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

73 Pages Posted: 8 Nov 2019 Last revised: 13 Dec 2021

See all articles by Yi Fan

Yi Fan

National University of Singapore (NUS) - Department of Real Estate

Maggie Hu

The Chinese University of Hong Kong

Wayne Xinwei Wan

University of Cambridge - Department of Land Economy

Zhenping Wang

State of Wisconsin Investment Board

Date Written: December 13, 2021

Abstract

This paper examines the investment behaviours of mainland Chinese buyers in the Hong Kong
housing market. Contrary to the conventional belief that mainland buyers significantly drive up
price, we find that they only account for 3.7% of housing transactions in Hong Kong from 2001
to 2017. And their price premium over locals is only 1.4% on average, although it is 3.5% for
large-sized units and 1.6% for homes in central locations. The premium follows an upward trend
after 2003 and peaks around 2012, when the Buyer’s Stamp Duty policy was introduced to reduce
demand from non-local buyers. We further explore the mechanisms underlying housing premiums
and find robust evidence for a hedging motive. Mainland buyers’ price premiums rise significantly
when China’s economic policy uncertainty increases. Our study sheds lights on the spillover effect
of the economic outlook of capital flow origins on the housing valuations in destination regions.

Keywords: Hong Kong housing price, housing premium, Chinese investors, hedging effect, residential sorting, bargaining power

JEL Classification: R23, O18, F22

Suggested Citation

Fan, Yi and Hu, Maggie and Wan, Wayne Xinwei and Wang, Zhenping, A Tale of Two Cities: Mainland Chinese Buyers in the Hong Kong Housing Market (December 13, 2021). Available at SSRN: https://ssrn.com/abstract=3477421 or http://dx.doi.org/10.2139/ssrn.3477421

Yi Fan

National University of Singapore (NUS) - Department of Real Estate ( email )

Singapore

HOME PAGE: http://https://bizfaculty.nus.edu.sg/faculty-details/?profId=669

Maggie Hu (Contact Author)

The Chinese University of Hong Kong ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Hong Kong, N.T.
Hong Kong

HOME PAGE: http://sites.google.com/site/maggiehuresearch/research

Wayne Xinwei Wan

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

HOME PAGE: http://xinweiwan.weebly.com

Zhenping Wang

State of Wisconsin Investment Board ( email )

121 E Wilson St
Madison, WI 53703
United States

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