The Relationship of China and Hong Kong Property Market

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1.China Property Market

Since 1998, the Chinese hosuing market experienced it’s first serious slump from the end of 2007, This was marked by great price declines over 30% in some cities, as well as drop in sales volume. Many industry analysts believed the market is too hot before 2008 and drove government officials to tighten regulations on home buying for cooling the market.

However, the Chinese market seems to have practiced a turnaround much faster than expected. Due to the 5 consecutive interest rate drops since Sep 2008 and loosen regulations on 2nd house mortgages, the suppressed demand accumulated was revived. Transaction volume started to grow in many cities across China from the end of 2008. There was not only first-time buyer or 1st hand residence buyers going into the market, but also upgrading home buyers and investors were joining in, as proved by the growing transaction of large-size and luxury apartment.

The bounce back has kept going on in the first half of 2009, while the prices are still climbing up in the second half. But once again, as the government tightened control of second home mortgages in July 2009, transaction volume recorded declines in July and August. Price growth and inadequate supply were also contributing factors.

In this case, we can say that China Property (Residential) market is bubby, no matter how government take control of home mortgage, the price index is keep increasing. As per Stephen Chung’s presentation about the foaminess of Chinea property market (both 1st and 2nd hand), it shows that the risk ratios of the tier 1 cities is quite high.

If you were investors and wealthy man, will you pour money into China property market ONLY?

2.Hong Kong Property Market
In 2009, properites of HK bloom, especially for luxury properties, which are mainly driven by the millionaires (no, should be billionaires) from the mainland. The most shocking news is that the property prices continue to hit new records, with the average price has consecutively exceeded $30,000, $50,000 and $70,000 per sq.ft.

It is commonly believed that the rise in property prices was stimulated by the substantial acquisitions of luxury properties by mainland rich people. There are rumours that the luxury properties in Mid-levels West sold at sky-high prices and 60% of the housing units near Kowloon Station were purchased by mainlanders. According to industry source, mainlander involved in 40% of the luxury property transactions in recent months. Most buyers from mainland settle their deals in cash without the need of mortgage loan. If all these are true, “China Funds” (money from mainland China) should be a critical topic worth studying concerning the property market in Hong Kong.

According to the cover story titled “China Buys the World” published in the latest issue of Fortune magazine, China, after its rise, has cumulatived some US$2 trillions reserves in foregin exchange to acquire assets around the world.

Actucally, most of HK public agreed that “China Funds” boost the HK residential property price and that why they have voiced out to HKSAR for complaint.

3.Retionship between China and HK Property Market
Obviously, “China Funds” came from China investors and wealthy man; they did real property transaction in cash, as they trust the prestige of HK prorpety in quality, location, potential uplift, legal system, etc….

Prestige symbol - Luxury property

Indeed, a significant portion of China funds has been poured into overseas property markets. Through purchasing luxury properties in Hong Kong, mainland buyers enjoy the privileges to shop and work in Hong Kong, to transfer money to Hong Kong and to engage in businesses in Hong Kong.

Sources of money

2009 is an exceptional year for the residential property market in Hong Kong. Substantial capital flooding into Hong Kong leads to a critical question – where does the money come from?

If it is true that many luxury...
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