Hong Kong property market outlook 2015

How will the Hong Kong property market perform in 2015? 


Hong Kong Property 2015 Forecast
Before I share my thoughts lets look at how the market performed in 2014. 

In 2014, according to the Centaline Centa City Leading Index (CCI), property prices in HK, overall, rose around 14%, (with much of that gain taking place in the latter part of the year). 

So for a person wishing to buy who is currently out of the market, or for someone who had sold thinking the market had peaked, the 14% increase clearly represents a massive loss of money/opportunity.

This of course does not mean all properties in HK rose equally. Some types of property may have fallen up to 5% and some may have risen more than 20%, dependent on factors like quality, location, price range (ie higher priced property was more affected by Government cooling measures), appeal to Chinese property buyers, proximity to newly opened MTR stations, etc.

Bear in mind also that the 14% gain last year, which, if say leveraged at 50%, amounts to a 28% gain on capital invested (and that is without including any income received from the property, which was greater than the cost of servicing the mortgage).

Park Island property prices roughly tracked the overall average of Hong Kong property prices, also rising approximately 14% over the year.

So, 2014 turned out great for HK property investors, and now its on to 2015! 

What are "Hong Kong property analysts" predicting for 2015? Quite a number are predicting a "moderate decline" (eg up to 5% fall in prices). The conventional wisdom behind these type of predictions are all based on the basic premise that interest rate rises are on the way, and that this will lead to a greater cost of owning/investing in HK property, which in turn will lead to a decline in prices.

Examples of such forecasts include:


I can't help myself but comment a little on the Knight Frank 2015 property forecast. They predict Kuala Lumpur to be flat. Well I beg to differ, but the Kuala Lumpur property market is very likely to decline in 2015, due to oversupply, rising interest rates, rampant and lax lending (both to buyers and developers). It really does look poised to end pretty badly Malaysia in my opinion. I also predict declines in Bangkok, Singapore, and Jakarta (all of which Knight Frank predict will rise). I would stay well away from these countries in 2015, and if you are an investor there, I suggest you please consider selling. (I would also add  Manila as a place where I would suggest staying well away from and/or selling).

Bloomberg has an article which summarizes some of the key variables relevant to HK property prices quite well here:

Bloomberg Hong Kong property forecast, which reports that Alfred Lau, an analyst at Bocom International Holdings, predicts that HK property prices could fall "up to 20%".

Again, I can't help but comment - Mr Lau's "prediction" is indeed a theoretical possibility, but really is a totally useless comment, as rather than predicting a possible "worst case scenario" as Mr Lau did, what would be more helpful is to predict a "most likely scenario". Yes, Mr Lau, prices could fall up to 20%. They could also rise 20%. What investors really want to know is how much will HK property most likely rise (or fall) in 2015?.

Barclays, which has an almost laughable record for making incorrect and ridiculous HK property forecasts, with persistent ultra-bearish forecasts, again, appears to be trying to make headlines with "up to 30% declines forecast" type press releases. See for example the comments from Paul Louie, an analyst at BarclaysBarclays Hong Kong 2015 property forecast.

A more balanced perspective is taken by Morgan Stanley who writes "We are not expecting a boom-bust scenario.Strong end-user demand backed by low unemployment rates, increasing numbers of new marriages and babies continue to support the mass-market projects".
A few comments on analysts in general. If they really could accurately forecast the markets, would they be working as analysis do you think? Or would they be long retired, as multi-millionaires, with money made due to their great analytic ability? Most analysis that broadly broadcast, for financial gain, their predictions, both for property, and other types of assets, in my view, in general have very little credibility.
So, with that said, what do I think will happen to HK property prices in 2015? I already wrote an article on this earlier in the year: What-will-hong-kong-property-prices-do-in-2015?. I wrote there that:
"If I had to make a guess I would think that overall, prices will keep rising in 2015 in Hong Kong. I can't see interest rates rising at all until late 2015, and even then they will rise only very very slightly, if at all. Property cooling measures are very unlikely to be increased, and they are more and more being "priced in" which means that eventually, when they are removed, the removal of property cooling measures in Hong Kong will be very supportive of property prices. Indeed if removed too rapidly it may lead to a massive spike in prices. They will likely be removed very slowly and steadily (lock step with US interest rate increases), leading to stable price appreciation (which despite the political bantering about "affordable housing", is well recognized by the powers that be as being good for Hong Kong). Further, as the global economy recovers, Hong Kong stands to benefit strongly, due to its unique symbiotic financial relationship with China (which in turn is the "factory of the world)".
All in all, the factors going forward, weighed up, point to quite decent property price growth for Hong Kong next year."

