Kong's Housing Research Articles

Market Sentiment and High-Rise Housing Prices in Hong Kong

Classical finance theories fall short of explaining volatile housing prices in Hong Kong. Employing principal component analysis (PCA) and factor analysis, this study constructs a unique Sentiment Index that integrates 11 market variables tailored to Hong Kong’s high-rise residential properties. Covering 2002Q1 to 2021Q2, including pivotal events such as the SARS epidemic, the Global Financial Crisis, stock downturns, political instability, and Covid-19, our analysis reveals the significant predictive capability of the Sentiment Index for property prices. A discernible relationship exists between housing prices and the Sentiment Index. While policies addressing smaller-sized flats (HPI40) should focus on demand-supply imbalances, those for larger apartments (HPI100 and HPI160) must consider speculative investments. An adaptive policy response with periodic assessments and measures responsive to market conditions, economic shifts, and geopolitical events is imperative for the robust and stable development of Hong Kong's housing market.

The effectiveness and consequences of the government's interventions for Hong Kong's residential housing markets

AbstractWe study the effectiveness, consequences, and transmission mechanisms of the government's interventions for Hong Kong's residential housing market between 2009 and 2017. We use granular microlevel transaction data and adopt a regression discontinuity design to conduct the empirical analysis. We find that mortgage‐tightening measures effectively curbed the overheated market by reducing price and volume while specific submarkets occasionally experienced volatility. Tax‐driven measures effectively suppressed trading activity but triggered price volatilities across submarkets. Several rounds of measures had a spillover effect on subsidized public housing. Our findings have implications for policymakers seeking to review and revise property market intervention policies in Hong Kong and elsewhere.

To What Extent Has Hong Kong's Urbanization Process and Housing Policies Contributed to Its Inability to Provide Sufficient Affordable Housing?

With a population of 7.5 million and the most unaffordable housing market in the world, Hong Kong is known for its high-density forms of development. Despite the many housing policies introduced by the Hong Kong government and its deep understanding of the importance of solving the housing problem, progress has been slow and even somewhat unsuccessful. The purpose of this paper is to explore the reasons for Hong Kong, China's inability to provide sufficient affordable housing by analyzing its urbanization process and housing policies. The main conclusion reached in the end is that Hong Kong's housing problems are largely a result of its history and urbanization; the biggest flaw in Hong Kong's land development mechanism has led to its lack of land for residential development; and entanglements between vested interests and different groups have hindered the change of the mechanism.

Political Uncertainty and Asset Valuation: Housing Prices in Hong Kong

We empirically analyze the pricing of political uncertainty in a long-term asset market, guided by a theoretical model of housing assets subject to contract extension in the remote future. To identify exposure to political uncertainty, we exploit a unique variation around land lease extension protection beyond 2047 in Hong Kong's housing market due to the historical arrangements under the “One Country, Two Systems” design. We find political uncertainty is priced, as predicted by theory, in that relative to properties that have been promised an extension protection, those with legally unprotected leases granted by the current Hong Kong government are sold at a substantial discount of around 8%. Similar contracts issued during the colonial era suffer an additional discount of about 8% due to their reneging risk. Our calibrated model implies that to extend their leases homeowners expect about 25% of penalty on ground rent after 2047. The discount is higher when people's confidence declines and where residents feel more uncertain of the city's future.

Valuation of Long-Term Property Rights Under Political Uncertainty

We empirically analyze the pricing of political uncertainty in long-term property rights, guided by a theoretical model of housing assets subject to contract extension in the remote future. To identify exposure to political uncertainty, we exploit a unique variation around land lease extension protection beyond 2047 in Hong Kong's housing market due to the historical arrangements under the “One Country, Two Systems” design. A reduced-form approach reveals that relative to properties that have been promised an extension protection, those with legally unprotected leases granted by the current Hong Kong government are sold at a substantial discount of around 8%. Similar contracts issued during the colonial era suffer an additional discount of about 8% due to their reneging risk. Our parsimonious model matches well these empirical discounts across long-term lease horizons, and the estimated structural parameters imply that to extend their leases homeowners expect about an additional 20% ground rent after 2047. The discount is higher when people's confidence declines and where residents feel more uncertain of the city's future, but lower when the transaction involves a mainland buyer and a local seller.

