Hong Kong enjoys a position alongside London and New York as a top-tier world city. With a time zone between the US and Europe, home to the sixth largest stock market in the world it is a major financial centre, third to New York and London in the Global Financial Centres Index.
Purchase of Hong Kong property by mainland Chinese nationals has been a major driver of the city’s stratospheric price rises as has strong economic growth.
Hong Kong is now the most expensive major world centre in which to buy a residential property. Prime values are almost double those in London and New York, although the gap is narrowing.
Prime residential values have been hit hardest as cooling measures continue to have an effect, primarily on transaction levels in the prime market, while rents are also depressed due to weaker demand from the corporate sector. In common with Singapore, Hong Kong levies an additional 15% stamp duty on foreign residential property purchasers.
Mortgage insurance is required on mortgages of more than 70% LTV, while lending is limited to 40% for purchasers with more than one property. In a bid to dissuade market speculation ‘Special Stamp Duty’, levied at between 20% and 10%, applies for properties re-sold within six and 36 months.
Turnover was the main casualty of these measures, declining 66.7% from a high in December 2010 to a low in March 2014. Transaction numbers since have seen some recovery, growing 53.7% to May 2015, but still remain 48.8% below their former high. Prime and mainstream prices, meanwhile, have also gained traction, growing by 4.9% and 7.2% respectively in the first half of 2015.
While the prime sector has slowed, the value of mainstream property increased by 13.5% in 2014. This was the result of low interest rates and sustained domestic demand set against restricted supply in this land-constrained city. Cooling measures, directed at speculative foreign purchasers, affect prime markets rather than mainstream ones.
If cooling measures are not repealed in the near-term and with a possible rise in interest rates on the horizon, it is unlikely that prime prices will resume their former upward trend. Savills estimates luxury apartment prices in 2015 will remain largely stable.
In the longer term, structural reforms in China will open up the country further to outflows of investment, and directly into other world city real estate calling into question Hong Kong’s position as the pre-eminent destination for Chinese capital.