Global Home Indexes: What 1 Hong Kong Home Can Buy

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

October 2005

Your humble author has recently been assembling some data on home prices elsewhere and thus out of curiosity compared them to that of Hong Kong (HK). Despite the average HK home price has gained some 65% in the past two years based on Centaline’s City Index (from around 33 to the current 55), the number of overseas homes that an average HK home can buy has not gone up by the same percentage, largely because overseas residential real estate increase in price as well.

This prompted your author to create an index to measure how many typical homes in an overseas market one average priced HK home can buy at a given period of time, using very rough data and simple calculations. Over time, such indexes may show certain trends and patterns thus helping to throw a light on market viability. The following are some of the basic technical notes to bear in mind when referring to these indexes:

A)     The aim here is to see very roughly how many typical homes in an overseas market 1 average HK home can buy = this can be higher than 1, smaller than 1, or close or equal to 1, depending on the home prices and currency exchange rates at any one given period of the markets concerned.

B)     The indexes are meant to be easy to comprehend and simple to apply = rough data and simple calculations are used instead of theoretically complex statistics and mathematical models. Nominal average prices are used and no account has been taken of transaction costs, GDP, economic performances, taxes, and the like. There are also no adjustments for inflation, deflation, and the like except currency exchange rates. As such, there is a possibility that the average prices and thus the indexes may be skewed up (or down) if a certain period in concern has more expensive transactions (or more inexpensive transactions), though the effect of such a risk may be reduced or eliminated over time or if the market is huge enough. Also, home prices related to Beijing and Shanghai may have a skew toward 1^st hand (from real estate developers to the first buyers) transactions.

C)    The following overseas markets are compared to = as there is generally sufficient data on them and quite a few people in Hong Kong have vested interest in them:

1)      London in the UK = Currently 1 HK home may buy around 1.07 typical London homes, while the figure in 1997 (to offer a contrast) when Hong Kong real estate was at its peak would be 5.13 homes, implying the current index is only around 21% of its 1997 self. The prescribed typical home is a 3 bedroom row / townhouse.

2)      Vancouver in Canada = Currently 1 HK home may buy around 1.39 typical Vancouver homes, while the figure in 1997 would be 4.32 homes, implying the current index is only around 33% of its 1997 self. The prescribed typical home is a 3 bedroom single family detached house located in a suburban or non-CBD neighborhood.

3)      Toronto in Canada = Currently 1 HK home may buy around 1.84 typical Toronto homes, while the figure in 1997 would be 5.64 homes, implying the current index is only around a third of its 1997 self. The prescribed typical home is a 3 to 4 bedroom single family detached house with covered garage located in a suburban or non-CBD neighborhood.

4)      Manhattan in New York City = Currently 1 HK home may buy around 0.31 typical Manhattan home (less than 1), while the figure in 1997 would be 1.75 homes, implying the current index is only around 18% of its 1997 self. The prescribed typical home is a 3 bedroom condominium apartment.

5)      Beijing in China = Currently 1 HK home may buy around 6.74 typical Beijing homes, while the figure in 1997 would be 15.74 homes, implying the current index is only around 43% of its 1997 self. The prescribed typical home is a 3 bedroom condominium apartment.

6)      Shanghai in China = Currently 1 HK home may buy around 5.29 typical Shanghai homes, while the figure in 1997 would be 16.19 homes, implying the current index is only around 37% of its 1997 self. The prescribed typical home is a 3 bedroom condominium apartment.

From the above, one may sense that Manhattan has the priciest residential real estate among the markets, having increased from an average price of around half a million US$ in 1994 to US$1.50M in 2005. Comparatively, Vancouver’s / Toronto had only progressed from average prices of C$250,000 – 350,000 in 1994 to C$300,000 – 450,000 in 2005. Admittedly, comparing Manhattan to other overseas markets such as Vancouver and Toronto are like comparing oranges to apples, yet its home index ratio between the year 1997 and 2005 has the highest value among markets studied herein. Thus it begs the question = Is Manhattan overpriced or is Vancouver, Toronto, or even Hong Kong for that matter, being relatively inexpensive?

Also, one can also observe that while in 1997 one average Hong Kong home could generally be traded for 4 to 6 overseas homes in major metropolitans, a Hong Kong home can now only fetch between 1 to 2 overseas homes (not even half a home in Manhattan), unless one ventures north into China.

In summary, it is hoped readers would find the global home indexes interesting and fun to use, and that these would help in assessing certain inter-market trends and viabilities, bearing in mind that purchasing power depends not on nominal but relative wealth.

For details on the global home indexes, please visit this webpage = http://www.real-estate-tech.com/zeppelin_Global_Index.htm.

Table: How many overseas typical homes 1 Hong Kong home can get

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.

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