In 2018, Hong Kong economy registered an above trend growth as a whole. First half of the year recorded robust upswing amid the favourable global economic environment. However, Hong Kong’s economic growth decelerated notably in the second half, especially in the fourth quarter as the US-Mainland trade conflict and successive US interest rate hikes took its toll. Underlying inflation accelerated from 1.7% in 2017 to a moderate level of 2.6% in 2018. Despite the external challenges, the labour market showed further tightening, depicting continuous growth in total employment with income condition improved. The unemployment rate declined to 2.8%, the lowest in more than 20 years.
The residential property market remained exuberant in the first half of 2018, as the tight demand-supply balance of flats continued to render support. However, second half of the year underwent a consolidation. Flat prices reverted to a decline in August, though still recorded a gain for the whole year. Market sentiment was dampened by various factors, including the increase in local Best Lending Rates in September and volatility in the global stock markets. Notwithstanding the price decline, the index of home purchase affordability was around 69% in the fourth quarter, significantly above its long-term average of 44% over 1998-2017.
The commercial and industrial property markets experienced ups and downs in 2018. In the first half of the year, the office market showed upbeat sentiment. However, gloomy global economic outlook in the second half of the year caused market activities losing momentum towards the end of the year. Nevertheless, prices and rentals of non-residential sectors recorded gains in 2018 as a whole.
To address the overheated property market, the Government has introduced several rounds of demandside management measures since November 2010. These measures aim at preventing further exuberance in the housing market which may pose significant risks to our macroeconomic and financial stability, as well as ensuring the healthy and stable development of the property market which is crucial to the sustainable development of Hong Kong as a whole. On land supply, the Government is determined to identify and produce land in order to build a land reserve to help resolve the challenge of land supply shortage. Several plans were presented, including the Lantau Tomorrow Vision, development of brownfield sites, land sharing and revitalisation of industrial buildings. The Government also fully endorsed the Task Force on Land Supply’s recommendations relating to the land supply strategy.
Looking beyond the short-term challenges, the medium term outlook for the Hong Kong economy is bright. The deepening reforms and opening-up in the Mainland will result in sustainable growth, which will be beneficial to Hong Kong. In particular, the Belt and Road Initiative and the Guangdong-Hong Kong-Macao Bay Area development will bring about enormous opportunities. To capitalise on these opportunities, the Government will spare no effort in strengthening Hong Kong’s overall competitiveness.
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Published: 1 August 2019
By: Rating and Valuation Department, Hong Kong