I will reiterate what I wrote above, for emphasis. Property cooling measures are "priced in" and they will eventually be removed, lock-step with any US interest rate rise (which I now predict will likely come in towards the end of Q1 or some time in Q2 of 2015. If/when we get any US interest rate rise, we will see:
1 - Stamp duty on HK property reduced (likely applicable both to HK citizens and PR's at first). It will be interesting so see, politically, whether mainlanders are included or excluded from the benefits of reduced stamp duty. (I'm guessing they will be excluded unless they are PR's, but let's see).
2 - Maximum permitted borrowing ratios from banks increased. We are far far far from "normal" bank maximum bank lending ratios at the moment, due to super strict criteria and regulations imposed by the Hong Kong Monetary Authority.
What the Hong Kong Government, (and China) desperately wants for HK, perhaps even more so since the recent Occupy protests we had in HK, is social stability. That will not be achieved if property prices rapidly fall, or if prices rapidly rise. The populist message likely to be conveyed for 2015 by the Government is, as usual, "we want to help provide afforable housing for all HK people, including HK's lower income people, bla bla bla". But don't be fooled - if I had to guess, I would think that the "powers that be" would really want to see no more than a 5% fall in prices in 2015, and no more than a 15% increase. Anything outside these ranges are likely to be met with rhetoric and possible measures to "bring prices back into range".
The Hong Kong property market is one of the most under-leveraged markets in the world. My estimate is that most HK property owners have 45% or more equity in their properties (vs say Bangkok or Kuala Lumpur, or Jakarta or Manila), where due to relaxed banking standards and regulations, many buyers effectively have purchased with "5-10% down", and at inflated prices. Remember what caused the US economic crisis? How quickly people forget. 
China, even if it grows at a "slow" 7% in 2015, will still generate a HUGE amount of wealth among its Billion+ population. For 7% growth in an economy the size of China, even a very small % of that wealth flowing into HK (where all rich, and rising middle class Chinese aspire to own at least 1 property) will continue to support the HK property market. (Picture trying to squeeze a huge volume of blood through a narrow artery - it will send blood pressure (or  in this case property prices) sharply upwards). Add China economic stimulus to that equation (which we will likely see in 2015) and again, this will have a flow-on effect to HK in terms of putting upward pressure property prices.
Hong Kong's population, despite continuing to age, also continues to grow. Arrivals, from around the word, but especially mainland China, will continue to bolster demand for HK property. HK is already jam-packed with people, and more are coming.
A US recovery, over time, will result in a global recovery, and HK has always, for a range of reasons (banking/finance industry, trading industry, low tax/capital gains etc), outperformed the world during times of economic growth.
In terms of the pace of any US interest rate increases which we may see in 2015, ask yourself this - do you really think the US would want to see a fall in US property prices (or US asset values in general)? No, of course not - that is the last thing they would want. Interest rates rises will come, but they will be very slow, gradual, and tentative.
And consider the effects of global inflation (yes its coming!), which is the inevitable consequence that will come from US, and global money printing. Everything is about to become more expensive, from cost of labor, to cost of materials, to cost of food, to cost of land. Wages will of course rise, and will rents rise also. All of which will lead to property prices continuing to increase over time. 
Finally, and this is an important point for anyone who has at least the slightest financial interest beyond HK (which really should be almost all people living in HK except perhaps elderly people in HK who never plan to travel overseas and who have all their assets in HK), the value and pricing of Kong Kong assets, and the HK dollar, compared to assets/currencies globally is likely to grow in relative terms compared to a global basket of non HK/US currencies. So, for example, if, as widely predicted, the US dollar rises 7% in 2015 comparison to a basket of other major currencies, then HK property prices would need to fall at least 7%, before even amounting to a decline against a basket of non-US dollar currencies. For a fall of anything less than 7%, this would still amount to a gain in non-USD/HKD currency (eg think JPY, GPB, AUD, CAD, etc). For anyone who does not understand this simple, but important point, let me provide an example:
A HK apartment at the beginning of 2015 is worth 6.3 million HKD (or 1 million Australian dollars). At the end of 2015, the HK apartment is still worth 6.3m HKD (ie HK prices stayed flat). But the AUD has fallen 7% such that HKD 6.3m, is now worth AUD $1,070,000. In HKD terms the price is flat, but in AUD terms the value of the apartment has risen by 7%.
So, what any Hong Kong property investor ultimately wants is a number, predicting the most likely scenario for HK property prices in 2015. 
My prediction is that in 2015, Hong Kong property will rise 6% over the full year (although expect some volatility for the 3 months or so period following any US interest rate rise), with Park Island slightly outperforming the HK market as a whole (perhaps rising 7-7.5% over the coming year, the rational being that "good value" (in terms of cost vs yield) apartments are likely to be more in demand as the prospect of interest rate rises takes hold). 
In terms of rent increases in Hong Kong in 2015, I am predicting an 8-10% increase, with rental pressure really starting to come on at towards the end of the year and which will gain even more traction in 2016.
Please do feel free to leave me your comment/thoughts/predictions, and wishing everyone the best for 2015!




