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In recent years, Hong Kong’s property prices have continued to rise and exceeded what most people can afford, leading to a strong demand of affordable housing supply in the society. According to the statistics from the Rating and Valuation Department, the property price index was 246.3 in August 2013, recording a new historical high. At the same time, the sufficient global liquidity and the sustained low interest rate environment were still pushing up the property prices.
Bauhinia’s latest research paper looks into the potential relationship between such proportions and the amount of completions and housing prices. Based on our data analysis, we can conclude the following two key points:
(i) There is no relationship between the proportion of private housing completions and property prices in terms of their correlation coefficient. In recent years, the amount of Hong Kong’s private housing completions has decreased, but under such circumstances property prices have continued to rise. Based on the projections by the Long Term Housing Strategy Steering Committee, the quantity demand of Hong Kong’s private housing would be 18,800 units per year from 2014 to 2023. However, the average private housing completions only met 14,500 units per year from 2003 to 2012. Hence, in order to assist home ownership and maintain a healthy growth in the property market, the adequate private housing completion is essential, while the proportion of private housing completions is relatively less important; and
(ii) In general, previous changes in private housing completions should have some effects on property prices, but our study finds that their relationship does not exist in Hong Kong. There is no lead-lag relationship between the changes in private housing completions in previous one year, two years, or three years and the changes in property prices in the current year. It might be due to the continuous low level of private housing completions over the past ten years (2003-2012), which makes the changes in private housing completions irrelevant. Nevertheless, when examining the data from a longer period of time (1991-2012), we find that the changes in private housing completions can be affected by the changes in five years ago. It reflects that developers become prudent and conservative due to the prevailing economic downturn, which affects private housing completions after five years.
In conclusion, in order to tackle Hong Kong’s housing problem, it is necessary for the Government to raise the land supply for housing completions. Since the Government has introduced the demand side management measures, property prices eventually cooled down in the third quarter of 2013. However, the property prices are still at a high level and most people who intend to purchase their own home still cannot afford home ownership. Hence, we are of the view that the Government should expedite the land supply for housing completions on the one hand, while implementing the demand management measures on the other hand, to curb speculative activities leading to the continuous rise in property prices.
Please refer to the Occasional Paper for details.