Factors to Consider When Buying Property in Hong Kong

Posted: Jan 19 2023Last Updated: Jan 31 2023

Buying property is a widely held aspiration among Hong Kong people, and perhaps the single most important financial decision one can make in their lifetime. With Hong Kong’s housing market slump and property prices softening, you may be wondering ] when is the best time to buy a house and what factors are there to consider.

According to a recent poll conducted by Citibank, 16% of Hong Kongers believe that the current market is now ripe for buying homes, a nearly fourfold jump from the previous year and the highest percentage seen in the last decade. Rounding up the latest news in real estate, here we take a closer look at the Hong Kong housing market and the factors at play when it comes to buying property.

Housing Market Prices

Housing prices are usually the most important consideration for potential home buyers. In Hong Kong, housing prices have been dropping rapidly since mid-2021. The city has long held a reputation of being one of the world’s most expensive property markets, with property prices having undergone a meteoric rise over the last 13 years, skyrocketing by a whopping 275%. By and large, the perennially high demand for housing is sustained by the combined effect of land scarcity, tight government regulations on land development, low interest rates, and currency stability.

Yet, things have taken a drastic turn in recent months. Compounding the effects of the prolonged COVID-19 restrictions, the mass wave of emigration, and the economic downturn, Hong Kong’s housing market has seen a great shake-up in recent months. As of November 2022, home prices have plummeted to a new 5-year low. As it stands in December 2022, the Hong Kong property price index, or the Centa-City Index CCI, is down at 159.76, compared to the peak of 190.1 in 2021.

The decrease in housing prices may lead to home ownership becoming affordable, providing a strong incentive for purchase. Amid the overall dampened sentiment on the local market of real estate, some developers are aggressively slashing prices, with discounts of up to 20% on new housing projects.

At the same time, the Citibank survey also reflects a general bearish attitude among Hong Kongers, as many speculate that property prices will continue to drop into the next year. However, others postulate that the housing market could stabilize if the Hong Kong government removes travel restrictions with mainland China and overseas, and eases the stamp duty on second-home purchases and foreign purchasers.

Interest Rates

Interest rates are another major component influencing one’s decision to buy property. The lower the interest rate, the less expensive it is to borrow money from a lender. For years, interest home buyers in Hong Kong have enjoyed low mortgage rates, linked to the interbank rates. However, amid the uncertain economy and in step with the recent rate hikes in the US, Hong Kong’s interest rates have been rapidly climbing. The city’s interest rates are tied to their US counterparts due to the pegged exchange rate, and with the policy tightening of the US Fed, HKMA has increased its base rate upward by 75 basis points to 4.25% in November and the interbank rate (HIBOR) has spiked to 4.92% in December, from below 1% earlier in the year. At the moment, the prime rates of banks are at around 5.375%. It is expected to rise further in the coming months. This could be a good reason to buy property sooner and lock in the mortgage rate before it goes any higher.

Personal Factors to Consider

There is never an objective best time to buy a house, as home-buying is a decision that is not solely driven by housing market conditions. Personal finances and needs are also major factors that come into play, such that one buyer’s idea of the “perfect timing” to make the leap onto the property ladder or grow their investment portfolio can look very different from the next person. In addition to the market factors, the following personal factors should be taken into consideration when deciding to buy property.

Credit Score

You may think that the factors determining your mortgage rates are out of your control, but that is not entirely true. Your best way of securing a low mortgage rate with your bank or lender is by building up an excellent credit score. Good credit history is a testament to your credibility as a responsible borrower, minimizing the lender's risk of losses. If you are looking to enter the housing market, this will give you the advantage of access to the best mortgage plans and lower payments throughout your loan term.

Savings for Down Payment

Besides monthly mortgages, another key factor to consider is whether you have accumulated enough savings for a down payment - the initial up-front payment for the property. As those in the loop of real estate marketing may be aware, homebuyers in Hong Kong can make a down payment for as little as 10% of the property value. Of course, the higher amount of down payment you are able to put down, the less you have to borrow, and the lower your mortgage payments.

Availability of The Right Property

The best time for you to buy property is largely contingent on whether you are able to find the right property. After all, buying a home is a big financial step and a long-term commitment. Think of your long-term plans and whether a property’s location and specifications suit your needs. For instance, do you plan on growing your family or downsizing? Will you be leaving the city in the foreseeable future? Ideally, you want to buy a property that you love and will keep or live in for a long enough time to reach the break-even point.

The Bottom Line

Ultimately, those looking to purchase property are encouraged to thoroughly assess both broader-market and personal circumstances. Keep an eye on Hong Kong’s property price index as well as mortgage rates offered by various lenders. If the housing market conditions align with your appetite for risk and fit within the parameters of your personal finances, then it’s a good indication for you to plunge and actualize your home ownership dream.

For more real estate news and insights on the latest in Hong Kong’s housing market, visit OKAY.com.


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