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Hong Kong Bubble Fears Persist Even As Growth Slows

News Posted On: 20 July 2012

Property prices in Hong Kong have grown at a slower rate during the second quarter of this year, but concerns still remain over a property bubble as interest rates are still very low. Property prices grew by less than 1% in May, and the number of registered transactions dropped by 30%, to just 5,890 in June, but experts are unwilling to predict a path for as long as interest rates remain low.

These low interest rates have prompted large numbers of buyers from mainland China to take advantage of the market during the last few years, pushing up property prices beyond the reach of many ordinary residents. Property prices have increased by 94% during the last five years according to Knight Frank.

This huge increase lead to anger amongst local residents who have been priced out of the market, and Hong Kong's new leader Leung Chun-ying has introduced a number of measures, such as selling land for developments that can only be bought by Hong Kong residents. In spite of these measures there is still the risk that the city could suffer a sharp correction, especially as the debt crisis in Europe is still rumbling on, and there is reduced demand for goods from both Hong Kong and China.

The private sector output in Hong Kong has declined for two consecutive months, and new business from mainland China has declined for three consecutive months, with the last month registering the sharpest fall since last November. This uncertain economic climate seems to have curtailed developer’s appetites for new projects. Recently Hong Kong's subway operator withdrew its tender of a site on top of a railway station in the New Territories after receiving three bids from major developers that were below expectations.

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