Could Hong Kong afford any slowdown in its short- and medium-term growth profiles?

Amid all-time high property rents.

It has been noted that while Chinese demand has and is likely to contribute to the Hong Kong property market, with rents at all-time highs, there may be little slack in the system to accommodate a potential short-term slowdown.

According to a research note from Barclays, over the past 10 years, Hong Kong’s physical property stock has only increased by 11-28%.

It also noted that with demand rising faster than supply, property rents and prices have risen by 115-137% and 275-498%, respectively, over the same period.

With property rents now at an all-time high, Barclays believes there is little slack in the system in the event of any slowdown in Hong Kong’s short and medium-term growth profiles.

Here's more from Barclays:

In 2013, spending by overnight mainland Chinese visitors reached HK$152.7bn and spending by same-day mainland Chinese visitors was HK$64.4bn.

Relative to total tourism receipts of HK$276.5bn, Chinese tourists contributed around 78.5% of overall tourism receipts.

Against Hong Kong’s overall retail sales and restaurant receipts, the contribution from mainland Chinese visitors rose from 15% back in 2003 to 37% in 2013.

So how does this connect back to the property market? From a supply perspective, we find that over the past 10 years, Hong Kong’s property stock has increased by 11%-28%.

Hong Kong’s private housing stock increased by 11% from 1.01mn units to 1.12mn units. Overall office supply increased from 9.54mn sqm to 10.98mn sqm and overall commercial space (i.e. retail) rose by 17% from 9.31mn sqm to 10.88mn sqm.

With demand having risen faster than supply, price and rents have become the factors that determine who gets to enjoy the limited resource of property, and over this period we see that housing rents have increased by 115%, office rents are up by 137% and retail rents are up by 130%.

With the drop in interest rates, prices have gone up even faster, with home prices up 275%, office prices up 498% and retail property prices up by 414%.