CHAN Ming Ko
Analysis of Housing Market in Hong Kong
In Hong Kong, housing served citizens and foreign for both residential and investment purposes. It also provides investment opportunities for speculation and wealth accumulation to local residents and investors and attracts capital influx into HK's economy. According to (Leung, 2005), these housing activities amounted to about 22% of GDP in Year 2002, making property industry became the second largest industry in Hong Kong. Moreover, the business activities related to housing market has contributed the government a stable source of income on substantial revenue through land sale, government rates and rent, stamp duty and other related tax income. The substantial revenue help government keep necessary public services in operations and provision of new public goods to satisfy increasing needs from the society such as the low-rental public housing, medical services, provision of additional infrastructure to enhance connectivity of New Towns in the New Territory. This can maintain Hong Kong as a world-class and prosperous city. Thus housing market always plays an important role in the future development of Hong Kong. In the following section, analysis would be emphasis on the housing market in Hong Kong through examine the opportunity cost for developer to do investment, factors affecting the demand and supply of housing, the externalities generated and identify the sources of inefficiency and inequity resulted. 1. Housing Scarcity in Hong Kong Housing is a very scared resource in Hong Kong due to limited land suitable for development, tight restrictions on town planning, lease control and building design and termination of Government Home Ownership Scheme (HOS) in 2002. On the supply side, developer tends to plan their development carefully and employ professional surveyors to carry out feasibility studies with a view to maximize the development potential of their land and maximize their profit. Developer would examine different development options and the profit of the next best development option forgone is also called the opportunity cost of the chosen development option. On the demand side, the demographic trend indicated that household size is decreasing causing an increase in demand for new housing units. Further, the rising house price gave confident and encouraged the housing speculation activities which expanded the investment demand for housing. Page 1 of 33
Chan Ming Ko 0900557 Page 1 of 33 K107CMF 001 2009/0
Graduate Development Programme Part 1 Construction Markets and Finance Assignment 1
CHAN Ming Ko
The mismatch of supply-and-demand was well-rooted in our housing market leading to the housing scarcity problem, and greatly affected the amount of disposable income for the low and middle income classes in Hong Kong. 2. Conditions of Demand House price is the main determinants which influence the housing demand, other non-price factors such as income level, preferences of individuals and expectations are considered as conditions of demand. a. Levels of Household Wealth and Disposable Income Housing affordability is the most inclusive and best measure of housing demand in Hong Kong. It is the percentage of monthly household disposable income contributed to the mortgage repayment as shown in below figure from HKMA. There is a sharp decline of housing affordability ration in the precedent 11 years, meaning that housings are much affordable since the collapse of “housing bubble” in 1997. In addition, the Hong Kong Monetary Authority (HKMA) has launched a regulatory measure to limit the mortgage loan to property value to 70% ensure affordability of homebuyers and reduce the default risk of mortgage. Mortgage insurance are required to obtain higher loan percentage by applying from Hong Kong Mortgage Corporation (HKMC).
With the real...