Hong Kong is infamous for its sky-high property prices, which keep many young people from ever owning their own homes, let alone moving out of their parents’ place. Asif Ghafoor, founder of online Hong Kong property portal Spacious, talks with Kate Springer about the cultural and economical ramifications of the property market in Hong Kong, as well as how the city compares to the rest of the world.
Ghafoor grew up in London and arrived in Hong Kong to work at Goldman Sachs in 2007. When he was looking for housing, Ghafoor grew frustrated with the online portals and lack of transparency from real estate agents. He kept the idea in the back of his head and continued working in the finance industry until 2012. Ready for a change, Ghafoor set out to create a more transparent and user-friendly housing portal in Hong Kong, which is now also available in Taiwan, Singapore and Shanghai. Through the industry data Spacious collects, the team is able to analyze industry trends and act as an independent data provider.
1. Social issues are driven by housing issues
Housing is an incredibly important part of the economy, and it’s closely linked globally. Individuals need more transparency from the markets and the agents, so they can make better decisions. People should be able to know what is the right amount of rent they should pay, or what’s a fair price to pay, as opposed to what the agents and banks might be saying. It’s an important asset class. People in this part of the world really care about real estate. It’s an inflation hedge, it’s security for a lot of people.
We’ve had discussions with the Hong Kong government and one thing they have taken a long time thinking about, is that they have correctly recognized that a big part of the frustration around things like Occupy Central and young people in this city — everyone knows they’re pretty depressed and beaten down — a big part of that is to do with the fact that those people can’t afford the cost of living.
Even if they work their entire lifetimes, they can’t afford to buy a flat. So what happens if you don’t have a strong degree of transparency in the market is that prices won’t necessarily go up and down with natural supply-demand factors, because you could have agents manipulating the prices and pushing them up artificially even though the demand isn’t there to support those prices.
2. Rents are actually on a downward trend
The market peaked in September and October in 2015. Since then, average rentals can probably be negotiated 10 percent down. Not necessarily when you’re already in the flat, but if you’re moving in now, then you can probably get 10 percent off for sure.
Unfortunately, I’m sure you’ve seen this yourself, a lot of people are losing their jobs — especially in finance. Lan Kwai Fong is a lot quieter than it used to be, and I think anyone can see that. The finance industry has taken a beating, so that’s a driver behind the rental decreases. You don’t have to be in the market to see that.
3. And sale prices have fallen too
The sale price situation is a lot more complicated, because it’s not necessarily being driven by demand and supply. The government has recognized that a lot of the social issues in this city are linked directly to housing and imposed cooling measures to bring prices down, which is smart because I think that’s absolutely true.
If the market drops too much, they can ease off the breaks and things will stat moving again. That’s a controlled situation. I don’t think it will come down by much more, because the entire economy could collapse. It’s all linked, but they do want to control it.
Growing up in London, I could have just taken it for granted that I was able to go to university when I was 18, and I never moved back home. But here it’s not that easy. When you’re in that culture, where having family is so important and you’re expected to have your own apartment before you get married, it is simply impossible for most people in this market.
Sale prices have dropped off a cliff, especially on the higher end. Most of that is that demand from mainland China is drying up, and that has led to some interesting and slightly scary situations. The transaction volume of sale properties is at its lowest in 10 years, since SARS in 2003. I think that’s in some ways to be expected, because the market massively overshot.
4. People are moving out of Hong Kong
One of the biggest differences in Hong Kong, in the Asian context, is that it’s seen as a safe haven. Not as much as it used to be, but it still is when compared to other countries. Similar to Singapore, it’s a place where people think they can park their money.
That’s a dynamic that’s interesting in Hong Kong and Singapore. That has reduced, which is why the prices are coming down a bit. A lot of people from mainland China have bought property in the last 10 years. You don’t get those types of dynamics in a place like Shanghai. Chinese people are trying to get their money out of China, in New York, London, Sydney, these kinds of places.
If you were to compare Hong Kong to say, Taipei, Taipei is simply more affordable. The amount of money you need to live in Taipei is significantly lower than what you need in Hong Kong. One interesting phenomenon that I’ve seen in the last few years, is that a lot of people are relocating to Taiwan. Great food, great country, great green space — and just more affordable. Taipei is the easiest city to live in and Hong Kong is the most expensive.
5. Hong Kong’s housing problems are not unique
Cities like London and New York are becoming more like Hong Kong. The issues we’re talking about now are a preview to the future of London. I know London very well, and the cost of renting a two-bedroom flat within an hour’s commute in Central London is just off the charts. I couldn’t afford to go back there and live the same lifestyle.
I think these are the problems of modern society, population booms, urbanization — these are the inevitable problems we are all going to deal with. London is moving into that reality where you can have a 2-by-4-meter flat, and a shower over the toilet . Things that would have been considered very odd or exotic when I was growing up are becoming more and more common.
I think we’re going to see wages increasing in the next few years, and that will hopefully make the housing more affordable. You will also see more gentrification. I mean, when I came to Hong Kong in 2007, Sheung Wan was nasty and disgusting. But now you’ve got all the areas around Kennedy Town and Sai Ying Pun — that area was absolute no-go area when I first came.
I am one of the very few people who think the government is doing a semi-decent job — you know, they’re opening up a transport link between Causeway Bay and Ocean Park that’ going to go all the way to Aberdeen. That’s going to connect it all, open it up. I think a few structural factors will ease up the affordability and hopefully the supply will increase, the pressure will come down on the prices.
We’ll also see more internet companies that will fill the vacuum left by the banks who are firing dozens of people every other week. What that means is you have less of a need for this ridiculously expensive real estate in Central, because you don’t need the big corporate bank spaces. You just have a startup in Lai Chi Kok or Chai Wan. Hopefully we’ll see that the city spreads out, rather than these pockets of gentrification.