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Comments

  1. Geez another year if increse in HK? When will the maddness stop? Oh wait yes this is HK where prices always go up!

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  2. I'm good with prices going up again as Im in the for long term

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  3. My prediction is that prices will go up until around 2018. But then they finally do fall, it could be a serious correction. So make money while the sun shines but get out when it really gets crazy. Remember 1997 anyone???

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  4. This is actually a well written article by the Park Island Blogger. I also think prices will probably go up. But the thing is no one can know for sure. What I do know is that we all need a place to live and that everything always gets more expensive over time. I'm no financial wizz but having my own roof over my head instead of paying money to a greedy Chinese landlord is already reason enough for me to own. It gives me protection in HK while I live here and will be my retirement fund when I finally decide to sell up and leave HK. Yes Craig Robinson I do remember 1997 but I also remember how expensive it got to rent at that time. It was nuts. I do feel HK property is more affordable now that it was then by comparison. I'm also very happy with my decision to buy on Park Island as I feel it has both stability due to lack of speculators and yet is very affordable so represents decent long term up side.

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  5. The future for HK property can be summed up in a single point. When will the Fed raise rates and by how much. If more than expected prices will fall. If less than expected they will rise.

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  6. Hi there, we are looking at buying on Park Island quite soon. I do believe prices will keep rising. What I would really appreaciate is a full summary of the total costs I would need to pay. I am a PR, have sufficient deposit and am looking in the 7m range. So say if the price was 7m can someone explain the tax payments? Even agents seem to be giving different advice on this.

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  7. My 2 cents. Smaller apartment prices will stay stable as more supply is coming on. Larger size apartment 1200sqft+ which really only make up 1% of the total supply in HK and are not being added will go up due to simply supply/demand factors.

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  8. Park island blogger has been continuously trying to hype up prices for personal gain and is agent trying to puch up the market its very obvious,

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    1. Anon - no I am not an agent. Agent's, I would presume, make money on turnover, so they really make money in a rising or falling market, so long as there is high volume. Typically, agents "talk down" the market to sellers and "talk up the market" to buyers, as all they really care about is making the sale, the challenge being to being a buyer and seller, who in a HK market might be as far as 25% apart from their prices, to an equilibrium price that results in a sale.

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  9. Is is a good time to buy property in HK? Probably yes if you can afford the deposit. But is is a great time to buy? No. The great time to buy is when a black swan event happens like the SARS epidemic and the 1997 bubble. That's how to really make the big $$$

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  10. HAPPY NEW YEAR ALL PARK ISLANDERS. WISH 2015 BRING YOU GOOD FORTUNE AND HAPPINESS.

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  11. We unfortunately made the decision to sell our place late in 2012. Since then we were waiting for the market to go down. Was more my husbands idea than mine as he is a better investor and I am more Chinese mentality of buy and hold property. I really am starting to get a little nervous now as many are saying this year will still go up rather than down. Meanwhile the money we saved in the bank is earning us nothing and we are paying rent which might go up. Regrets :(((

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  12. Autotype thing put my name in the post above. Would you mind to remove it please?

