Hong Kong Homes Becoming More Affordable Than China: BofAby
Housing affordability ratio at 58% versus 80%-124% in China
Mainland investors may consider buying second home in city
Chinese buyers are stepping up home purchases in Hong Kong, where prices are becoming “relatively more affordable” compared with some major mainland cities, according to Bank of America Merrill Lynch.
Interest from mainland buyers, amid a surge in home prices in many Chinese cities, may support Hong Kong’s property market, analysts Karl Choi and Fan Tso wrote in a note dated Thursday. Hong Kong’s housing affordability ratio, which measures mortgage payments as a proportion of median household income, now stands at 58 percent, compared with between 80 percent to 124 percent in three first-tier Chinese cities, they said.
“The home price gap between Hong Kong and the first-tier cities in China has narrowed,” the analysts wrote. “More mainland investors might consider buying a second home in Hong Kong for diversification or wealth-protection purposes.”
Chinese authorities have also introduced purchase restrictions and toughened mortgage lending to rein in property prices in the bubble-prone nation. Housing prices in China rose by the most in six years in August, with the biggest gains in large cities such as Shenzhen.
Hong Kong secondary home prices surged by the most in seven years in the week ended Oct. 2, according to the Centaline Property Agency website. The city’s residential property prices have rebounded from a six-month slump when they fell 13.3 percent from a record high in September 2015.
Transaction volumes have also rebounded, with 7,826 properties changing hands in September, the highest level in at least 15 months.
Mainland buyers have accounted for a higher proportion of Hong Kong property sales in 2016, driven by rapid price growth in China and a heightened interest in offshore assets, the analysts said. Some investors could have sold properties in China to lock in profit, then decided to re-deploy the proceeds in Hong Kong, they said.
The analysts maintained their forecast Hong Kong property prices will fall five percent next year, though said the risk is “skewed to the upside” because of Chinese demand.
Renewed demand from Chinese buyers looking for offshore assets is helping drive sales at Wheelock Properties (Hong Kong) Ltd.’s housing projects. Mainland buyers accounted for nearly 20 percent of September sales at its Kowloon development One Homantin, compared with about five percent when it launched six months ago, the firm said.
In a sign of optimistic market sentiment, Kerry Properties Ltd. earlier this month paid the highest price for a parcel of government land in three-and-a-half years. The developer outbid Hong Kong giants Cheung Kong Property Holdings Ltd. and Sun Hung Kai Properties Ltd. with a HK$7.3 billion ($940 million) offer for land in the territory’s Kowloon district.