Why 'spicy measures' fail to cool down Hong Kong's housing market

A notable feature of Hong Kong's current housing market is that despite various restrictive policies on home buyers, housing prices maintain unrelenting increases. This paper explores why the so-called 'spicy measures', a series of stamp duties and charges on non-local and local home buyers, fail to prevent housing price escalations in Hong Kong. Based on granger causality test of monthly data from 2008 to 2016, we unravel this puzzle from two aspects: overflow of liquidity and low interest rate environment. Granger causality test results reveal that the impact of low interest rate is short-termed, while the impact of excess monetary supply is long-lasting. The findings challenge the prevalent view that Hong Kong government has little to do with housing market exuberance, as spicy measures increased the transaction costs of home buyers according to the Coase theorem. The major policy implication is that charging tax may be ineffective to cool down housing prices if market demand is robust. The paper sheds light on understanding the housing price dynamics with varying market demand over time, an academic void not adequately filled in so far.

Why 'spicy measures' fail to cool down Hong Kong's housing market

Why 'spicy measures' fail to cool down Hong Kong's housing market

Evolving institutions to tackle asymmetrical information problems in the housing market: A case study on ‘shrinkage’ of flat sizes in Hong Kong

The phenomenon of floor area ‘shrinkage’ of newly completed units has long been a hot debate issue in Hong Kong's housing market. Prior to the enactment of the Residential Properties (First-hand Sales) Ordinance in April 2013, news reports had revealed that the actual useable areas of some presales housing units only accounted for 50% of the gross floor areas proclaimed in the sales brochures. Notwithstanding the alarming situation, ‘shrinkage’ of flat size is, in fact, a lawful act in Hong Kong. Akerlof (1970) suggests that under information asymmetry, lemons tend to crowd out non-lemons. This study attempts to investigate whether an adverse selection process is taking place in Hong Kong's housing market with reference to the shrinkage phenomenon. To measure area shrinkage, 13 private mass housing developments located on the Hong Kong Island were chosen, and a total number of 16,946 flats, were involved. This paper shows that the market is full of lemons due to the delay in responses of the law governing the sales of first-hand properties. We found that the carpet areas of the selected housing developments had fallen short of between 23% and 49% of the proclaimed gross floor area, as stated in the sales brochures. Analyzing a total number of 55,227 transactions between 1991 and 2013 of the subject premises, it shows that the turnover rates of units with the highest shrinkage ratios are about 45% more than those with the smallest shrinkage ratios. ANOVA tests have been carried out and illustrated that there are significant variations between each tenth percentile of the flats in accordance to the flat shrinkage ratios. This paper concludes with a discussion of the evolution of institutions in Hong Kong's housing market to tackle the lemon problems. Attention has been placed on the effects of mandatory, voluntary and third party information disclosure. The lessons learnt in Hong Kong will shed light on policies and legislations for the fast expanding housing markets in developing countries, especially those densely populated Asian cities undergoing rapid urbanization.

Bayesian analysis of Hong Kong's housing price dynamics

AbstractThis paper uses a Bayesian vector‐autoregressive model with sign restrictions to estimate the underlying drivers of Hong Kong's housing price dynamics in the short run. While existing studies are useful in analysing housing valuation, little attention has been paid to the short‐run dynamics. In contrast, the present paper identifies short‐run drivers of housing prices using structural identification with theoretical underpinnings. We find that among the shocks that we have identified, bank lending shock and housing supply shock were the main factors affecting Hong Kong's housing prices. Low mortgage rates were another key factor that led to the significant increase in housing prices after the global financial crisis.

Determinants of Hong Kong’s Housing Prices

 Abstract—The objective of this study is to study the determinants of Hong Kong's housing prices. Empirical results from this study suggest that Hong Kong's housing prices are (1) positively related to per-capita GDP; (2) positively related to Hong Kong's export; (3) negatively related to departure of Hong Kong's residents; (4) negatively related the total inward and outward movements of goods vehicles; (5) positively related to commercial property prices; and (6) negatively related to factory prices.

The impact of different land-supplying channels on the supply of housing

As Hong Kong's property prices have been skyrocketing particularly in the last several years, housing has become even less affordable than it was prior to the Asian Financial Crisis, compromising Hong Kong residents’ living standards. The general public mostly blames the supply-side actors (i.e. property developers and/or the government) for such a predicament, and vociferously demands for higher supply of residential flats both in the private and public sectors. The government, in response, proposes the supply of more residential land, among other measures, in addressing the public's demands, with the notion of “higher land supply results in higher housing supply”. Nonetheless, there are other channels, other than land sale, which provide land for housing construction, such as land exchange, which are usually overlooked in public debates. In the light of this, this paper aims to investigate the respective impact of land sale and land exchange on Hong Kong's housing supply. The findings, interestingly, show that land exchange has a much larger long-run impact on housing supply than land sale does; that housing supply responds to short-run fluctuations in property price; and that best lending rate has neither a short- nor long-run relationship with the supply of housing. The reason behind the finding regarding land sale and land exchange is that, the former is initiated by the government which overlooks property developers’ profit incentives and development strategies, while the latter essentially reflects that a particular land site is ripe for development (i.e. profitable) from the developers’ standpoint. Some implications relating to the recently announced government land policy measures are also discussed.

