Most expensive homes worldwide found in Hong Kong, despite property market downturn, according to Deutsche Bank report.
Hanging onto the Dream: Decoding Hong Kong's Sky-High Property Market
Hong Kong continues to boast the most eye-watering real estate prices on the planet, despite a 20% plunge in the past five years, according to the Deutsche Bank Research Institute's Mapping the World's Prices report.
In the city center, the average price of a flat stands at a staggering $25,946 per square meter, beating out competitors like Zurich, Singapore, and New York. This steep affordability roadblock pushed Hong Kong down to the 48th spot globally in terms of quality of life, the report disclosed.
Hong Kong's property market has managed to maintain its unenviable status as the world's most unaffordable for the 14th consecutive year, as per the findings in the Demographia International Housing Affordability survey from 2024. To cover the average selling price of a home in the city, the average family would have to set aside a whopping 16.7 years' worth of income.
Why Does Hong Kong's Property Market Remain Largely Inaccessible?
Limited land availability, high demand, economic factors, and structural imbalances contribute to this housing crisis in Hong Kong.
1. Land Scarcity and Geographical Constraints
Hong Kong's unique topography and stringent land use policies have fed into a chronic shortage of land, which in turn has consistently hampered new housing supply. Initiatives like the Lantau reclamation project aim to bolster housing stock by adding approximately 49,000 flats by 2030, but delays and exorbitant costs mean the supply issue is set to persist in the immediate future.
2. Intense Demand and Demographic Factors
Rebound from stagnation during the 2019 protests and inflow of wealthy mainland Chinese buyers despite recent economic slip-ups are among the factors that contribute to Hong Kong's high demand for housing. Though mainland demand has dropped due to China's slowed economy and a weaker yuan, the underlying housing demand remains robust.
3. Unaffordable Prices and Affordability Ratios
According to the Demographia International Housing Affordability Survey 2024, Hong Kong's average home prices are an astonishing 16.7 times the gross annual median household income, making it the least affordable housing market globally for the twelfth consecutive year. Though there's been slight improvement from a ratio of 20.7 since 2022, it's still staggeringly high when compared to global standards.
4. Economic and Market Challenges
Recent drops of almost 30% in house prices from their 2021 peak can be attributed to weaker mainland demand, cautious buyers, high interest rates, low population growth before the rebound, and cautious buyer sentiment. Recent rent rises of about 9.9% year-on-year in large units highlight ongoing upward pressure on housing costs resulting from supply constraints.
5. Public Housing and Its Social Implications
Hong Kong's public housing system plays a crucial role in providing affordable rental options for low- and middle-income residents. Tenants typically part with about 10% of their income for subsidized housing, significantly less than the average market rent (about 20% of income), thus boosting economic activity among lower-income groups. This system helps alleviate—but doesn't eradicate—the overall housing affordability crisis.
The Road Ahead
In essence, Hong Kong's spiraling housing market unaffordability is rooted in structural supply shortages arising from land scarcity, coupled with intense demand driven by demographic trends and foreign investment. These factors have been compounded by economic uncertainties and towering property prices relative to incomes. Despite recent setbacks, Hong Kong remains the least affordable housing market globally, plagued by a chronically unbalanced relationship between tight supply and strong demand, as well as a protective but limited public housing system.
- Despite ongoing economic challenges, continued interest in real-estate investments from wealthy mainland Chinese buyers has sustained the high demand for housing in Hong Kong.
- The city's business sector, particularly the finance industry, may struggle as the affordability crisis in the real-estate market persists, impacting the economy and limiting the availability of affordable housing for families.
