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Hong Kong Property Prices Set To Rise For Another Decade

Prices are set to rise for another 10 years in what is already the world’s priciest property market, Hong Kong, as the city’s housing supply will not be able to keep up with the new population that is pouring in from the Greater Bay Area. This is according to UBS Group AG.

UBS’ analysis based on demographics and non-local demand has led the Swiss bank to estimate Hong Kong’s annual housing demand to be 60,000 units over the coming decade, well above the government’s long-term supply target of 45,000 units per year. It is also likely that Hong Kong will see fewer private homes as the government focuses on public housing. 

UBS’ property analysts stated that inflows of residents will be key as the Greater Bay Area project integrates a group of mainland Chinese cities with Hong Kong. The extra buyers will be “more than enough” to outweigh waning housing demand from an aging local population.

The Greater Bay Area, a cluster of 11 southern Chinese cities including Hong Kong and Macau, is likely to enhance integration within the area through improving software and hardware, lowering transaction costs and boosting economic activity. UBS believes that this will benefit Hong Kong property.

That would extend a relentless climb that has seen the city’s property prices triple during the past two decades. The UBS report comes as three straight months of gains from February to April make it look as though a slide in home values from August through January was just a temporary blip. 

The market has rebounded in recent months as sentiment revives on low interest rates and limited supply. People are flocking to purchase homes because of their fear of higher prices in the future. At Wheelock Properties Ltd.’s project Montara in the Tseung Kwan O area, 103 potential buyers have been vying for each unit.

Home prices will continue spiralling upwards as buyers compete to get their hands on residential property, according to UBS. Developers are setting their sights on the future, when prices are double the prevailing level. A residential site on the runway of the former Kai Tak airport sold for a record HK$12.6 billion. That price translates to a land cost of HK$19,636 per sq ft, which means that a completed home would need to sell at about HK$30,000 per sq ft after factoring in construction cost and a 20 per cent profit margin, which would price a 1,000 sq ft flat at HK$30 million.