One Reason Why Hong Kong's Property Market Won't Collapse

(Bloomberg) -- A Downtown 38 show flat on display in Hong Kong’s APM Millennium City shopping mall had a queue snaking out the door and around the corner on its opening weekend. The global property downturn that infected Hong Kong in August didn’t seem to deter would-be homeowners.

“The economic outlook isn’t very promising,” Leo Wong, a 35-year-old private equity executive said as he waited in line, pamphlet in one hand and toddler in tow. “But if you’re buying a home for your own use, that doesn’t matter much.”

Like many families in crowded Hong Kong, Wong is looking for a bigger apartment, even though he expects prices to keep falling. And Hong Kongers are relatively flush with cash even after last year’s stock market rout -- pent-up buying power that some analysts say will prevent the world’s most expensive property market from sliding much further.

“There’s still a lot of money, it’s as simple as that,” said Nicole Wong, the regional head of property research at brokerage CLSA Ltd. Record-high bank deposits suggest residents have the ability to make home purchases if they want, she said.

While not as high as Singapore, Hong Kong boasts an enviable household savings rate. World Bank figures put the gross savings level at 27 percent in 2017, more than France’s 23 percent, Canada at 20 percent and the U.K. at 13 percent.

New projects with competitive pricing have also piqued buyers’ interest, along with an expected breather in interest-rate increases, according to Patrick Wong, a real estate analyst with Bloomberg Intelligence. “As interest rates stabilize, buyers who were held back by potential hikes are drawn back to the market,” he said.

China Overseas Land & Investment Ltd. received more than 7,500 applications for the 486 units for sale at its Regent residential project in Hong Kong’s Tai Po district earlier this month. Government programs to provide “starter homes” -- cheap apartments aimed at helping young people get on the property ladder -- and other subsidized dwellings have been similarly oversubscribed.

While most market watchers expect home prices to fall further -- they’re down almost 9 percent from their August peak -- Citigroup Inc. sees signs of prices bottoming in the next two months as buyers begin to unleash pent-up demand, and Morgan Stanley says to expect a 2 percent rise this year for the same reason.

Many residents consider owning a home a top priority, and are willing to set aside a large chunk of their income to achieve it. According to figures from mortgage brokerage mReferral Brokerage Services, homeowners are forking out close to 60 percent of their monthly income to service their mortgage debt.

Parents are also doing everything they can to help the younger generation, mindful that home ownership is an indicator of success and stability.

“I’ve seen a lot of cases where parents pay a large sum for a down payment for their kids,” said Robbie Wong, a property agent with Qfang.com. The children typically lived at home with their families before that, he said.

With developers expected to continue to price their projects low, thus bringing down values in the secondary market, buyers will continue to be brought back in, according to Colliers International Group Inc.

“When we ask around, all our clients say ‘we’re waiting for the right timing’,” said Hannah Jeong, Colliers’ head of valuation and advisory services.

To contact the reporter on this story: Shawna Kwan in Hong Kong at wkwan35@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net, Philip Lagerkranser

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