Last month at a coffee shop in Central, I overheard two young people in their early thirties at the next table discussing: 'Property prices have dropped so much, should we enter the market? But I'm afraid they might fall even further after we buy...' The other one said: 'For us working people, we will have to buy a property and get married sooner or later, so it's better to buy early than late.' This conversation perfectly reflects a core concept of the Hong Kong property market—rigid demand.
In 2024, Hong Kong's property market, after consecutive adjustments, has prompted many people to ask: how many people really 'must' buy property now? Do the so-called 'rigid demands' actually exist, or are they just sales tactics used by real estate agents? In today's article, I will use my 15 years of real estate experience to uncover the truth about 'rigid demand' and analyze the actual buyer composition in the current market.
Core Concept: What is True 'Rigid Demand'?
Three Major Characteristics of Rigid Demand
In the real estate industry, rigid demand refers to the group of buyers who 'must purchase property regardless of whether the market rises or falls.' This type of buyer has three obvious characteristics:
- Time pressure: Life-stage needs such as marriage, having children, and living with parents
- Low substitutability: Renting a property cannot meet long-term needs (such as children's school placement, autonomy in renovations)
- Sufficient purchasing power: Has a down payment, passes the stress test, stable income
:::tip Expert Opinion Genuine buyers with rigid demand will not change their property plans due to short-term fluctuations in housing prices. What they care about is 'whether they can afford it,' not 'whether it will fall further.' :::
Rigid Demand vs Investment Demand: How to Distinguish?
Many people confuse 'rigid demand' with 'investment demand.' Here is a simple way to distinguish between them:
| Feature | Rigid Demand | Investment Demand | |------|----------|----------| | Purpose of Purchase | For personal use, to solve housing problems | To earn rental income or capital appreciation | | Market Sensitivity | Low (Must Buy) | High (Will Wait for Opportunity) | | Holding Period | Long-term (over 5 years) | Flexible (can trade short-term) | | Mortgage Ratio | Borrow as high as possible | Depends on leverage strategy |
According to data from the Rating and Valuation Department, there were approximately 42,000 primary and secondary residential transactions in 2023. It is estimated that 60-65% of these were for owner-occupied rigid demand, while the rest were for investment or upgrading purposes. This proportion tends to be higher during market adjustment periods because investors wait and see, but buyers with rigid demand "cannot afford to wait".
New Changes in Rigid Demand in 2024
This year's rigid demand has shown several new trends:
1. Age group shifting downward: Benefiting from the government's relaxation of mortgage insurance (up to 90% loan), the number of 25-30-year-old 'first-time home buyers' has significantly increased.
2. Change in regional selection: Areas in the New Territories North (such as Fanling and Sheung Shui) and Tseung Kwan O, which offer lower-than-market rents, have become hotspots
**3. Smaller unit area: Demand for 300-400 sq ft studio or one-bedroom units has surged because the down payment threshold is lower.
:::highlight Data speaks According to data from the Hong Kong Monetary Authority, in the first quarter of 2024, the number of new mortgage approvals with 90% mortgage insurance increased by 23% year-on-year, reflecting that real demand for entering the property market is being released. :::
Case Study: Real Stories of Three Types of Buyers with Rigid Needs
Case 1: The "Getting on the Property Ladder" Pressure for Newlyweds
Background: Ken (32 years old, monthly income 45,000) and his wife Amy (29 years old, monthly income 32,000) plan to get married next year and currently each live with their parents.
Requirement Analysis:
- Total monthly income of 77,000, can borrow approximately 5.5 million mortgage after passing the stress test
- Target unit: Two-bedroom units under 6 million (requires a 600,000 down payment)
- Considered areas: Tseung Kwan O, Ma On Shan, Tung Chung
Final Decision: Purchase a two-bedroom unit in Tseung Kwan O for 5.8 million, with a 90% mortgage (5.22 million), a down payment of 580,000, and a monthly mortgage of about 22,000. Although the property price may still have room to decline, they believe that 'getting married requires our own space, and renting for two years has already paid 500,000 to someone else.'
