6 June 2012
Health of Hong Kong Property Market
Property prices surged 82.1% between the end of 2008 and the first quarter of this year. The sharp run-up in prices has been supported by ultra-low interest rates and rising incomes. For those living in private quarters, household income surged by 13.9% in the first quarter of 2012, compared to the same period one year ago. Meanwhile, the increase in property prices slowed to 6.3% in the year to March. With low mortgage rates keeping monthly mortgage payments in check, the housing affordability index1 improved to 46.4% in the first quarter from a peak of 48% in early 2011. The affordability index also remains below the average of 49.3% over the 20-year period 1992-2011. One could be forgiven for thinking that the market is both healthy and well-supported.
However, using an alternate indicator, the picture is not quite so reassuring. The ratio of property prices to income2 stood at 9.9 times in the first quarter. While this is off the peak of 10.9 times in the second quarter of 2011, it is still significantly higher than the average of 7.7 times over the past two decades. The affordability index would deteriorate if interest rates start to rise. This will pose difficulties for households servicing a mortgage, particularly those who purchased a home at recent high prices.