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News Release


20 Years of Change for Developers and Homebuyers

Hong Kong's residential and land markets are tethered yet still rising


The 20 years since 1997 have brought tremendous changes for both developers and home buyers in Hong Kong's land and residential property markets. Cashed up mainland developers have come back into the game, and residential capital values have increased as much as 75.9% over the last two decades. The city's residential and land markets are like balloons on the rise—despite being pulled back by the Hong Kong government's regulatory tether—and we have not yet seen the top. 

On July 1, 1997, when the Chinese flag was raised over Hong Kong, mainland developers accounted for around 25% of the total consideration paid for residential sites in the government's public land sales. Soon after, they exited in the wake of the Asian financial crisis. Today, PRC developers have returned in force, winning 100% of the bids for residential sites so far in 2017, and accounting for 62% of total market cap in the financial markets.

Don't count out local developers just yet though.  

"As local developers sell their properties, they are also actively preparing to bid for desirable land sites," says CK Lau, our Head of Valuation and Advisory Services, Asia. At the same time, PRC developers could face obstacles to raising funds and borrowing money to bid on land in Hong Kong.

​​PRC developers won 100% of the tenders for residential sites in the first half of 2017.

- JLL Research

The Hong Kong Monetary Authority's (HKMA) new site and construction financing may also cause small-to-medium sized developers to lose their competitiveness. Local heavyweights are unlikely to be affected given their relatively stronger cash positions and access to group financing. 

For home buyers, the residential outlook is "much healthier" and in a stronger position than 1997, according to Joseph Tsang, our Managing Director, Hong Kong. Back in 1997, nine out of ten transactions were carried out with the intention of flipping them for profit before completion. Confirmer sales, a sub-sale agreement that allowed the resale of uncompleted first-hand properties, were especially popular. This practice effectively died out in 2011, when stamp duty began to be payable without deferred payment on all Sales and Purchase Agreements. Now, home buyers mainly purchase properties for their own use, with first-time homebuyers accounting for about 90% of total sales in recent months. 

Currently the debt-servicing ratio (DSR), or the amount an average household uses to service its mortgage payments each month, is at a healthy level thanks to HKMA lending caps. But property prices are still rising, despite government efforts to keep them closer to Earth.


Stamp duty hikes and a three-year wait to resell are among the policies that have dead-locked the secondary market's supply of 1.2 million units. With homes on the secondary market out of reach owing to a lack of financing incentives, buyers are being funnelled into the primary market where only around 11,000 units per year have been made available over the past five years, a trend that is further boosting housing and land prices. 

The government is simply throwing buyers to the developers,” says Tsang. “It is pushing buyers from the secondary market to the primary market to buy new flats, and that benefits the developers.” 

The developers' response to the cooling measures—providing financing incentives and rebates—has added more flame to the market fire. 

"This has put the market in a vicious cycle. That's why competition for land is keen and prices are rising," explains Tsang. "In light of the surging home prices, second-hand owners find it hard to sell their properties."

So, what does the future hold? We estimate that residential capital values will rise another 5% in the second half of the year, enabling an increase of 10-15% for the whole of 2017. Meanwhile, smaller unit sizes will remain popular as buyers seek an affordable way onto the property ladder. 

Tsang recommends that the government free up the secondary market.

"If the government can apply cooling measures in the primary market and ease off the secondary market, home buyers will move to the second-hand market. Then, developers will have to compete by bringing prices down. With prices down, developers will bid less aggressively for land," he predicts. 

Download our latest research white paper, "Up, Up and Away: The Rise and Rise of Hong Kong's Residential Market".

For more information about Hong Kong Capital Markets, visit our Investment Sales and Acquisitions webpage, or contact Joseph Tsang.