Hong Kong Residential: Do Speculators Push Prices Up?

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

August 2009

Many people think that residential real estate speculators lead to higher prices which in turn affect the affordability for many home-ownership aspirants. At times, there have been calls for tighter rules and regulations to control speculation.

Yet, is this true? Will residential prices be lower without speculators? Lets look at some figures:

A)      Data sources, methodology, and assumption = data comes mainly from www.centanet.com and includes looking at the percentage of confirmor deals, affordability measure, average price, and the number of transactions. The period dates from mid 1995 to June 2009.

Confirmor deals are used as a proxy for real estate speculation because such deals are common among speculators, although speculative real estate transactions can also be done via other means e.g. company share transfers. 

B)      From July 1995 to June 2009 = the percentage of confirmor deals behaves in a volatile way, affordability trends downward, average price remains stable with big fluctuations every now and then, and the number of transactions resembles the confirmor pattern [refer to the charts below].

Note the affordability measure is an inverted figure, i.e. the higher the percentages, the bigger the difficulties, sort of like a measure of how difficult it is to be a homeowner. Its measures are based on certain assumptions of household income, the mortgage level, and the mortgage rate.

C)     Speculators might have been influential on prices before the turn of the century, but they matter little after 2000 = we have performed simple correlations among the various aspects mentioned above [refer to the table below]. The higher the figures, the higher the correlations although one must note that a high correlation by itself is not conclusive of a cause-effect relation. There is always the chance for coincidence.


Correlations between:






Confirmors %

Affordability %





Confirmors %

Average Price HK$





Confirmors %






Affordability %

Average Price HK$





Affordability %






Average Price HK$






Essentially, speculation does not appear to exert much influence on residential prices during the period from mid 1995 to mid 2009, or for that matter, after 2000, even if only the last 5 years from 2004 are counted [the red-color figures indicate not only a low correlation, but also opposite direction].

The only period when speculation appears to exert a probably significant influence dates from mid 1995 to the end of 2000, and speculation (as reflected by the percentage of confirmor deals) correlates significantly not just with average prices [seemingly the more speculation, the higher the price], but also with the affordability measure [more speculation, less affordability or higher degree of difficulty in homeownership], and the number of transactions [more speculation, more transactions].

D)     Affordability depends on prices mostly = stating the obvious, the higher the prices, the lower the affordability, and vice versa. However, do note that the correlation between affordability and average price drops to the lowest in recent years (0.30) versus the one for the full period (0.49), 2000 or prior (0.67), and 2000 or after (0.75).

Perhaps this has something to do with the recent comparatively low mortgage rates i.e. despite the average prices being not overly remote from that of the 1997 peak, the lower mortgage rates have made homeownership easier (to afford).

And lower mortgage (financing) rates have to do with cheap capital and liquidityKwhich in turn lead to...(think and have fun filling in the blank)KK

Summing up, what or who has been causing residential price rises in recent years? Definitely not the speculators but this does not mean lower market risks!

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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