Foreign investment pushes HK housing market up further in 2017
Foreign investment has supported Hong Kong’s housing market run in 2017, despite a crackdown by mainland China to curb corporate sector debt. The Centa-City Leading Index for residential property is up 11% this year, following a 50% rise between 2011 and 2016. However, housing affordability deteriorated further in Q2, with a Chinese government report showing mortgage spending accounted for 67% of income compared to 56% in Q2 2016, and while house prices continued to rise, the rate slowed. The number of residential transactions dropped to half the 20-year average in July sitting at 3,515, according to official statistics.
The amount of residential property-related transactions rose by 43 percent in 2Q17 to 18,892, pushing process higher. The boom in financial services and Hong Kong’s role as an intermediary between certain sectors of mainland China’s economy and the rest of the world, are attracting fixed investment from overseas.

"In view of the likely positive developments on both the external and domestic fronts, the Hong Kong economy is expected to attain further solid growth in the rest of the year," the Chinese government said. "The generally benign global economic environment remained supportive to external demand."

Total Hong Kong exports of goods rose an annualized 5.6 percent, whilst exports of services rose 2.3 percent. Consumer spending rose by 5.3 percent, whilst the jobless rate dropped to 3.1 percent. Hong Kong investment rose by 8 percent year-on-year. The firm macro fundamentals suggest the economy is in a good shape, however, housing market dynamics might suggest this robust expansion might be peaking out.

The sharp increase in housing prices might start draining the international investors’ urge to allocate capital in Hong Kong. The broader economic growth in Hong Kong is thus exposed to a possible slowdown in the coming quarters.

"But if we are right that interest rates in the city will rise over the months ahead, it could precipitate a slump in the city's property market," Chang Liu of Capital Economics said. More than 90 percent of new mortgage costs in Hong Kong are based on the interbank rates, therefore an increase in interest rates "would lead to a sharp downturn in private consumption and real estate investment."