their properties escaping from China began to worry that history would return and haunt them again.

Therefore Hong Kong experienced a massive “brain drainin the early 80’s when many of these educated professionals emigrated to Canada and Australia, consequently selling up their assets in Hong Kong and moving overseas. Those that did not qualify for immigration stayed back in Hong Kong and Took over those posts that were left behind and they bought property is in the 80s and 90s, many of which have paid off their mortgages today.

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Graph Showing Hong Kong Property Price Index from 1980 to 2013

 

The Demographic of the Hong Kong Landlord

A recent survey concluded that only 40% of Hong Kong Home Owners still have mortgages on their properties, which means that more than half have clear title.  This explains why landlords have such “staying power” during the downtimes.  Many are not desperate to sell, explains Hindmarsh.  Landlords learnt lessons from history and instead of selling cheap they rent out the property and “sell with tenancy” if someone offers the right price.    They are still able to generate more return than cash sitting in the bank.    Unfortunately, this poses difficulties for buyers, as viewings can be difficult and buyers are subject to various additional stamp duties highlights Anthony.   Stock of vacant properties for sale is extremely limited, especially in the under $10 Million price Bracket, says Anthony, with demand from buyers who are keen to step off the rental ladder and into home ownership. This is keeping demand strong and prices resilient, contrary to various forecasts for a huge price drop, which has been predicted for the last 4 years.

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Graph Showing Residential Property Price Trends

Shortage of Stock Made Worse with Cooling Measures

Many times I will go out with a client and there might be one vacant flat to view in a building of 200 units.  Buyers are shocked by the lack of choice and even when they see something they like, not all vendors are motivated to sell, meaning the prices are not very negotiable despite the low transactions explains Hindmarsh.  Vendors are worried they cannot get back into the market and that low interest rates means their cash is losing value.  The serious vendors are typically those who are moving funds offshore to cities like London or downsizing as they find themselves empty nesters.

Forecast and Recommendations

My recommendation to my clients is to take a long term view to purchasing property in Hong Kong.  If you plan to be in Hong Kong for the next 10 years, then buy now.  Rental Prices continue to increase and property prices on a global level are going up.  Any correction in the property prices will be short term, as supply remains limited while demand is still strong.

Furthermore, consider buying an investment property to get your foot into the property market.  Many clients look at their current lifestyle and compare to what it would cost to buy something similar and are put off by the high deposit requirements, sometimes forgetting that their landlords may have started off themselves with something smaller and built equity to upgrade.  If you plan on living in Hong Kong for the next 10 years, then it makes sense to buy and pay your own mortgage rather than someone else’s.   In 10 years’ time, your mortgage will be 10 years shorter so even if the market is the same levels as you buy today, you will have made a big contribution to your repayment and of course any gains in the property market will be a bonus.

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Anthony was born and raised in Hong Kong and has over 13 years’ experience in the industry.  He speaks fluent Chinese and has a very strong knowledge of the city and a deep understanding of the cultural and political motivators that drive the real estate market.Anthony

For More information about Buying or Selling Property in Hong Kong or to discuss when would be the best time to buy property in Hong Kong please contact: Anthony Hindmarsh via email: anthony@qi-homes.com or call 28581406 today.