Hong Kong residential market sluggish as mortgage debt levels hit record highs

Debts reached HK$1,720 billion in November 2021.

Hong Kong mass residential values declined 0.2% across the board in Q4 2021. Savills notes that the private housing affordability ratio reached 56.8% in Q3/2021, a new high since the 1999 period and above the 25-year historical average. 

Another concern is the record-high debt levels. According to Savills, residential mortgage debt reached HK$1,720 billion in November 2021, an all-time high, representing 15.7% of total banking loans, also a record level in the post-GFC period. 

“Convention wisdom indicates that an affordability ratio of over 50% (allocating over 50% of household income to make mortgage payments) is not sustainable, as exemplified by the 1996 to 2000 period, and at some point prices have to adjust downwards, or household incomes have to catch up,” the analyst said.

Here’s more from Savills:

Hong Kong’s 170 sq ft average unit size per capita is among the smallest across major regional cities, according to a study conducted by Our Hong Kong Foundation. The situation has worsened over the past few years in particular with new developments completed in urban areas with unit sizes as small as a car parking space (around 100 to 150 sq ft) being the new norm. 

The government has begun tackling the ‘shoebox apartment’ issue by setting a limit to unit size at 280 sq ft for its latest Tuen Mun site tender this quarter, with another MTR site likely to follow suit. If the two sites are tendered successfully indicating developers’ acceptance of this new concept, we would expect larger apartments to be built over the next few years.