Major Market Adjustments Present Opportunities to Home Seekers (Part I)
Hong Kong's housing market has been experiencing stagnant sales since October, and it doesn't seem to be getting any better. There's a host of reasons behind this market downturn, the most important being the ‘Lantau Tomorrow Vision', brought forth by Carrie Lam's 2018 Policy Address, giving the public the impression that housing supply will expand in the future so there's plenty of time to wait. And of course, there's Trump—the conflicts between the US and China have caused market worries about recession and has led to stocks plunging, bringing more peril to the already fragile housing market. In addition, the Fed's balance sheet reduction and interest rate hikes have also raised concerns.
All of these are legitimate reasons to delay purchasing a home, but then again, these concerns are more psychological than based on grounded reality. In actuality, we don't have a sudden surge in housing supply or a significant increase in interest rates, neither is the city's economy taking a big hit.
However, I suspect that the launch of Home Ownership Scheme flats at heavy discounts have played a big role in home seekers' decision making. With new prices set at 52% of market rates, these flats have attracted significantly more applicants. Even though the chance of winning a flat for White Form buyers is a meager 1%, with the housing market cooling down, buyers have decided to stay patient for the time being and wait for the lucky draw results before figuring out their next step. As first-time buyers stay put, owners wishing to upgrade to bigger homes are having difficulty selling, which causes a total market standstill.
I expect that by December, many amongst the 99% of unlucky applicants will reconsider entering the private market or wait for the next HOS launch. If even just 10% of them choose to switch to the private market, we are talking about 20,000 more buyers, enough to breathe life into the sleepy housing market.
If you have paid close attention to the Policy Address, you'll know that apart from the ‘Lantau Tomorrow Vision', the government has made another key policy redirection, which is raising the percentage of public housing from 60% to 70% of the total housing supply. In the next few years, housing supply will continue to drop, and with the percentage of the private market shrinking, the supply of private homes is likely to diminish greatly in three years' time. With the ‘Lantau Tomorrow Vision', the government has taken a step towards the right direction, but still, it's not happening fast enough to solve the current housing shortage.