Real Estate Implications From Population Census

Stephen Chung

Executive Director

Zeppelin Real Estate Analysis Limited

April 2003 

This is based on the Hong Kong 2001 Population Census and as such, the content below can only be used as a rough reference because certain details might have already been altered, though the rates of change for most items e.g. population, age distribution etc are likely to be slow. A few observations or implications can be made with a focus on residential real estate:

A)     There are around 200,000+ renters in the private residential sector = there are around 2M households of which some 900,000+ are in the renter category. Counting only the ‘sole’ renters, i.e. tenants occupying the rented unit exclusively without subletting etc, the number becomes 850,000 more or less. As there are some 650,000 public rental units, it means around 200,000 households are renting in the private rental market. These probably form a significant portion of the current home buying households, though they are by no means the only home buying prospects. This in some ways is confirmed by the fact that more than half the residential units sold have to do with first-time buyers, of which many (former) renters belong. Nonetheless, not all 200,000 renting households will become buyers, who also include the relatively poor households (with some probably on the waiting list to enter the public housing arena) and the highly paid expatriate executives working for multi-national groups. Both groups are unlikely to be buyers.

B)     The overall residential market has to have the support of “new” households and cannot simply rely on the renters turning into buyers = The reason is simple, the 2M households are more or less matched by 2M residential units, i.e. there is no shortage of homes in a sense. It means generally where renters become homeowners / buyers especially of new 1^st hand units, the residential rental market will have a similar increase in number of units available for rent (or for sale should the owner decide). Hence, for the market to be ‘sustained’ in every sense of the word, newly created households are needed. Such households need not only be the traditional type i.e. newly married couples etc but can include singles who simply wish to live on their own or own their own places. The latter seems to be increasing in numbers. A note here is that the 3-generation family (grandparents + parents + kids) mode is now not as common as it once had been.

C)    Negative home-equity effects may be exaggerated = many people who bought homes in the past 5 years may be in negative-equity territory, yet this alone does not necessarily imply they will stop paying the mortgages (most in fact will continue payment as long as they are financially able to do so). Also, many may have other assets or savings. Of the 1.3M or so private housing units, close to 1.1M are owner-occupied. Of these, around 500,000+ have some form of mortgages, and of these, around 200,000 of them have monthly mortgage payments exceeding HK$10K (the figure now is likely to be lower as mortgage rates have dropped). Assuming homeowners are sensible people living within their means and that mortgage payments do not exceed 1/3 of household income, there are around 600,000 households (probably a slightly lower figure these days) who earn HK$30K per month. That is, even if all 200,000 households with mortgage payments exceeding HK$10K per month are to default on their mortgages, they only constitute 1/3 of the high earning households. In reality, as only a minority will likely default, the real impact is even smaller.

D)    People tend to relocate to another district when they move = close to half the population have moved within the last 5 years i.e. prior to 2001, and only 11% of them stayed in the same district. Of these, some 500,000+ have come from outside Hong Kong and they include the new immigrants and overseas returnees. From the real estate developers / agents / home-sellers’ angle, the immediate neighbors are not likely buyers and the focus should perhaps be those who come from another neighborhood altogether.

The above is of a macro view and individual circumstances may vary. Seeking proper consultation and latest market information are required for a more concerted analysis and decision-making process.

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