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  13. Guys I bought a few years back when Park Island was less well known and literally more than doubled my money so far. I would not sell as this is my home, unless of prices got really really high. Its a great place and if anything I would buy a further place right now as I think its only going to get more popular.

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  14. Wow look at the first sales results for New Territories (predicted to go up 10% this year in the SCMP article here). I think you would need to be very foolish to sell at this point in the cycle as its still pre-boom period.

    The first batch of 300 flats in Sun Hung Kai Properties' Century Link development in Tung Chung - the first project to go on the market this year - sold out in less than seven hours yesterday.

    The flats went on sale at 10am and were sold out well before close of business at 6pm, according to two property agents who declined to be named.

    Properties on sale included flats with one or two bedrooms and net floor areas ranging from 408 to 645 sq ft, priced at HK$4 million to HK$6 million.

    Many buyers had their eyes on the smaller one-bedroom flats, which had sold out by early afternoon, according to the property agents.

    The cheapest flat was a 412 sq ft unit on the first floor priced at HK$4.09 million before the discount - or HK$9,948 per square foot in terms of saleable area. After the discount of up to 10.5 per cent, the price would be HK$3.66 million, or HK$8,904 per square foot.

    "This is a good price and a rare chance for first-time buyers like us to get our own home. You'd pay this much for a second-hand flat in Tung Chung. We feel so lucky," said one man who bought a two-bedroom flat for his family.

    Some 13,800 homebuyers had signed up for the first batch of Century Link flats, making it the most popular residential project since a law to regulate the sale of new flats took effect in April 2013.

    Flats sold yesterday include units at Towers 3A and 3B, and Towers 5A and 5B, which are expected to be completed by March 31 next year.

    The project will eventually provide 1,407 units - 70 per cent of which measure under 500 sq ft.

    One property agent said the results showed there was strong demand for new flats when the price was right.

    "Buyers were drawn in by the relatively low price tags - especially first-time buyers. The location is also very appealing - it's close to the airport and the bridge that's being built [linking] Hong Kong, Macau and Zhuhai," said Louis Chan Wing-kit, managing director for residential sales at Centaline Property Agency.

    Victor Lui Ting, Sun Hung Kai Properties deputy managing director, said earlier that the company would net HK$1.7 billion if all 300 flats were sold.

    Midland Realty expected average home prices in the New Territories to go up by 10 per cent over the next year, passing the HK$10,000 per square foot mark.

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  15. ALL HSBC VALUATIONS FOR PART ISLAND SEEMS PUT UP TODAY.

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  16. New potential park islanders here. We are Rich and Margo from New Zealand. Both have jobs as teachers in HK starting shortly and now just finishing a 6 week tour of Europe. We have a friend who lived on Park Island who highly reccomended it to us. We will arrive and look for a 2 bedder in person, and have been told expected budget is around 18-20 K, which is the limit of our budget, but we want to live well have most will be covered by housing allowances. See you all soon and hope to make new friends.

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  17. Margo you will like Park Island a lot especially if you are after a good living environment. However if you are new to HK you might also want to consider living right in the heart of SoHo and Mid Levels, especially if you are more into bars and clubs and dining etc. It will cost you more and the apartments are way smaller and older, but you will get more of a true HK city feeling. Then you will appreciate Park Island even more if you moved there afterwards.

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  18. Margo we are a couple also considering the move to Park Island. We have visited it before and it truly is lovely. Do you know what it costs to be a member of one of the recreational club houses? Is that included in the rental?

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  19. HSBC valuations seem up again for most of park island this weekend

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    1. Interesting - yes it does indeed seem that HSBC has raised the valuations on Park Island to the highest levels I have seen to date.

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  20. Will CY Leung's plan to give more money to lower income people push up prices? Some would say yes, as it puts more money into the overall economy which will push spending and prices up (multiplier effect).

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  21. Really crazy demand for those smaller apartments in HK recently launched. At those prices Park Island looks incredibly cheep. From today's news:

    Sun Hung Kai Properties (0016) lured the market with another 159 units at its mass-market development Century Link in Tung Chung with prices starting at HK$3.5 million.

    Ranging from 356 to 645 square feet, the new batch of flats will provide one to three- bedroom homes, priced between HK$3.91 million and HK$9.59 million, or HK$9,859 and HK$14,967 per sellable square foot. The average pssf price stands at HK$11,378.

