The cost of shelter in Hong Kong continues to defy the laws of gravity, after new home prices in the city surged by 18 percent last quarter to the second-highest level since 1996. But while the ongoing housing boom in the Asian financial hub has raised fears of a real estate bubble, Colliers International says there’s little chance of a downturn — yet.
In a new report, the global real estate brokerage argues that home price volatility is firmly within a normal range for the city, presenting an “acceptable” risk for investors.
“As Hong Kong property prices are continuously on the rise, there has been a sense of worry amongst investors about the imminent burst of a property bubble,” said Nigel Smith, Managing Director of Colliers International Hong Kong in a statement. “The findings of our assessment showed a low-medium risk level across residential, office and industrial properties.”
The city’s sound economy and strong demand for homes will support the market, with mass market residential prices expected to increase by 8-10 percent in 2018, and luxury home prices projected to climb by 3-5 percent, according to the agency.
Prices Are High But Volatility Is Normal
With prices expected to keep grinding upward, Colliers argues that a major adjustment is unlikely this year. In its research report, “Colliers Bubble Watch H1 2018: Property Market Investment Risk,” the agency focuses on tracking the six-month price growth rate for signs of volatility that could indicate change in market risks.
The Toronto-based firm’s analysts that a market plunge could be imminent if volatility surpasses one standard deviation of the historical average growth rate, or 12.1 percent, while the price index continues to increase. However, Hong Kong saw residential price growth of 6.9 percent in the six months through February, well below the rate that would set off alarm bells.
“According to historical property patterns, it is highly unlikely that Hong Kong’s property market will head into a major adjustment in 2018,” commented Daniel Shih, Director of Research in the statement.
Grade A Office Asset Prices to Rise 10%
The same report also sees investors keeping faith in the value of the city’s office properties, with asset prices for grade A spaces anticipated to grow by 10 percent this year after growing some 4.7 percent in the six month period through February 2018.
The consultancy foresees growing interest in Grade B office buildings in areas near the traditional business hub in Central such Admiralty and Wan Chai, as potential buyers look for value-add opportunities. Meanwhile, industrial properties have recaptured investor interest as the city government mulls relaunching the revitalisation scheme for ageing facilities.
Against the backdrop of growing e-commerce and external merchandise trade, prices for warehouses and flatted (high-rise) workshops are projected to grow by 8-10 percent per annum in the next five years.