HONG KONG -- As Chinese investors send Hong Kong property prices into the stratosphere, young locals' dreams of owning a home are crashing to the ground. Their growing discontent could prove a headache for the new administration of Carrie Lam, who will take office as chief executive on July 1.
Prices in Hong Kong's already sizzling real estate market continue to hit new highs despite government efforts to cool the market. A glittering symbol of the investment frenzy is the new luxury condominium that Sun Hung Kai Properties -- Hong Kong's largest property developer -- is building at Tuen Mun in the New Territories, roughly an hour's train ride from the city center.
Even tiny units of less than 30 sq. meters in the building are fetching as much as 4 million Hong Kong dollars ($513,000). Still, large queues of would-be buyers formed just to sign up for the recent sales lottery.
"If you don't buy now, you'll only see prices rise higher," said a 34-year-old woman who entered the lottery. "We can't count on the supply of new public housing, and if I fail to secure housing on my own I will be in trouble when I get married."
Roughly 21 people applied for each of the 118 units offered, all of which were sold instantly.
Hong Kong's housing price index for April stood at 327.4 (1999=100), up 2% from the previous month and the sixth straight record high.
A 42-year-old man who had also signed up for the Tuen Mun condo lottery was willing to spend big because he thought the trend might continue. "If prices continue rising steadily, we have no choice but to buy now," he said.
The median housing price in Hong Kong in 2016 was 18.1 times higher than the median annual household income, according to Demographia, a U.S. research company. The gauge was the world's highest for the seventh consecutive year and far above the global average of 4, which is the reading for Japan.
Because Hong Kong pegs its monetary policy to that of the U.S., interest rates there are bound to rise in the coming months. The local government has warned that a 3% rise in rates would raise the average ratio of housing loan payments to monthly income to an unfeasibly high 86%.
Still, property investors -- mainly cash-rich mainlanders -- are piling into Hong Kong in the expectation that prices will only keep going north due to the limited supply of land.
Some 7.3 million people live in an area half the size of Tokyo. Because 40% of the land is protected from development, finding new space for housing is extremely difficult.
Mainland Chinese snapped up 20% of the luxury condo units sold in Hong Kong in 2016, according to Knight Frank, a commercial property consultancy based in London.
HNA Group, a Hainan-based Chinese conglomerate, purchased residential land on the site of the former Kai Tak Airport through bidding held from late last year through this spring, paying nearly twice the market rate for land in surrounding areas.
Local developers are gearing up for intensifying competition over residential land with aggressive mainland rivals.
Buying a home used to be the most common and reliable form of investment for people in Hong Kong. The idea was simple: buy low, sell high.
But with prices moving out of the reach of most first-time buyers, the potential for serious and permanent social stratification by income is high.
The housing situation is undoubtedly partly behind the growing sense of helplessness and rising anti-mainland sentiment among Hong Kong's younger citizens.
The local government has taken steps to rein in property prices, such as lowering the legal ceiling on bank housing loans. But developers have countered this by offering their own loans via nonbank lenders.
"The market has been pushed up mostly thanks to the government. All these policy methods stop people from buying second-hand flats [that do not come with such financing offers]," said Joseph Tsang, managing director at JLL, a local real estate services company.
One of the biggest challenges facing incoming leader Lam -- who has made much of her desire to heal societal rifts -- will be how to deal with the social problems being stirred up by the investment boom.