Hong Kong SAR, China

Country Profile

^{Source: IFHP, Housing in Hong Kong, 2013}

Hong Kong’s urban population grew from 85.2 percent in 1960 to 100 percent of total population in 1995, and has maintained a 100 percent urbanization rate since then. In 2010, 2.334 million households resided in Hong Kong, representing a 1 percent growth from the previous year.[1] Hong Kong has one of the most developed mortgage markets in Asia. According to the Hong Kong Monetary Authority, in 2010, total outstanding mortgage loans accounted for HK$740 million, or 42.3 percent relative to GDP. Despite the growth of the sector, the delinquency ratio and rescheduled loan ratio have remained low at 0.2 percent and 0.4 percent for the past two years, respectively. [2] Commercial banks are the major source of housing finance in Hong Kong, and there is no government-run housing bank. The majority of the loans are adjustable rate products, as the enthusiasm for fixed-rate mortgages, which were introduced in 1998, quickly faded when interest rates began to fall after the current crisis.[3]

Hong Kong’s government has been actively using the loan-to-value (LTV) ratio as a tool to regulate and stabilize the market. Prior to 1991, LTVs of 90 percent of the home price were common, resulting in high risks for lending institutions. The maximum LTV ratio was voluntarily lowered to 70 percent by banks in 1991 and became official government regulatory policy in 1995. [4] The 70 percent LTV policy effectively kept the delinquency ratio lower than 1.43 percent, even in the middle of the current financial crisis, when home prices dipped 40 percent.[5]  In 2009, the Hong Kong Monetary Authority required all lending institutions to lower the maximum LTV ratio for properties with a value of HK$20 million or more to 60 percent to further reduce default risk.[6]

Hong Kong’s government has initiated various programs to provide public housing since 1953, when a large fire in Shek Kip Mei, a squatter area, left 50,000 people homeless. In response, the government constructed eight six-story resettlement buildings at the scene of the fire to accommodate the victims and charged highly subsidized rents ($14 per month/adult). [7] In 1972, the government announced a ten-year plan to provide decent living accommodations to 1.8 million citizens. It built 53 new public housing estates and converted 19 old housing estates.[8] Currently, the Hong Kong Housing Authority provides 650,000 public rental flats for two million people, nearly one-third of the population of Hong Kong.[9]

Since 1978, Hong Kong’s government has gradually shifted the focus from providing public rental housing to encouraging home ownership. The Hong Kong Housing Authority introduced different types of ownership schemes over the years. First, it built flats that it sold at a discount to eligible households and tenants of public housing.[10] In 1988, the Home Loan Purchase Scheme (HLPS) offered interest-free loans or monthly subsidies to renters to buy their own homes, and in 1997, the HKHA introduced a Tenants Purchase Scheme (TPS) to encourage tenants of public rental housing to buy their flats.[11] More recently it introduced a “rent-to-buy” scheme for households that have the ability to make monthly mortgage payments but cannot afford the down payment.[12] The first 5,000 units under the plan are expected to be delivered in 2014.[13] As a result of this shift in emphasis away from rental housing, Hong Kong’s home ownership rate has increased from 32 percent[14] in 1982 to 53 percent[15] in 2010, still well below the government’s target of 70 percent.[16]

[1] The World Bank. World Development Indicators Database. Web. 12 Sep. 2011.

[2] Hong Kong Monetary Authority. Monthly Statistical Bulletin. Web. 12 Sep. 2011

[3] Zhu, Haibin. Structure of housing finance markets and houses prices in Asia. BIS Quarterly Review. December 2006. p. 57.

[4] Wong, Fong, Li and Choi. Loan-To-Value Ratio as a Macro-Prudential Tool- Hong Kong’s Experience and Cross-Country Evidence. Hong Kong Monetary Authority Working Paper. 2011. p. 6.

[5] Wong, Fong, Li and Choi. Loan-To-Value Ratio as a Macro-Prudential Tool- Hong Kong’s Experience and Cross-Country Evidence. Hong Kong Monetary Authority Working Paper. 2011. p. 6.

[6] Wong, Fong, Li and Choi. Loan-To-Value Ratio as a Macro-Prudential Tool- Hong Kong’s Experience and Cross-Country Evidence. Hong Kong Monetary Authority Working Paper. 2011. p. 7.

[7] Yan, Fung Ping. Public Housing in Hong Kong: Past, Future, Present. pp. 3-4. Web. 12 Sep. 2011.

[8] Yan, Fung Ping. Public Housing in Hong Kong: Past, Future, Present. p. 5. Web. 12 Sep. 2011.

[9] Yan, Fung Ping. Public Housing in Hong Kong: Past, Future, Present. p. 3. Web. 12. Sep. 2011.

[10] Yan, Fung Ping. Public Housing in Hong Kong: Past, Future, Present. p. 5. Web. 12 Sep. 2011.

[11] Yan, Fung Ping. Public Housing in Hong Kong: Past, Future, Present. p. 6. Web. 12 Sep. 2011.

[12] Government of Hong Kong. Policy Address 2010-2011.  Web. 12 Sep. 2011.

[13] News.gov.hk. “My home Purchase Plan” to Debut in 2014. Web. 12 Sep. 2011.

[14] Wong, Lai-ping. Home Ownership in Hong Kong: is 60% Home Ownership Rate Achievable by 1997? p.86. 1997.

[15] Hong Kong Census and Statistics Department. Web. 12 Sep. 2011.

[16] Yan, Fung Ping. Public Housing in Hong Kong: Past, Future, Present. p. 6. Web. 12 Sep. 2011.