To start, I would like to declare that I love Hong Kong. I have lots of friends there and I travel there so regularly that it is almost like my 2nd home.
Due to my strong affinity with this special administrative region and my background in property investment – I developed a knowledge base on the intricacies of the Hong Kong property market.
In 2019, Hong Kong topped the table as the world’s most expensive housing market for the 9th consecutive year.
Each trip for me then became an exchange programme to learn and delve deeper into understanding the potential of real estate as a commodity.
The purpose of this article is to let my Singapore-based readers discover more regarding the Hong Kong property market and understand why Singapore’s property market continue to remain so attractive in spite of the cooling measures and increasing prices.
Let’s explore their similarities and differences.
#1: Only Leasehold Exists in Hong Kong
The People’s Republic of China owns all the land in Hong Kong, except the land on which St John’s Cathedral stands. The land owned by this church is freehold.
Hence, no freehold land exists in Hong Kong – all plots are leasehold.
In Hong Kong, all the land is owned by the government and leased to developers and others through auctions.
In Singapore, it is still possible for people to own freehold units while it is impossible for properties in Hong Kong.
It is also interesting to note that all leases in Hong Kong will expire on 2047.
When China took over Hong Kong from the British in 1997, the agreement was under the condition that all land is on lease for 50 years.
For Singapore, different properties will have their leases expire on different dates.
But for Hong Kong properties – their leases will expire on the same date in 2047.
For instance, in the New Territories, a suburban district, as many as 350,000 lease contracts will expire in 2047.
This means there is only 28 years left on the lease!
As a Singaporean, this makes me feel appreciative of the fresh 99-year leasehold we get when we buy a new property.
Furthermore in Singapore – all en-bloc developments with leasehold tenure are eligible to top up their remaining leases to 99 years.
This levels the playing field when it is re-launched as a new development.
#2: Free Market Forces in Hong Kong
There is a strong belief that they should let free market forces dictate the prices – which is why Hong Kong is often touted as one of the world’s freest economy.
As a keen property observer, I see that both Hong Kong and Singapore are getting more aggressive developers from China coming in and winning the land bids.
However there is one difference – in Singapore, the government places restrictions on BOTH developers and buyers. Whereas in Hong Kong, the government restricts only the buyers.
How Does Singapore Restrict Developers
In Singapore, control is implemented right at the beginning of the process.
During the land bid process – developers will be penalized if they are unable to sell all units within 5 years.
Furthermore, they are not allowed to keep the land and sell whenever they want.
Developers in Singapore have to follow a strict timeline to sell – all units must be sold within 5 years from purchase.
How Developers Use Land In Hong Kong
In Hong Kong, developers can choose to keep the land and sell whenever they deem fit.
So developers who are willing to bid will stock up their land bank first.
If they are unable to sell, they will reduce price.
If they are able to sell, the high bid prices eventually get passed on to the buyers.
Due to Hong Kong having issues with limited supply of properties, rarely will there be developments that can’t be sold.
This has resulted in a situation where the poor keeps getting poorer as there are just no opportunities for them to even own their very first property.
The price gaps just keep widening – thanks to the developers’ tendency to hoard the land.
Singapore’s Cooling Measures and Restrictions
In Singapore, the government has cooling measures that are aimed directly at property developers – which is the ABSD.
So in Singapore, there are still controlled government restrictions aimed at curbing property prices from spiralling upwards.
This is the reason why after the 5th July 2018, all enbloc interests in Singapore seemed to die down almost overnight.
Paying such high costs for land is a dangerous gambit, due to factors like the Qualifying Certificate (QC), where foreign and publicly-listed developers have only five years to complete a development once the land is bought, and two more years to sell all of the units.
Failure to do so incurs extension charges: 8% of the land price on the first year, 16% on the second year, and 24% on the third year.
On top of it all, there’s also an automatic levy of 15% additional ABSD if the developer can’t complete and sell all units in five years (this applies to all developers). – quoted from the 99.co article
In Hong Kong, the prices have escalated so high that only Chinese developers are tendering and being awarded.
These hefty prices are then passed down to Hong Kong home buyers.
