35 Years to Buy a House, Is This Okay?

HONG KONG – According to Demographia International Housing Affordability Survey 2017, Hong Kong has been ranked No.1 as the city with the most unaffordable housing for seven consecutive years. The IHAS evaluates as ‘severely unaffordable’ if the housing affordability rating is higher than 5.1 and Hong Kong’s median multiple of 2016 turned out to be 18.1. The multiple indicates that the property price is 18 times higher than average household income. Comparing to the 11.4 in 2010, the housing affordability has become ‘terrible’ from ‘severe’.

Not allowing any spare space both horizontally and vertically, Hong Kong has a property market as notorious as those of Vancouver and Sydney. In the 8th most densely populated city,  housing issue is sensitive to all. However, young married couples who start concrete planning of property purchase are the one who are most likely to pay sharp attention to the market. Dependent on their conditions, they deal with the deadly housing price with different approaches.

Preparing a house for son’s marriage is no longer a common culture, but some lucky couples still enjoy advantages of families’ comfortable financial situation. For an average married couple in Hong Kong, both husband and wife working full time, it takes more than 10 years to scrape together a down payment. Considering this fact, although not buying an apartment, just some helping hands from parents makes big difference. Julian Chan (28), working for a bank in Central, and his wife are the case.

“We are one of the few lucky cases. My wife and I could prepare the down payment only because our parents helped us,” said Chan.

He purchased a property in Dragon’s Range in Sha Tin in last August. His apartment at the new development area is 700sqft big. The market price was 8.1million HKD, but with help of their parents, the couple paid 30% of the price – down payment – in cash. They pay monthly mortgage, which amounts to monthly rent; but they will have the apartment in the end. The 700sqft-big apartment, he thinks, seems right as a living space for him, his wife and their child.

Julian Chan’s house at Dragons Range, Lai Ping Road, Sha Tin

“I think it is more than difficult to purchase a property in the market now for youngsters without any aids from families. It is sad, but indeed the reality of the market. Most of friends in my age have the same problem,” he added.

In spite of the satisfying quality of the apartment, Chan is planning to look for another property in November. It has been less than a year, but the monthly rent of the property has increased from 12K to 15K, and is possibly to hit 20K due to the development of Sha Tin–Central Line.

Other than some youngsters who already plan to generate profits in real estate markets, there are also those who save money frugally bearing sunk costs.

Daniel Chan (38) is living in a 600sqft apartment located at Quarry Bay with his family. Since he married late, his child has not turned in 2 years old. Chan, his wife, their child and a domestic helper live together at the apartment at the moment. They pay monthly rent for the apartment. They are aware of that the amount that goes out of their account every month is sunk cost, but they have no other choice.

Daniel Chan’s house at Quarry Bay

“The rent is within our budget, but that is because both my wife and I are working full time. It would be difficult to afford it if one of us does not have a job.” Chan said.

Since they both work full time, there is another sunk cost unexpected, the domestic helper. Nevertheless, Daniel Chan and his wife decided to bear the cost because it will be difficult to save money after paying monthly rent by only one income source.

“It has been more than 10 years since we both started working, but we are now seeing the finish line – the down payment,” he added.

The couple said that they foresee another 20 years to fully own a house after entering into a mortgage contract. In brief, it takes three decades to own a property.

“I heard that it is common so we are planning the same way,” said Kim. Kun Young Kim (25) is a Korean expat working for a logistics company, but his fiancé is from Hong Kong. Considering the seasonal fluctuation in housing rent, they originally planned their wedding in May. Even after postponing their wedding to September due to work, the couple decided to move in to a marital house early from June. To those who just have taken first step into the real world, a couple thousand dollars difference in monthly rent is crucial. As they have heard from acquaintances, the couple expects to fully own a house in their 60’s. To shorten the period with sunk costs, the couple is planning a tight household budget.

Kim’s house at Quarry Bay

In a relationship, Yu Ting Chang (23) and Sing Hang Pong (23) lay out their marriage to five years from now. The housing issue is the core factor affecting their marriage decision and family planning. “Living with my parents, I save two third of my income, but I still give up on many amusements because we do not consider rent,” Chang said. “Even if we do so, we want to purchase a property first, then maybe rent another one,” she added. The couple’s aim is modest; they look for about 300sqft-big apartment in Kowloon, but it will still cost 5 million HKD.

The couples all agreed about the murderous property price of Hong Kong. Notwithstanding they gave skeptical responses to suggestion of housing bubble. Since stress test in Hong Kong is strict, they see little chance of mortgages go default as happened in the US. In fact, they credited the market fundamental of supply and demand as the main reason on top of the others. The couples responded positive about property investment despite the ‘inevitable housing price 18 times higher than income’ due to low interest rates worldwide.

However, the response of professionals is the complete opposite. “The housing bubble formation in Hong Kong is different. It is mainly due to strong capital inflow from Mainland China.” said Maurice Tse, Associate Professor of the School of Economics and Finance of University of Hong Kong. “There is a housing bubble in Hong Kong and we do not know when or how it will burst. I do not advise people to purchase property at this stage of time for any purposes.” he advised.

 

 

[Continue reading PART II]

 Is There a Housing Bubble in Hong Kong?

 

 

 

Writers: Yoan Jin Soul Lee, Tsz Yan Cindy Ko

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