Concrete Analysis | Hong Kong home prices are inching towards record highs once again. Here’s how this perennial issue can be tackled

The latest housing price index – the Private Domestic Property Price Index – released by the Rating and Valuation Department in May has surged to 393.7, only 0.8 per cent lower than 396.9, the highest index point recorded back in May of 2019. Despite the challenges brought about by the Covid-19 pandemic, the transaction prices of second-hand residential property are peaking again.

The outbreak of Covid-19 in early 2020 and the ensuing lockdown restrictions in major global economies, as well as the uncertainty over central banks’ plans for monetary policy, once again hit real estate market sentiment. However, with the early containment of the pandemic in China and the introduction of public vaccinations in most advanced countries, signs of a gradual economic recovery were observed in Hong Kong, and both first and second-hand flats have seen brisk sales recently.

Although a limited supply of flats is still the main cause, quantitative easing, as formulated by central banks worldwide and spearheaded by the US, provides fundamental incentives for investors to purchase assets and to preserve wealth. This is also contributing to the rise of property prices.

Last year, the Hong Kong chief executive proposed an increase in the loan-to-value (LTV) ratio for bank mortgage lending for residential property in her Policy Address.

For flats with a value of HK$8 million (US$1.03 million) or below, the LTV ratio can be as high as 90 per cent, making these properties the target for most first-time homebuyers. Despite this proposition, the supply side has failed to meet the rebound in demand. According to data from the Buildings Department, just 6,704 private domestic flats commenced construction last year, down 47 per cent year on year, not to mention no new projects were commenced in December last year.

It is therefore clear that, despite the government’s recently formulated long-term housing policy, a crippling imbalance between housing demand and supply still lies ahead for Hong Kong citizens.

Increasingly, more people believe that the later they buy, the more expensive flats will be. In recent years, a widening disparity between the purchasing power of citizens, property prices and the economy has been observed. Apart from the sustained liquidity driven by central banks worldwide, restricted long-term land supply in Hong Kong is an underlying key factor that keeps pushing up property prices.