#3: Cultural Belief of Home Ownership
Every Hongkonger aspires to own their first home.
However, looking at my large list of Hongkonger friends – none of them own their homes.
All of them are actually just tenants paying monthly rents to their landlords.
In Singapore, majority of the people I know own the homes they live in. For Singaporeans, the aspiration is one step higher – they aspire to own ANOTHER property as an investment.
This was the distinction I observed – Singaporeans are lucky in that:
- they are able to own their first home
- they are able to aspire towards an investment property
In the link below, there is a video that shows the main differences between a first home in Hong Kong, Singapore, Shanghai, Guangzhou and London.
You can see the considerable challenges that the citizens of these countries face in securing their first home.
#4: Limited Supply of Properties in Hong Kong
I was in Hong Kong last month and had the opportunity to view a unit in Upper West at Tai Kok Tsui.
This unit has a usable space of 263 sq feet. It was sold at HK$5.8 million equivalent to about $1 million SGD.
What took me by surprise was how fast this tiny unit was snapped up by a buyer.
It was sold within just 1 day of being put up for listing.
That was an anomaly for me – as an agent practicing in Singapore, it takes a few days to get a serious offer.
But in this case, the unit was sold on the day it was put up for sale!
This unit is currently rented out at HK$15,500 which is about S$2700.
In Singapore, a S$2700 monthly rental could get you a 506-sqft 1-bedder private condominium unit in the central region.
Free Market in Hong Kong = Escalating Prices of Properties
Being a free market, prices keep escalating.
Hong Kong property owners become unwilling to sell because they will need to top up cash in the event they sell their current place to acquire a bigger or newer one.
This is a very different case for most Singaporeans.
With professional financial planning, Singaporeans can upgrade their properties without digging into their existing savings.
High Pressure Buying Process in Hong Kong
The buying behaviour is extremely different in Hong Kong – it is a fast game and you have to be quick in making a decision. Whoever snoozes, loses. That’s how it is played in Hong Kong.
In Singapore – you can view, take your time to ponder overnight, arrange for a second viewing, negotiate and then seal the deal.
In Hong Kong – you view and then make an immediate decision whether to buy or not. If it’s a really good listing, be prepared for it to be sold almost instantaneously.
And if there are more than 2 serious buyers, be prepared to get into a price war where the eventual transacted price is higher than the asking one.
So for first timers or inexperienced buyers, you will definitely lose out in this property game.
In Singapore, it is a lot kinder with a lot more protections in place for the prospective property buyer.
#5: Government Intervention
Some people might describe Singapore as a nanny state with strict controls regulated by the government.
However, when talking about housing and property – I believe “more control” is actually favourable.
In Singapore, it is often mentioned that the government will never take their hands off the wheel regarding the property market here.
“Let me be very clear. The Government cannot and will not take a hands-off attitude to the property cycle. So there should not be any surprise when we intervene in the market.” – Lawrence Wong at REDAS Dinner on 15 Nov 2018
In Hong Kong, the developers have a lot of influence on the market due to the small role the Hong Kong government plays in regulating the market.
Unfortunately, this has led to the sad state of affairs in their housing issues.
The Hong Kong government relies heavily on land sales as one of their main sources of income for government spending.
This is partly why the government will never go low on their land sale prices.
This behaviour will continue to increase the land prices – leading to ever increasing in property prices for buyers.
I love Hong Kong. But I see the adverse impact when the government takes a hands-off approach to their property market.
It leads to a lot of speculation and runaway property prices. The risk of a property bubble is very real in Hong Kong.
The speed of how a HK$6 milion unit is taken off the market reveals the strong demand amidst a property market where owners do not dare to sell their property.
Because of the fear – If I sell, I might not be able to afford to buy my next home.
As a Singaporean, I am confident that the government will take the necessary action to cool down the Singapore property market.
It leads to property prices being more stable thereby benefiting the majority of Singaporeans in the long term.
Venturing out of Singapore, I have a deeper appreciation of the measures our government takes to regulate our housing market.
If you have questions regarding the Hong Kong property market, feel free to have a chat with me.