Price-to-income ratio returns to 2012 levels

HONG KONG, 25 February 2024 – Hong Kong's residential property market urgently requires demand stimulation to address the structural oversupply of housing units following a three-year downturn. Concurrently, the city's housing affordability has improved markedly alongside the correction in property prices. According to JLL's latest Hong Kong Residential Sales Market Dynamics released today, the price-to-income ratio has fallen from 17.8 years in 2021 to 12.3 years by the end of 2024, meaning that the average household will now require 5.5 fewer years of income to purchase a 538-sq ft home, aligning with 2012's levels. This improvement also provides scope for future policy adjustments.

While lower housing costs and increased availability align with social objectives, market data reveal two critical challenges for property development: The number of units on disposed sites (ready for imminent construction) plummeted by 33% year-on-year to about 12,000 units in 2024; and the government's land premium income collapsed to about HKD 4 billion in the first three quarters of FY2024/25, a fraction of both last year's actual income of HKD 13.9 billion and this year's target of HKD 33 billion. If left unaddressed, reliance on market self-correction risks perpetuating a downward spiral of asset devaluation, hampering urban renewal projects and strategic planning, and potentially jeopardising the Northern Metropolis – a cornerstone of Hong Kong's long-term economic and social development.

Norry Lee, Senior Director of Projects Strategy and Consultancy Department at JLL in Hong Kong, said: "The solution to the current market stalemate lies in activating demand-side mechanisms to address structural oversupply. We recommend that the government enhance the Capital Investment Entrant Scheme (CIES) by fully recognising residential property investments, counting 100% of such investments toward the CIES's HKD 30 million eligibility threshold. Additionally, we suggest removing price restrictions on residential property investment by eliminating the HKD 50 million minimum valuation requirement for residential properties under the CIES."

This targeted relaxation would yield five strategic benefits. Firstly, it would stimulate capital inflow by attracting southbound investment, thereby stabilising liquidity and supporting economic recovery. Secondly, it would foster population growth by incentivising high-net-worth migrants to settle in Hong Kong, thus bolstering overall economic activity through increased investment, consumption and business creation. Thirdly, it would achieve inventory reduction by accelerating the absorption of unsold units, allowing developers to reinvest. Fourthly, it would result in fiscal stabilisation by boosting transaction volumes, thereby reviving stamp duty and land premium revenues. Finally, it would moderate rents as increased investor purchases ease rental market pressure, aiding rental affordability for tenants.

Cathie Chung, Senior Director of Research at JLL in Hong Kong, said: “Critics may warn that relaxing the CIES risks reigniting speculation, but structural safeguards are in place. The existing 26,600 unsold units inherently dampen price spikes, while the 900,000 planned units of the Northern Metropolis necessitate bold demand-side measures to avoid underutilisation. Crucially, housing affordability has significantly improved, with the price-to-income ratio returning to 2012 levels. Given the market's deep correction, the downside risks of prolonged devaluation – such as eroding household wealth, developer defaults, and fiscal instability – now far outweigh the diminishing benefits of lower housing costs."