Sky High Blocks & Sky High Costs – Why is Hong Kong Property so Expensive?

November 18 2019

Hong Kong’s living quarters are somewhat of a talking point. Each high-rise tower comprises tens of thousands of cube-like apartments that induce a sense of claustrophobia from a distance glance. Surprisingly, it is not only the height of the tower blocks that are unbelievably high… check the price tag, too.

For seven consecutive years, Hong Kong’s condense and crammed property market has also been ranked the world’s most expensive by a Demographia International Housing Affordability survey. The median price for property in Hong Kong is now 19.4 times the median household income. Compare that to London, a city that is also known for its extortionate property prices, but is still only 8.5 times the median income. So, for such questionable and compact living conditions, how can this be happening?

Hong Kong Property is in High Demand; with Low Supply

The main reason for such a monumental price tag on the property market is the sheer demand with low supply. Hong Kong is one of the world’s most significant financial hubs and an entry route in the most populated country in the world, China. It is also well known that the biggest demand for housing in Hong Kong comes from China. Therefore, there is a constant influx of people looking to move to the city without enough properties to comfortably house the growing population, and limited land space to change this issue. Which leads us nicely on to…

Little Buildable Land and High Land Price Policies

The land is a precious and scarce natural resource in Hong Kong, but it is also a huge generation of income for the government. Hong Kong has low tax rates, partly due to the significant cash that is pumped into the city through the sales of its land.

The majority of the land that remains in the city is not developable, and so the government are selling any buildable land for astronomical prices to developers, which in turns hikes up the cost of the final properties.

If the property value in the city drops, the government’s funds would seriously decrease, to the point where they might need to reevaluate the current tax system. Therefore, it is in the best interests of the government to keep property values high and land at a premium, which is why no real structure has been put in place to help halt the rising cost of property in Hong Kong.

Chinese Mainland Developers and Buyers are Hiking Costs

As previously mentioned, some of the biggest demand for Hong Kong property comes from the Chinese. However, the Chinese are not only buyers, but they also come as developers, too.

The land sells for record-breaking and somewhat unbelievable prices, which then begins a cycle for high purchase and rental prices upon completion. As the mainlanders become richer via other means, they decide to invest in the future, and a way of doing so is investing in property, or developing a property, in Hong Kong. But as the governments see the wealth of the investors rising, it almost seems like the perfect opportunity for exploitation via the asking price for the land. For example, based on reports from the South China Morning Post, in 2017, two Chinese developers paid a staggering $2.17 billion for residential land, which was over 50% higher than market valuations.

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