The Future for Reluctant Intervention: The Prospects for Hong Kong's Public Rental Sector

The growth and resilience of Hong Kong's public rental sector has occurred in the context of an apparent guiding political ethos of minimal and reluctant intervention. This paper offers an account of why this has occurred. A brief account of economic change and housing policy development over the last three decades is followed by an analysis of changes in the social role and social composition of the tenure. This discussion is complemented by some new data on current popular attitudes towards public rental housing in Hong Kong. The paper then explores various theoretical perspectives to provide an explanation of why it has remained as a substantial part of Hong Kong's housing system and points to the key drivers that will shape its future role and trajectory. The empirical data are drawn mainly from an analysis of five waves of the census and a survey of 3000 adults across all housing sectors.

Hong Kong's Gating Machine

Scholars have identified ‘gating machines’ or ‘gating coalitions’ that promote gated communities. Hong Kong's high-rise housing estates in the private sector are extremely gated. Evidence presented in this paper suggests the proposition that public ownership of land, Hong Kong's land leasehold system and the government's fiscal interest in generating maximum revenue from land sales play a pivotal role in explaining gatedness. The big developers prefer and pay premiums for large sites that permit mixed use developments and high site intensity, which by use regulations are required to be gated, while their property management subsidiaries also promote gating because such estates are cheaper and easier to manage. Thus, the extent of gatedness is largely the consequence of Hong Kong's use of land as a resource, its built form, the nature of its real estate and property management industries, and the articulation of these factors.

Eco‐labels and willingness‐to‐pay: a Hong Kong study

PurposeThe purpose of this paper is to investigate whether consumers in Hong Kong's private housing market are willing to pay more for new apartment units with an eco‐label.Design/methodology/approachGreen or sustainable housing has recently become a new orthodoxy in the field of architecture. Governments commonly use legislation or subsidies to promote green housing. However, eco‐friendly housing provision can become autonomous without any state intervention if the consumers are willing to pay more for housing of better environmental performance. In this light, this study explores Hong Kong resident's willingness‐to‐pay (WTP) for eco‐labelled housing based on the findings of a face‐to‐face questionnaire survey. Besides, the determinants of the WTP are identified using logistic regression modelling.FindingsLess than half of the 231 respondents were willing to pay more for a new eco‐labelled apartment unit. The number of “willing” respondents dropped significantly with the label grade which signified the level of environmental performance of a property. Moreover, the decision about WTP was contingent mainly on the respondents’ household income and environmental attitude.Research limitations/implicationsThe findings of this study can offer valuable insights for the house‐building industry and policy makers into how to promote a more sustainable built environment in Hong Kong.Originality/valueNearly all previous research on green building consumerism focussed on commercial buildings and houses. As a preliminary study, this research extends the body of knowledge by exploring the WTP for eco‐labelled apartments.

The myths and politics of housing in Hong Kong: The controversy over the demolition of the Hunghom Estate

This paper explores the post-handover surge of civic activism in Hong Kong by examining the controversy over the demolition of the Hunghom Estate—a government subsidized housing project that was sold to private developers during a recession in early 2004. In a departure from “business as usual,” the high-profile demolition was stopped 10 months later after a series of protests mobilized by environmental activists. This result was widely hailed as a triumph of corporate responsibility and environmental consciousness. By tracing the competing narratives over the course of the controversy, this paper attempts to elucidate this “success” story by revealing the inherent conflicts between different stakeholders, and how these narratives nevertheless share and sustain a number of long-held myths about Hong Kong's economy and housing market. It argues that these myths obscure the ongoing political choices of an interventionist administration, which maintains legitimacy by tightly controlling urban development and securing support from powerful economic actors. By connecting the various claims of the present case with historic discourses of the territory, the paper aims to shed light on the power relations embedded in the development policies that characterized Hong Kong over the colonial period, and which continues to shape the practices of housing in the present.

An Interplay Between Western and Confucian Concepts of Justice: Development of Hong Kong Housing Policy

The concept of social justice has been debated keenly, although consensus on its definition remains elusive. This paper examines and dissects various concepts of justice in the context of the development of housing policy in Hong Kong. It demonstrates how the conceptual complexity of justice involves the principles of needs, rights, deserts and equal opportunity and the ways in which the interpretation of these principles differ significantly and fundamentally within Western and Confucian approaches. The historical expressions of justice in the development of Hong Kong's housing policy can be divided into five broad periods, which illustrate the operation of different concepts of justice. Social justice may be pursued as an integral part of a housing policy, as a means to further other ends, or as a passive by‐product. A housing policy is inadequate if it wholly disregards justice. A housing policy that rests solely on justice, on the other hand, may prove equally inadvisable. Hong Kong is a place where East meets West, and where an interplay between Western and Confucian concepts of justice has an impact on formulation of housing policy. *Both this article and my forthcoming book rest mainly on my PhD research. Thus, there is some overlap of content between them.

