Hong Kong property market heating up again. Is Hong Kong property on the cusp of another boom?

This post is not so much specifically about Park Island, but rather about the HK property market 2021 outlook.

I'm amazed at the prices new condos in Hong Kong are being snapped up at in recent days.

A friend of mine just bought s 570 square foot place in Admility HK, on Star Street for 17.5m off the plan. Add to that around 3m of stamp duty are you are looking at around 20m total cost.

He's one of those people who were lucky enough to get into the HK property market many years ago, and now he usually buys a new condo once every few years using prior gains as equity. His advice - "HK property always goes up over time. It is never a bad time to get into the market. The key is to take that first step onto the ladder. It gets easier from from there". He's an expat, but what he says about property is almost a universal and unquestioned truth for local Hong Kongers also.

Here's the condo: EightStarStreet. Nice development, and location but its not cheap. What do you think? Would you pay 20m for a condo here?

Not just did it cost him 20m, but he had to run across town to get his deposit cheque in prior to a competing buyer. The developer was blunt, but fair. First person with the downpayment get it. Such was the demand to get into this development. Still, with some Hong Kong banks offering property loans at interest rates below 1%, I can see the attraction to buying such property, with rental income easily covering loan interest costs. Still, the risk of course is that rates might rise. So this is the big "bet" such investors are making. He reckons he will get a rental of around 32-35K on completion, Lets see.

Having said that, the Hong Kong Mortgage Corporation (HKMC) recently introduced a pilot scheme for fixed-rate mortgages for 10, 15 and 20 years, with rates fixed at 2.55 per cent, 2.65 per cent and 2.75 per cent, respectively. So a good way to lock in some certainty for those prepared to accept higher rates in return for that certainty.

There are countless examples of similarly highly priced launches taking place across Hong Kong at the moment. And when I reflect on what we have on Park Island, in terms of quality, facilities, space etc makes we think apartments on Ma Wan are currently super attractive in terms of value (both to rent and to buy), comparatively speaking to other parts of Hong Kong. I really do wonder why it is that Park Island still remains one of Hong Kong's best kept "value for money secrets", and how long this will remain the case.

I see so many drivers that have Hong Kong poised for a huge property rally in the next few years. 

Hong Kong property prices went sideways for the last few years (although possibly rents went up a little, but not more then 5-10% or so from my observations, despite what landlords will try and tell us!).

We had several years of severe "social unrest" in Hong Kong, and if that wasn't enough, that was then promptly followed by COVID. Both of which dampened confidence and willingness to invest among local investors, and among the all important and influential mainlander Chinese buyers. We also have the "work from home trend" which has been extremely supportive for local property value. (More on this trend and the impact and prospects for Park Island in a future post).

Meanwhile we saw many major global property investment markets rally strongly. As well as global stock markets hitting new highs. Unprecedent money printing globally. And unprecedented low interest rates.

And now, we have the prospects of the COVID epidemic end in sight. Covid vaccines underway. Mainland China's economy booming on a covid recovery bounce. Travel recommencing between Hong Kong and the mainland. Record never before seen low interest rates. Chinese desperate to get money out of mainland China while being increasingly shunned by global banks and countries. All of which make the Hong Kong market a very obvious destination. I would say indeed that mainland buyers are salivating with relish at the prospects of buying a piece of Hong Kong, now that the "handover" ("takeover"?) to China has been firmly established. Also, both due to COVID, and geopolitical reasons, mainland Chinese are finding themselves increasingly unwelcome (or not even able to enter) by many major foreign countries, but will increasingly be travelling to Hong Kong (and Macau) over the next few years until these dynamics change.

We all know that property in Hong Kong is very limited in supply, and that property ownership occupies an almost religious place in a local Hong Kongers' mindset (for a multitude of cultural and historical reasons). And those of us who have been here a while, know that every once in a while, Hong Kongers go into an absolute property frenzy, which build and feeds on itself, driving prices ever-higher. So I'm calling it. I believe we may well be on the cusp of this happening right now.

Often overlooked, but perhaps the biggest driver of all this time around, is Hong Kong's absence of any kind of capital gains tax. In almost all countries globally, investors pay a massive tax on capital gains. So for example, if you bought a property for 1m, and sold it for 2m, you have made a gain of 1m, You might be required to pay a 40% capital gains tax. Such a tax does not exist in Hong Kong. You get to keep all your gains! Singapore also has zero capital gains tax, but whacks investors really really hard with exorbitant "stamp duty" taxed on the front end, so is not overly appealing.

Hong Kong is an entirely open market for the free flow of investment capital. We have seen investors globally seeking a save haven to preserve the value of their cash. I think, as Hong Kong property picks up, we will see a massive swing towards investing in Hong Kong. The major property developers are all seeing good sales and strong upticks in their stock prices. (Usually a leading indicator of what is about to come). Day to day chatter about property is increasing among locals over dim sum. Expats are actively looking to "get into the market". And a surge of mainland Chinese buyers are about to head our way!

Hold on tight and enjoy the ride. Hong Kong property booms can be a great and exciting time if you know how to ride them!