A Tale of Two Cities: Mainland Chinese Buyers in the Hong Kong Housing Market

Abstract

This paper examines the impact of mainland Chinese buyers in the Hong Kong housing market,
using complete transaction records between 2001 and 2017. We find that mainland buyers pay an
average price premium of 1.4% compared with locals. The premiums are estimated to be 3.5% for
large-sized luxury units and 1.6% for homes in central locations. The mechanisms that underlie the
price premiums include a hedging effect, residential sorting, and information barriers, of which the
hedging motive has the strongest impact. Mainland buyers’ price premiums rise significantly when
the Chinese currency depreciates or China’s economic policy uncertainty increases. Our study
sheds light on the impact and mechanism of the “China shock” on the global housing markets.

Keywords: Hong Kong housing market, price premiums, mainland buyers, hedging effect, residential sorting, information barriers

JEL Classification: R23, O18, F22