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

Abstract

This paper examines the effect of mainland Chinese buyers' housing purchase in Hong Kong. Contrary to media's allegation on mainland buyers causing huge bubbles in Hong Kong housing market, we find that mainland buyers only constitute less than 4% of housing transactions in Hong Kong from 2001 to 2017, and their price premium over locals is only 1.4% on average. The mainland premium is higher for properties attracting more interests from mainland buyers, such as luxury units larger in size (3.52%). We also find that the price premium varies with hedging demand for the currency risk over time (safe haven effect). Furthermore, the price premium is higher in buildings with more existing mainland homeowners (residential sorting). At last, the price premium is lower if the mainland buyer has stronger bargaining power such as more prior transaction experience or facing a mainland seller.

Keywords: Hong Kong housing price, Chinese investors, safe haven effect, residential sorting, bargaining power

JEL Classification: R23, O18, F22