    All discounts included, the cheapest apartment requires a mere HK$3.5 million for 377 sq ft. It has one bedroom.

    The developer released the pricing yesterday after it cleared all 320 homes in its second round of sales on Saturday, proving once again the popularity of small flats with local home buyers.

    Midland Realty said 35 percent of the prospective buyers at the sales venue were investors, a percentage that was unusually high.

    Two-bedroom types were the most sought-after as they suit a wide-range of buyers, said Midland's residential chief Sammy Po Siu-ming.

    "Investors eye handsome rental returns from two-bedroom units and the ease of selling them," said Po, adding newly wed couples also appreciate an extra room for their babies in the future.

    Centaline Property's residential chief Louis Chan Wing-kit said rising home prices have made secondary flats and even subsidized apartments more expensive.

    He said small-sized units such those offered by Century Link will continue to see a frenzied response.

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  22. Prices will go up and complainers will be inevitable. A much bigger problem we should be speaking about is the pollution issue in HK. Let's face it many of us came to Park Island to get cleaner air, yet we will have ships around the island and in HK using low quality fuel. We need regulate to marine vessel emissions, as marine vessels are one of the largest sources of particulate matter, nitrogen oxides and sulfur dioxides. Air pollution is a regional issue, and whilst the worst offenders are undoubtedly Chinese, the Hong Kong governmentshould work with Guangzhou and Shenzhen Port Authorities and the Pearl River Delta region to enforce joint measures that would require all ships in our waters to switch to low-sulfur fuel. Our lives are more important than property prices don't you think?

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  23. Well the Morgan Stanley HK property forecast released yesterday estimated that residential prices will rise 5% in the first half of 2015 and be stable the second half.

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  24. Centacity property index today just out. HK prices hit a new all time high this week (again). http://hk.centadata.com/cci/cci_e.htm

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  25. HK Currency Peg 2015 predictionJanuary 25, 2015 at 5:41 PM

    Here's a thought for what might happen. In 2015 HK drops the peg to the USD, instead pegging 1:1 to the RMB.

    That would put downward pressure on HK property prices. At the same time, they remove all of the cooling measure, stamp duties etc go back to normal, which, if done at the same time would ensure the property market stays likely around the same price, while meanwhile having engineered a 20% increase in the HK dollar.

    We would get an increase in the value of our currency, property prices that didn't drop as a result or the transition to the RMB, and arguably a more stable and controllable rate of increases as we would not longer be tied to the USD and controlled by US economic policy.

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  26. Peg is very hard to predict. But more simple is that China keeps making easy money available as the economy slows and it wants to have consumers spending. Where will that money go? Well Chinese like to get it out of China and into property...

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  27. Honestly I think hk market will go up max 25% next two year due to china money stimulus and easing. After that hk prices might peak and stagnate. In the long run park island will go very well I believe.

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  28. For those of u complaining about HK prices. You think they are high? Spare a though for us living in Sydney. Crazy prices over at here which make Hong Kong look relatively affordable given your lower taxes and non-existent capital gains tax.

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  29. Great article and seems very on the mark so far. To the poster above complaining about Sydney prices it seems that yes Sydney is truely starting to look like a bubble at their current levels.

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  30. Hubby and I were looking over the weekend at some of the larger units. Its somewhat exciting and tiring at the same time but we are planning to buy over the next few weeks hopefully. We plan to live here long term and feel the money is just otherwise wasted on rent and we like the place alot.

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  31. I do feel there is some basis to the view that Chinese are able to get cheap money from banks and buy in HK whilst HK people are faced with more conservative banks and lending restrictions. This is enabling China to literally take over HK by buying it over bit by bit.

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  32. Dude, looking at your prediction you are really spot on so far. If anything the market is going higher than u predicted. Well done on beating the bank analyst bears. HK property has a ways to go yet on the upside,

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  33. HK Govt themselves said they will reduce the spicy measures when interest rates rise so it will keep making prices go up.

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  34. Hong Kong Property ExpertJune 2, 2015 at 6:06 PM

    The HK property market will keep booming. Interest rates are going to be a low for a long time coming. China is stimulating its economy and ShenZhen across the boarder is about to enter a property frenzy. Add that to very limited supply in HK and high construction costs and you have all the recepie for a boom in prices in HK. I would expect prices to approximately double over the next 5 years in HK.

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