Justin Chiu: Home Prices Won’t Take a Plunge in 2020 for Four Reasons
Looking back on the past two years, CK Asset Holdings has launched a limited number of housing developments. The company's Executive Director, Justin Chiu Kwok- hung, said i n an i nterview conducted before the Coronavirus outbreak in Hong Kong, that although the city's housing market is still plagued by uncertainties, the previously prevalent market pessimism has been dissipating. He adds that with four key advantages working on its side, Hong Kong's housing market won't see a major drop in prices, and that home prices will only fluctuate by up to 5% this year compared to the levels of 2019.
Nicknamed the “God of Property" in Hong Kong, Chiu made the prediction last year that prices for nano flats would drop by 20% overall, and 30% in particular areas of Hong Kong. Entering 2020, he believes that the downward trend for nano flats is going to continue, the main reason being that as the society develops and prospers, the public's housing needs are slowly but surely turning into housing wants instead. “They no longer want to buy a 200-square-foot flat just to have a roof over their heads,” he explains, “Now they want a home that's at least 300 square feet. In the past couple of years, CK Asset has noticed that the nano flat market has become increasingly saturated, and that's why we stopped building these homes.”
Subdivided flats unlikely to sell well
When CK Asset Holdings first launched Mont Vert in Tai Po back in 2014, the development's smallest unit—measuring a meager 165 square foot—was crowned the “Father of Subdivided Flats” and subsequently inspired other local developers to build similar-sized homes. Chiu feels the need to set the record straight one more time: These nano flats were intended to be sold in bundles with three-bedroom units to multi-generational families. “I explained this to media outlets at the time—the idea was to enable both generations of a family to live next door to each other while also enjoying their own privacy. Imagine if your elderly mother wanted to make breakfast for you one morning, wouldn't it be more convenient for her to do it in her own kitchen?” he says. Chiu reiterates that the company never intended to sell those subdivided flats alone, but “once they're sold, what the owners did with them became their own business, we couldn't intervene.” Data showed that a handful of bundle owners did sell their subdivided flats separately at double the prices that they paid for.
He believes that one thing that has fueled public resentment is the government's underestimation of the public's intense desire for home ownership — “If the government had actually listened to the people of Hong Kong, it would know that they are not content with living in a 200-square-foot unit. Many wish to have bigger homes.” He adds that the government needs to be able to see things from the perspective of the people and understand their anxieties, so it can come up with solutions that they need and expand housing supply to address the public anger.
2020 home prices expected to fluctuate up to 5%
So what does the “God of Property” think of the 2020 housing market? Chiu strongly believes that the market will not experience a drastic downturn this year, citing four reasons to back his claim, and predicts a fluctuation range of ±5%, taking into consideration the slow recovery of the economy in the first half of the year.
The new mortgage rules, which raised the ceiling on mortgage financing schemes, is the best thing that's happening to the housing market right now, Chiu opines. Under the relaxed measures, buyers will be able to borrow up to 90% of a property's value to a maximum of HK$8 million, and up to 80% for properties valued between HK$8 to 10 million, which is great news to home-seekers who would have little difficulty paying for the monthly mortgage instalment but don't have enough for the down payment. “In the past, you would need between HK$4 to 5 million in down payment to purchase a home that's just below HK$10 million,” Chiu says. “With the new policy, you can now afford a reasonably large unit with a HK$2 million down payment. This is very helpful for first-time buyers as well as those looking to switch to a bigger home.”
Low interest rates are another beneficial factor for housing prices, Chiu continues, because developers won't have to lower their asking prices to offload their units for cash. “At the moment, the costs of loans are quite low, so developers don't have the pressure to slash prices on their new developments and leftover units,” he elaborates. “So these days, we have sufficient funds in the market and low mortgage interest rates, and homeowners can easily afford their mortgage loans. Developers can hold on to their units for longer and rarely have to resort to price slashing—a strategy that poses as a threat to market stability.”
If the government had actually listened to the people of Hongkong, it would know that they are not content with living in a 200-square-foot unit.
Government needs to understand public demands and expectations
Chiu also cites Hong Kong’s unchanged status as an international financial centre as a reason why its housing prices won’t take a deep plunge, saying, “Having more worldclass companies like Alibaba listed in Hong Kong will bring lots of advantages to the city’s financial sector in the long-term.” He thinks that if this trend can be sustained, Hong Kong will continue to attract foreign investments, which in turn will have positive effects on housing prices.
Lastly, he turns his focus on the social unrest that has continued for the past few months and its impact on Hong Kong’s economy and industries. He notes that Hong Kong’s unemployment rate has only dipped slightly which is not enough to sway the housing market. With that said, he stresses that the government must pay attention to public demands and expectations and put appropriate policies in place to cater to their needs. As for those looking to buy homes this year, he wants to remind them of the inherent risks of buying property, “It’s fine if you’re buying for self-use, but pay attention to the risks if it’s for investment”, and suggests that they keep a close eye on Hong Kong’s changing economic circumstances as well as their own employment and income levels.