In recent months, emigration has become a popular topic in Hong Kong, partly triggered by social events and many countries having relaxed immigration criteria for Hong Kong residents. While official statistics are not available, according to the Mandatory Provident Fund Schemes Authority (MPFA) data, the number of MPF benefits withdrawal cases, on the ground of permanent departure from Hong Kong, reached 8,500 in 4Q20, compared to a quarterly average of 7,600 cases in 2019.

As people move out of Hong Kong, many may sell their residences. As such, there is concern that pressure on property prices will build up. However, observations about the market in recent and in the pre-1997 period appear to defy such expectations.

Despite the pandemic preceded by social tension, mass residential prices have been resilient. JLL residential index shows mass residential capital values rose 0.2% in 2019 and dropped only 1.6% in 2020, despite a 6.1% GDP contraction for the year and that the unemployment rate reaching 7.2%.

In retrospect, between 1985 and 1997, about 576,000 residents emigrated from Hong Kong, according to a Hong Kong Government source cited by BBC. During this period, mass residential prices (class A, B & C) had risen by more than 750% (average 19.6%/year) according to the Rating and Valuation Department, while the economy enjoyed an average nominal growth of 14.2% annually. Residential prices appeared to be little affected by the wave of emigration.

 Figure 1: Trend of pent-up demand in Hong Kong

Sources: Census & Statistics Department, Land Registry, JLL

Resilient housing prices in Hong Kong have long been deemed a consequence of an acute imbalance between demand and supply. Using the number of family formations and new births as a proxy for housing needs, the ratio between total sales and housing needs can indicate how well housing needs are being addressed by housing availability.

Before a range of counter-cyclical demand-control measures were implemented in 2010, with transaction costs at normal levels, property prices were primarily determined by supply and demand. Between 2001 and 2010, with a higher number of transactions, the average ratio between house sales and housing needs was 1.14.

Since 2010, housing demand was heavily suppressed by a series of “spicy measures” (restrictive policies on home buyers). Between 2011 and 2019, the ratio dropped substantially from the previous levels to 0.59, suggesting that new demand can no longer be fulfilled, leading to pent-up demand. Interestingly, the ratio increased to the long-term average level of about 0.9 in 2020. This sharp rise was the consequence of:

1. the spicy counter-cyclical demand control measures becoming less effective in suppressing demand, and
2. a combination of fewer marriages and new births in 2020.

Going forward, a visible rise in the number of emigrations may trigger more transactions in the secondary market as emigrants list their residences for sale. In turn, a higher transaction volume will better and more truthfully reflect the underlying market dynamics.

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