Hong Kong Residential Real Estate: Euro-Adjusted Indexes Indicate No Price Rise

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

February 2008

Private residential real estate prices are expected to increase and perform well this year. Based on the residential indexes published by Centaline Agency (http://www.centadata.com/cci/cci_e.htm), the trend appears up and indeed the indexes have shot up tremendously in the last few months as demonstrated by the steep gradient. Fellow real estate professionals have been making predictions of price rises ranging from 10% to 50%.  

Will these projections of theirs come true? Yes BUT 1) liquidity has to be there; 2) someone is willing to get a loan; 3) someone is willing to grant a loan, among other variables. Lacking any of the foregoing 3 conditions, asset prices may not fly. Nonetheless, it does feel (note it is only a feeling, not based on research or survey) these 3 conditions are reasonably present in the Hong Kong market at the moment and thus expectations of price rises are not entirely unfound [read our earlier article = http://www.real-estate-tech.com/articles/SRS010801.htm].  

Notwithstanding such good market condition and sentiment in recent times, the typical residential properties have NOT seen any meaningful price rise at all IF these are adjusted to EURO dollars. Here are a couple of almost self-explanatory charts

 

 

A couple of observations

A)     While the nominal index indicates an overall increase from 48 in 2000 to 72 in February 2008 = the Euro-adjusted index has not gone up (in fact has gone down slightly from 48 in 2000 to 46 in February 2008) [See tables below] 

@

Year

+/-% from 2000 in nominal index

2000

 

2001

-13%

2002

-19%

2003

-31%

2004

-4%

2005

15%

2006

17%

2007

44%

Feb 2008

50%

@

Year

+/-% from 2000 in Euro-adjusted index

2000

 

2001

-8%

2002

-27%

2003

-48%

2004

-33%

2005

-9%

2006

-17%

2007

-7%

Feb 2008

-5%

@

B)     While both the nominal and Euro-adjusted indexes go up and down together generally in terms of percentage changes from the previous period = the Euro-adjusted one has higher decrease percentages and lower increase percentages (2005 being an exception) 

A couple of implications

A)     Looking from the Hong Kong angle = despite the nominal residential real estate price rises, the purchasing power brought about by such increases has only been barely sustained

 

B)     Looking from the foreign perspective = Hong Kong (typical) residential real estate prices have not gone up versus many other markets (even as some of these are experiencing downward adjustments), and thus may appear to be relative bargains, especially to loaded investors 

Any wonder that some homes are asking and fetching HK$15,000 / ft2 (or US$ 2,000 / ft2*) and up?  

*Note: This is on a gross basis i.e. the homes share of common areas such as elevator lobbies, staircases etc is included. This in turn means on a net floor area basis, this price per square foot figure will even be higher. How much higher depends on the net to gross floor area ratio applicable to individual residential properties, and some have higher (generally perceived to be better) ratios while others have lower (generally perceived to be less desirable) ratios. Do also note the definitions of net, gross, or other terms such as saleable etc in Hong Kong may (or may not) differ from other jurisdictions and even harbor a variety of versions locally.

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Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.                                

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