Property Cycle In Hong Kong And Where Are We Now?

If you are serious about investing in your first real estate, you have to understand the property cycles in Hong Kong. Before you even think about searching for a house to buy, it is important to do your research. You need to understand the housing market in Hong Kong – particularly as it is one of the most expensive in the world.

In case you haven’t noticed, the housing prices have gone up and down in recent years. This is in line with the movement of the real estate market in the property cycle. If you learn how to read the signs, you will know when is the best time to buy a property. There is a phase in the cycle wherein property prices are low and the value poised to rise in the coming months. That is usually the best time to buy a property. You can immediately gain from your property investment if you purchase a house at the right time. You need to identify the signs that point towards the perfect time so you can maximize your investment.

Property Cycle In Hong Kong

What is the property cycle in Hong Kong?

So what is the property cycle in Hong Kong? There are 4 phases to complete the cycle – which usually lasts for 8 years on average. However, some experts believe that it is possible to have a property cycle that is as short as 4 years or as long as 18 years – if the property prices and global market has enough influence on it.

Here are the 4 phases of a property cycle:

Boom phase (the peak)

This is usually the shortest time of the property cycle. During this period, real estate prices increase at the fastest rate during the cycle. Do not worry because the initial rise is usually slow, but it picks up the pace as soon as investors recognize the peak. You can bet that they would start acting to take advantage of the returns. This is the time when you usually see a rise in both properties selling prices and rental prices. During this time, investors can sell their properties at an even higher amount compared to the asking price of the buyer. In some housing markets, this is considered to be the seller’s market. That means the homeowner has the upper hand. In this phase, the high competition happens on the side of the buyer.

This is a great time to invest, those who flock the housing market end up creating a high supply – which leads to excess. When the excess is evident, that signals the end of the peak.

Slump phase (the fall)

The sign for the start of the downturn phase is the excess of housing units. Because of the enthusiastic investors and developers during the boom phase, the property market now has an oversupply of flats. This will result in a higher vacancy rate – in which case, the tenant would be left with more options. This will force landlords to lower their rental price to attract tenants. Property prices usually stop increasing at this point, and new homeowners will start to struggle with their payments. After all, most of them paid more for the property that they bought. This phase is also characterized by high-interest rates – which makes the mortgage repayment even more challenging.

When homeowners start to sell to recover their losses, things will get worse – since they are selling at a disadvantage. This is usually a long phase – especially when other sectors of the Hong Kong economy make it resilient enough to compensate for the losses in the housing market.

Stabilisation phase (the bottom)

This the part when the fall stops and the housing market reaches rock bottom of the property cycle. This is the time when the market starts to stabilize. There will not be much selling going on at this point – although the vacancy rates are high. Sellers are not really in a rush to close, and this phase allows them to wait for a more favorable asking price from a buyer. You will notice that in this phase, the properties will stay for a long time in the market. Property prices will continue to fall – until it “bottoms out.” This phase will end with a more stabilized housing market. That is the best time to buy a property – when the property is in the market for quite some time, sellers become desperate to sell. It should be easy to find a flat that fits your financial capabilities.

Upturn phase (the rise)

The last of the 4 property cycles in Hong Kong is the recovery phase. The housing market is now rising. The vacancy rates start to thin out, and rental prices increase. Property values also increase – which opens the door for investment opportunities. If you want to buy a property in Hong Kong, this is also a great time to do it. Properties are affordable, and any return of investment will be in your favor. The great thing about this is that property values will gradually increase – as it heads towards the boom phase. Investors and first-time home buyers will flood the housing market – which will soon start another property cycle in Hong Kong.

Where are we in the property cycle?

Now the magic question here is, what part of the property cycle are we in? Is it a good or bad time to buy a property in Hong Kong?

Let us look at the signs.

According to an article from The Standard, home prices are falling in Hong Kong. In January of 2016, it is recorded to have dropped around 10%. Those who wish to sell their properties would have to contend with slashing their prices to attract buyers.

This seems like evidence that we are in the slump phase – or the fall.

The Hong Kong government actually took steps to control the property boom by imposing a special stamp duty for properties that will be sold within 2-3 years after it was bought. After all, reselling at a loss usually makes things worse for the market. The government is trying to head that off – maybe in the effort to prolong having the property cycle in Hong Kong bottom out until the economy is stronger. If the property cycle bottoms with a weak economy, it might affect other sectors in Hong Kong.

In a separate article published in Bloomberg, it is confirmed that the Hong Kong market has yet to reach the bottom. The article discussed how the housing market in this region peaked in 2003 and continued to drop in September of 2015. It is prolonged because there is still a strong demand from investors hailing from China. Experts believe that at the rate things are going, Singapore will bottom out first compared to Hong Kong.

What does this mean? Obviously, the housing market is still in the slump phase of the property cycle in Hong Kong. It is a good time to buy – but the best time is when it bottoms out. So keep on saving up for that deposit, get a pre-approval on your mortgage, and keep an eye on the market. When the housing market bottoms out, that is time to buy a property in Hong Kong.

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Abigail Wong is the Writer of The New Savvy.

She is a Singapore Management University 2nd year undergraduate specialising in Strategic Management. From Tampa, Florida, she possesses an International Baccalaureate diploma from C. Leon King High School, and previously held the position of Treasurer of the King High School Division of the French National Honour Society and the Science National Honour Society. Abigail is currently acting as President of the French Cultural Club for SMU International Connections, and as a Resident Advisor and Fire Warden for the SMU Residences at Prinsep.

Abigail is a Former Florida Science Olympiad Champion in chemical forensics and protein modelling, and former Health Occupation Student’s Association District Champion in clinical nursing.

In her free time, Abigail enjoys interacting and caring for animals. She has previously volunteered for the Humane Society of Tampa Bay as an Adoption Assistant.

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