:::success Insider Tip Newlyweds are the most typical example of rigid demand. It is recommended to choose areas where purchasing is similar to renting; even if property prices adjust in the short term, the long-term holding costs are still lower than renting. :::
Case 2: The 'Home Upgrade' Needs of Middle-Class Families
Background: David (40 years old, IT manager) lives with his family of four in a 400-square-foot, two-bedroom unit in Sha Tin. The two children are 7 and 5 years old, and they urgently need more space.
Requirement Analysis:
- The current unit market value is about 6.5 million, with a remaining mortgage of 2 million.
- Target unit: three-bedroom unit priced at 8 to 9 million
- Considered areas: Sha Tin, Tai Wai, Ma On Shan (retain children's school places)
Final Decision: Sell the old unit to cash out 4.5 million, combined with savings totaling 5 million, to purchase a Tai Wai three-bedroom unit for 8.5 million, taking a 60% mortgage (5.1 million), with a monthly payment of about 23,000. Although the property market has not yet bottomed out, 'the two kids have grown up, and we really have no space to live.'
Expert Commentary: The demand for upgrading homes also belongs to rigid demand because it involves non-negotiable factors such as children's growth and school placements. These buyers usually choose to 'sell first, then buy' to secure funds for upgrading homes.
Case 3: The 'Leaving Parents' Needs of Single Professionals
Background: Michelle (28 years old, accountant, monthly income 42,000) hopes to move out of her parents' home and establish an independent living space.
Requirement Analysis:
- Single income, can borrow about 4.5 million mortgage
- Target units: Open-plan or one-bedroom units under 5 million
- Considered areas: Tsuen Wan, Kwai Chung, Tsing Yi
Final Decision: Purchase a studio unit in Tsuen Wan for 4.8 million HKD (about 280 sq ft), taking a 90% mortgage (4.32 million HKD), with a down payment of 480,000 HKD, and a monthly mortgage of about 19,000 HKD. She said, 'Renting costs 13,000 HKD per month, paying the mortgage is only 6,000 HKD more, but it's my own asset.'
:::tip Market Observation Single commuters are the fastest-growing group with rigid demand in recent years, especially highly educated, high-income professionals. They pursue quality of life and are willing to 'pay less than renting' in exchange for autonomy. :::
Current Market: How Many People Are Still 'Queuing to Buy Property'?
Understanding Real Demand from Data
To understand how many buyers have rigid demand at present, we can analyze several indicators:
1. Mortgage Application Numbers
- In the first quarter of 2024, about 18,000 new mortgage approvals were issued, a 15% increase year-on-year.
- Applications for 90% mortgage insurance increased by 23%, reflecting strong demand for buying a home.
2. Response to first-hand property subscription
- When a new development goes on sale, units under 5 million are usually 'sold out on the same day'.
- The oversubscription ratio for two-bedroom units averages 3-5 times.
**3. Negotiation space for second-hand properties
- The gap between the owner's asking price and the transaction price has narrowed to 5-8% (compared to 10-15% in the same period last year)
- Reflects an increase in genuine buyers and enhanced bargaining power
:::warning Attention Although overall transaction volume has not fully recovered, 'effective demand' (that is, people who have the ability and willingness to buy property) is accumulating. Once market sentiment improves, this demand will be released quickly. :::
Three Types of 'Hidden' Rigid Demand
In addition to the obvious buyer groups mentioned above, there are three types of 'hidden' rigid demand in the market:
1. Relocation needs for old building reconstruction
- The Urban Renewal Authority and private developers acquire old buildings, and the owners need to find alternative housing.
- These types of buyers usually have ample funds and belong to the 'must-buy' group.
2. Property Purchase Demand of Mainland Professionals Coming to Hong Kong
- The "High-Caliber Talents" and "Specialist Plan" attract tens of thousands of people to Hong Kong every year
- Some high-income professionals choose to buy property, especially families with children.
3. Housing Demand of Hong Kong People Returning from Overseas
- Hong Kong families returning to Hong Kong after the pandemic need to buy a new home
- These types of buyers are relatively familiar with the property market and will take the opportunity to enter the market during adjustment periods.
