Hong Kong Residential Prices: The Key is still NOT in
Zeppelin Real Estate Analysis Limited
government seems to want to stabilize real estate prices, the private
residential sector ones in particular. It also presents supply estimates in
so many residential units over the next three years or so. Some welcome the
policy focus while others remain skeptical of the supply projections. It is
NOT the intention here to dwell on the pros and cons of such policies, or
for that matter, the accuracy of the supply data. Rather, we would look into
whether private residential supply does in fact have a significant influence
on private residential prices, and if so, how high is such influence. The
following reflects what have been found to date:
Data and Information
= these are abstracted mainly from published government sources including
the web, and data dates generally from 1992 to 2001. Supply is based on the
number of completions (of residential units) per year and it is assumed the
majority of such units are to be sold.
From 1992 to 2001
= the correlation between the supply of private residential units and their
related prices seems weak, albeit in opposite directions if any, i.e. ones
goes up and the other goes down. Perhaps other factors matter more.
From 1992 to 1997
= the correlation is higher than the foregoing period from 1992 to 2001 yet
is still weak if any, albeit in opposite directions. This differs somewhat
from a common perception that (stringent) supply might have led to the price
boom then, and perhaps one should take into account the demand side as well
as without it, the quantity of supply may not mean much. Demand is driven
generally by economic performance, demographics, education level, and other
From 1997 to 2001
correlation is still not high, though a bit higher than the foregoing.
Looking at the supply data alone may not be sufficient.
1997 data is taken out of the picture
= irrespective of whether it is the 1992 to 1996 period, or the 1998 to 2001
period, the correlations between the private residential supply and its
price levels are highly insignificant. This may mean supply is definitely
not the only or even crucial factor, although it may be argued that in an
extremely hot market, a reduced supply fuels even more speculation and
(New) residential supply only fell below 20,000 per year in years 1996 and
= in the
preceding or succeeding several years, supply typically hovered around
25,000 to 36,000 units per year. As a matter of fact, the total supply from
1992 to 1995 very closely matches that for the 1998 to 2001 period, with
both having 110,000 units. Nonetheless, the price trend edged upward from
1992 to 1995 while the opposite applies to the 1998 to 2001 period.
Assume residential prices reflect ¡§Pre-Sale¡¨ units
= as presale
is common in Hong Kong and implies the actual unit being delivered to the
purchaser generally within the following 24 months, we have done a
correlation based on such assumption that prices reflect the supply
situation 2 years down the road. Nonetheless, the correlation between supply
and prices remain insignificant.
note the above is quite roughly done and overall, supply has not been and
does not seem to be a very significant factor affecting prices. Even a
moratorium on building new supply may not help much.
The key to
prices is something else.
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