Mon. Dec 6th, 2021

My apartment in Hong Kong’s Mid-Levels district cost HK $ 50m ($ 6.4m), but walking from one side to the other only takes 10 steps. It will probably be the most expensive property – and hopefully the smallest – in which I will ever live.

I know how much my landlords paid for it, because the real estate agent asked at the signing of the lease in January if I wanted to look at the ownership deeds. I took a picture of all the zeros (a satisfactory amount in Hong Kong dollars) so I would not convince myself that I remembered wrong.

The apartment is on the 42nd floor with views of Victoria Harbor and the Hong Kong skyline, but at about 500 sq. Ft. It is barely larger than a hotel suite. I am regularly reminded by friends that it is considered great in this city.

Hong Kong has been named the world’s least affordable housing market for 11 years, according to an annual report by think tank Demographia. The median price of a home is more than 20 times the annual median household income, four times the ratio at which a place becomes “very unaffordable”.

House prices have doubled in real terms over the past decade, reaching record highs this year, according to an index by Hong Kong real estate agency Centaline. It is not surprising that the rate of owner-occupied homes is low at 51.5 per cent of households, according to government data, only slightly higher than Germany (46.5 per cent) and much lower than the UK (64 per cent) and Japan (61 percent)).

Rents are the highest in the world and have increased by about three-quarters since 2010, far exceeding wages. The average monthly rent for a 900-square-foot property is nearly HK $ 4,000, just lower than in San Francisco, according to Expatistan, whose data is used to track the cost of living by institutions like Deutsche Bank.

Hong Kong has subdivided apartments known as 'kish houses', and a new market for 'nanoparties' has emerged

Hong Kong has some of the smallest houses in the world, including subdivided flats known as ‘kish houses’, and a new market for ‘nanos’ flats has emerged © Lam Yik / Bloomberg

Nearly 8 percent of people live below the poverty line, which in Hong Kong is defined as an income of less than half the median, but 8.7 percent have net assets of HK $ 10m or more, according to Citibank. According to the 2021 Forbes Rich List, Hong Kong had the sixth highest number of billionaires.

Subdivided apartments as large as car parking spaces, known as “kish houses”, occupy the same cramped downtown area as expensive luxury apartments. A new market for “nanopartments” has emerged due to the lack of space. In 2019, these 260-square-foot or less apartments accounted for 13 percent of home sales.

Hong Kong has had more than three years of political and social upheaval. Housing was one of the frustrations that formed the roots of the city’s 2019 protests. But so far, the protests and, more recently, the pandemic have had little impact on prices.

Home and Home Map - Hong Kong

After a slight drop in confidence at the beginning of 2020, as the pandemic caused fears that the city would be hit just as hard as during the Sars crisis in 2003, sales are booming. Martin Wong, head of research for Greater China at Knight Frank, predicts that there will be more than 70,000 residential transactions this year, which will be a record since 2012, and a 5 to 8 percent increase in residential property prices.

The high side of the market is especially hot. Luxury real estate rentals – homes that are more than 1,000 square feet and prices in excess of HK $ 30,000 ($ 3,800) per square foot – rose 1.4 percent in the second quarter of 2021, according to JLL, the first quarterly increase since the end of 2019. In May, he rented a five-bedroom house on The Peak – a prestigious address overlooking central Hong Kong Island – for a record year of $ 2.5 million.

Foreigners moving to Hong Kong for work have long contributed to keeping prices high, fueled by the large budgets of multinational corporations to house their exiled employees. But Hong Kong’s strict coronavirus travel restrictions and erratic political situation mean more people are leaving and fewer are arriving: its population fell 1.2 percent last year, the largest decline since government records began in the 1960s. Visa approvals for foreign workers dropped to about 10,000 in the first nine months of this year, more than 75 percent lower than the figure for the whole of 2019.

Neither the pandemic nor social protests have affected Hong Kong's rising property prices

Neither the pandemic nor social protests have affected Hong Kong’s rising property prices © Zhang Wei / China News Service via Getty Images

The situation has already yielded peculiarities. In some cases, senior lawyers and bankers who stay behind in Hong Kong as their families move to their home countries, where travel restrictions are less restrictive, come together to save costs. Some expatriate families are being forced to relocate from desirable hillside and beach locations closer to the city after their corporate housing budgets were reduced because companies kept expenses in check during the pandemic.

Wealthy Chinese entrepreneurs have supported Hong Kong’s luxury real estate market for years and see it as a safe haven to park money. It was a particularly attractive investment because of the low interest rates that come from Hong Kong’s currency pegged to the US dollar. But now, more than ever, all gaps are being stopped, realtors say, by an increase in Chinese money.