According to industry estimates, these three types of 'hidden demand' account for about 15-20% of total transactions each year and are an important force supporting the real estate market.
Demand Outlook for the Next 6-12 Months
Looking ahead, the release speed of rigid demand depends on three factors:
- Mortgage Interest Rate Trends: If the U.S. lowers interest rates, Hong Kong mortgage rates will decrease, reducing the burden of home payments and stimulating more demand for home purchases.
- Extent of Property Price Adjustment: If property prices fall by another 5-10%, it will attract more buyers who are 'waiting to enter the market'
- Economic Outlook: A stable job market and improved income expectations will boost buyer confidence.
:::highlight Experts predict It is expected that from the second half of 2024 to early 2025, the accumulated rigid demand will gradually be released, especially for self-occupied units priced between 5 to 8 million, with transaction volumes expected to rise by 20-30%. :::
Important Notes: Three Major Pitfalls for Rigid Demand Buyers to Avoid
Pitfall 1: Don't blindly pursue 'buying to cover rent'
Many people looking to buy a home are attracted by the concept of 'paying mortgage cheaper than renting,' but take note:
- Hidden Costs: Additional monthly expenses such as management fees, property taxes, and maintenance fees
- Liquidity Risk: After buying property, funds are locked, making it difficult to liquidate in case of emergencies
- Opportunity Cost: The initial capital might have other investment opportunities
Suggestion: When calculating the 'true cost of mortgage,' include all miscellaneous fees and set aside at least six months of emergency funds.
Pitfall 2: Do not over-borrow
Although mortgage insurance can allow borrowing up to 90%, you need to consider:
- Stress Test: Ensure stable income and the ability to cope with a 3% interest rate increase
- Premium Cost: The premium for a 90% mortgage is about 4-5% of the loan amount
- Prepayment Restrictions: Some mortgage plans have a penalty period
:::warning Risk Warning After borrowing up to 90% of the mortgage, the monthly repayment should not exceed 50% of your income, otherwise your quality of life will be greatly affected. It is recommended to keep it below 40%. :::
Pitfall Three: Don't Ignore Regional Development Potential
Buyers with rigid demand often only focus on 'current affordability,' neglecting the long-term development of the area:
- Transportation Facilities: Are there any new railway lines or major roads in the future?
- Community Facilities: Are schools, hospitals, shopping malls, and other amenities well-equipped?
- Redevelopment Potential: Are there any large-scale development projects in the area
Case Study: Buyers who purchased property in Tseung Kwan O in 2015 benefited from the development of Tseung Kwan O South and the opening of LOHAS Park Station, with property prices appreciating by about 30% over five years. In contrast, property prices in some more remote areas remained stagnant.
:::success Experts suggest Choose areas 'with a story.' Even if property prices adjust in the short term, they still have long-term appreciation potential. For example, the surrounding areas of the northern metropolitan region, the Kai Tak Development Area, and so on. :::
Summary: Rigid demand is the 'anchor' of the real estate market
After the above analysis, we can draw several important conclusions:
- Rigid demand truly exists: The annual demand of about 25,000-30,000 self-occupied home purchases is the fundamental support for the property market.
- Demand structure is changing: Young first-time homebuyers and single professionals are becoming the new main force
- 'Paying less than the rent' is key: In a low-interest environment, the gap between mortgage costs and rent narrows, stimulating the desire to buy property.
- More Rational Area Selection: Buyers no longer blindly pursue traditional luxury residential areas, instead turning to regions with higher cost-effectiveness.
For those of you who are considering buying property, my advice is: if you have a genuine rigid demand (a clear need for self-occupation, sufficient down payment, and stable income), the current property market adjustment period is a good opportunity to enter the market. Don't worry too much about 'whether prices will drop further,' because the cost of holding property in the long term is much lower than continuing to rent.
But remember, buying a property is a major life event, and you must act within your means. Make good financial plans, choose the right area, and select the right unit, so that you can truly enjoy a stable life after 'getting on the property ladder'.
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Disclaimer: The content of this article is for reference only and does not constitute any investment advice. Please consult a professional before purchasing property.