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Monday, October 24, 2016, 00:11

‘Home dreams’ easier in HK than in first-tier mainland cities

By Li Tao

A few months ago I attended a conference in Shanghai, the city where I spent four years at college and thought I knew it well. The organizer accommodated us in a hotel somewhere in Pudong. I barely knew the place and it was not conveniently accessible as construction work was still going on at the time.

When I took a taxi to leave, the driver told me home prices in the neighborhood had exceeded 100,000 yuan ($14,800, or HK$115,000) per square meter.

“If I have two properties in Shanghai, I don’t have to go out working. I will sell one property and get more than the total I could earn for the rest of my life. But if I have no property, I will never own a property, as the entire income during my working life will not be sufficient to buy one in Shanghai,” he lamented.

The driver might have simplified the matter based on immutable assumptions about the future, but the unattainably high home prices in first-tier mainland cities now like Shanghai have prevented many people from realizing the dream of owning their own homes. On the other hand, although high property prices in Hong Kong are a popular topic in the local media, the reality is that the “dream of owning your own home” is much easier to achieve for Hong Kong people than their compatriots in first-tier mainland cities who don’t have affluent parents.

Recent research by the Bank of America Merrill Lynch (BoAML) also confirmed this view. It said that home prices in Hong Kong are becoming relatively more affordable compared with some major mainland cities. Hong Kong’s housing affordability ratio — mortgage payments to the median household income — stands at 58 percent. This is a lot lower compared with the 80 percent to 124 percent in three first-tier mainland cities — Beijing, Shanghai and Shenzhen.

The report also indicated that the price gap between Hong Kong and these top-notch mainland residential homes has narrowed. This may trigger a larger number of mainland investors to buy a second home in Hong Kong to diversify their wealth.

There is no doubt that homes prices in both Hong Kong and first-tier mainland cities have become notoriously high. But taking into consideration various factors that affect the affordability in purchasing a home, owning a property is easier in Hong Kong despite average prices in the city still outstripping other mainland cities.

Firstly, the flag-down fare to own a property in these cities is now basically similar. It normally costs between HK$3 million to HK$5 million to have an average two-bedroom residential home in the Hong Kong mass market. But it is also difficult to find properties which cost below 3 million yuan in these mainland cities, as small apartments are popular here in Hong Kong, but most two-bedroom apartments on the mainland are at least 70 to 80 square meters.

When the target price is not far-off, we have better reasons in Hong Kong to buy homes as the average incomes here are generally higher, with much lower taxes, lower down-payment ratios and much lower mortgage rates — at least for now. All these factors translate into the BoAML finding that the affordability ratio in Hong Kong is much healthier than in Beijing, Shanghai and Shenzhen.

Moreover, if a young person in Hong Kong is lucky to have support of his parents who are able to pay for his down-payment, he also has a good reason to support the loans. This is normally equivalent or even smaller than the rent he needs to pay to live alone outside. However, at the current benchmark lending rate of 4.9 percent on the mainland, a borrower needs pay 10,600 yuan a month to the bank for a loan of 2 million yuan on a 30-year-term. Whether a young person on the average wage can afford their monthly mortgages remains open to question even if his parents take care of the down-payment.

The author is a business editor of China Daily Hong Kong Edition.

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