Cohort Trajectories in Hong Kong's Housing System: 1981–2001

A household's progression through a housing system depends not just on the current social, economic and policy context but also on past housing experiences and circumstances. Different birth cohorts, because of their location in a specific socio-economic and policy environment, may have distinct residential trajectories. Five waves of Hong Kong Census data are used to trace tenure change of different birth cohort groups from 1981 to 2001. The paper shows that it was the new and expanding middle class entering the labour market in the early 1980s, which were the most likely to enter, and benefit from a booming private housing market. However, the public homeownership sector, which encompasses schemes whereby the supply and price are controlled by the government, offered more uniform assistance to other birth cohorts. Moreover, this state-assisted sector played a particularly important role in sustaining the growth of homeownership when housing was least unaffordable and also during the recession following the Asian Financial Crisis.

Impact of Political Incidents, Financial Crises, and Severe Acute Respiratory Syndrome on Hong Kong Regulators and Developers

We use two linear statistical techniques to examine the impact of the announcement of China's decision to take back Hong Kong from the United Kingdom in 1982, the Tiananmen Square incident of 4 June 1989, the Asian financial crisis of 1997, and the outbreak of severe acute respiratory syndrome in 2003 on Hong Kong's housing and land markets in terms of the decision patterns of the Town Planning Board (TPB), and the readiness of developers in applying to the Building Authority for ‘consent to commence work’. A total of 884 sets of all cross-sectional statistics about planning applications arising from Comprehensive Development Area zones from December 1980 to August 2004 were used to test four hypotheses that evaluate the impact of shocks on the TPB through the use of a parametric technique, probit modeling. A total of 96 sets of all aggregate statistics on developers' applications for ‘consent to commence work’ from 1982 to 2004 were used to test yet another four hypotheses that evaluate the impact of shocks on developers using a nonparametric technique, the Wilcoxon rank-sum test. The inferences based on the statistical findings of the two sets of hypotheses, which satisfy the relevant goodness-of-fit tests, are (a) that the TPB was sensitive and responsive to these shocks in making its decisions; and (b) that developers were not sensitive to any of the shocks in terms of their readiness to build.

Impact of Political Incidents, Financial Crises, and Severe Acute Respiratory Syndrome on Hong Kong Property Buyers

In this paper, the first part of our study, we use a linear statistical technique to examine the impact of the announcement of China's decision to take back Hong Kong from the United Kingdom in 1982, the Tiananmen Square incident of 4 June 1989, the Asian financial crisis (AFC) of 1997, and the outbreak of severe acute respiratory syndrome (SARS) in 2003 on Hong Kong's housing market in terms of prices. A total of 11362 residential transactions from a cluster of data for a large private-housing estate, considered to be representative of Hong Kong's private residential market, were used to test four hypotheses that evaluate the impact of shocks on property prices through the use of a hedonic price model. The influences based on the statistical findings, which satisfy the relevant goodness-of-fit tests, are (a) that the sovereignty crisis exerted immediate significant negative price effect, but property prices rebounded after a big decline when open diplomatic dialogue between the Chinese and UK governments began, (b) that the Tiananmen Square (4 June) incident had no significant price effect; (c) that the AFC caused a drastic decline in property prices; and (d) that the impact of the SARS outbreak was significantly negative for Amoy Gardens but not so for estates with fewer reported SARS cases.

An empirical study of the effects of land supply and lease conditions on the housing market

The aim of this research is to investigate the effects of land supply (LS) and lease conditions on the housing market. It tests whether there exists a relationship: between LS and housing price, between development conditions in government land leases and housing supply, and to what extent these development conditions affect Hong Kong's supply, of private residential flats. This paper focuses on examining the supply side of private housing in Hong Kong, whilst limiting the investigation on how LS and development conditions affect the supply of the private residential property market. The findings of this study bring additional knowledge on a different form of government control over the land market. First, an overview of Hong Kong's housing supply situation is presented. An understanding of Hong Kong's housing situation generates an underlying rationale for this study. In order to understand Hong Kong's land tenure system, Section 2 provides a brief background of the establishment of Hong Kong's leasehold tenure system. Section 3 develops the research framework within which to provide a global synopsis of literature (relating to the effects of leasehold land tenure system, governmental land regulation, development/land use control, and restricted LS on the housing market) and theoretical models for the analysis of LS and lease conditions. Following the analysis of findings, the concluding section presents recommendations for policy change.