Bar graph of transactions in H1 2021 vs H1 2019,% change showing that Hong Kong's sales volumes are now higher than they were in 2019

“If you ask the luxury developers around, they will immediately say there are more tenants coming from mainland China,” said Joseph Tsang, Hong Kong chairman of JLL. “So while one part of the expat world is reducing its budget or leaving Hong Kong, there are people coming to fill the gap.”

China’s tighter capital controls in recent years have made it harder, but not impossible, to move large amounts of cash across the border, and there are many legitimate ways for Chinese business owners to make money in Hong Kong. About half of luxury real estate transactions in the area are done by foreigners, mostly from mainland China, Wong estimates.

This is also due in part to Hong Kong’s banned mortgage rules that limit loans to 50 percent for properties over HK $ 10 million. This means my owners, who are from the mainland, had to raise at least $ 3.2 million in cash to buy the apartment.

Now mainland Chinese cash is also supporting the upper end of the rental market. “Capital controls from China are being tightened, but people still want to live in good locations with a good living environment, so we are seeing more PRC entrepreneurs and companies entering the rental market instead of buying,” says Tsang.

Carrie Lam, Hong Kong’s leader, has been under pressure since the protests to increase the supply of homes. In October, she unveiled plans for a “Northern Metropole” to house 2.5 million people in the New Territories district. The project – which will take 20 years to complete – aims to alleviate the chronic housing shortage by attracting people to live in a less crowded part of Hong Kong.

It will also become a technology hub near the border with the Chinese city of Shenzhen, home to China’s biggest technology giants such as Tencent. But the long-term plan is unlikely to have any impact on citizens’ living conditions for the time being – although some analysts have already predicted that it could raise house prices in the area.

The problem for Hong Kong is that it does not have much extra land. About 75 percent of the area is protected or too mountainous to build on. Consequently, construction in developed areas seems to be relentless. It’s a common sight to see new apartment blocks being built in the gaps between two existing towers in an impressively efficient use of space, but with little regard for the views from residents’ windows.

Yet demand surpasses supply, even with rising prices. The scarcity of land means that buying property is considered a long-term game. “It’s still crazy. If there are 100 units in a new building that is being built, it is normal that it has been re-signed more than 10 times, and it will have to go to lucky draws, ”says Eunice Tenh, who was a real estate agent in the city. more than 15 years.

News that the Hong Kong border with mainland China will reopen by June 2022 will already boost the market, realtors say. This week, just days after the border announcement, an apartment on Mount Nicholson in Hong Kong Island sold for HK $ 640m, or HK $ 140,800 per square foot, a record in Asia.

“The big Hong Kong developers are all very optimistic about the market,” says Tsang. “Hong Kong is still seen as the Monte Carlo of China.”

Buying Guide

Hong Kong is now technically open to non-residents who have been fully vaccinated, but anyone moving or visiting must be quarantined in a hotel room for 21 days at their own expense if they travel from 25 countries, including the US and the UK, or 14 days from almost anywhere else. The exception is mainland China: visitors from some provinces can travel without quarantine, although there is a strict restriction; most vaccinated visitors from China must be quarantined for seven days.

Hong Kong has set strict mortgage requirements to try to control prices – to little effect. Buyers should put down at least 40 percent of the value, and there are stricter rules for buyers from abroad. Mortgage applicants whose income comes primarily from outside the area face a maximum loan-to-value of 40 percent for properties over HK $ 10 million ($ 1.28 million) and 50 percent below that price.

To postpone overseas speculation, Hong Kong has instituted additional stamp duty for non-permanent buyers, which is a fixed rate of 15 percent of a property’s value.

For which you can buy. . .

HK $ 45.8 million ($ 5.88 million)

A three-bedroom apartment on Macdonnell Road in Mid-Levels Central, a short drive from the central business district. The property includes an additional maid’s room, balcony and parking space. For sale at Knight Frank.

HK $ 55m ($ 7.06m)

A four-bedroom, three-bathroom house with a private pool and garden in a quiet hillside location. There is also a maid’s room, three parking spaces and mountain views, as well as a partial sea view. On the market with Knight Frank.

HK $ 1.2 billion ($ 154 million)

A detached four-bedroom house on Island Road in Deep Water Bay, south of Hong Kong Island. The property was built in 2009 and has a roof terrace with views of the bay and hills. Available through Christie’s International Real Estate.

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