Pessimism abounds in Hong Kong’s property market even as interest-rate outlook improves

Hong Kong home prices are likely to see a decline of between 3 per cent and 10 per cent next year, according to market estimates
Property agencies Midland Realty and Ricacorp are optimistic, as they expect an upside of as much as 8 per cent in prices next year

Hong Kong property

Salina Li

Published: 8:00am, 18 Dec 2023

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Hong Kong may have seen the last of the interest rate hikes in the current tightening cycle, sparing homebuyers from higher borrowing costs, but analysts warn this may not prevent property prices from slipping further.

Despite the positive interest rate outlook, home prices in the city will drop next year, with a best-case scenario of up to 3 per cent by CGS-CIMB Securities and by as much as 10 per cent by UBS.

Rising demand from mainland Chinese buyers following the government’s easing of cooling measures and rising rental yield should provide downside support for home prices in Hong Kong, according to Raymond Cheng, managing director and head of China and Hong Kong property at CGS-CIMB Securities.

This should also bode well for the share prices of Hong Kong-focused developers, he added.

Properties are listed for sale at an agency in Quarry Bay. Photo: Elson LI

The Hong Kong Monetary Authority (HKMA) maintained its base rate at 5.75 per cent on Thursday, after the US Federal Reserve held interest rates steady and signalled that the historic monetary policy tightening engineered over the last two years may have ended and lower borrowing costs were coming in 2024. The HKMA has followed the Fed in lockstep since 1983 on interest rates policy by design under its linked exchange rate system to preserve the local currency peg to the US dollar.

There is a 77 per cent chance the Fed is likely to implement its first rate cut in March, next year, said Cheng. Currently, the market expects a 75 basis points rate cut in 2024.

The expected Fed rate cut may not be fully realised, according to Chau Kwong-wing, the director of the Ronald Coase Centre for Property Rights Research at the University of Hong Kong. There is a possibility the Fed may hike rates again if inflation rears its head again, he said.

“Inflation in the US is a structural [issue], the main cause being decoupling with China,” Chau said. “The decoupling process will take a long time and therefore inflation and interest rates will remain high for the next couple of years, although there may be short-term fluctuations.”

As a result Hong Kong’s property prices are unlikely to rise next year, he added.

Property prices in Hong Kong, among the most expensive in the world, have dropped by almost 20 per cent from their historical peak in 2021, according to data compiled by the Rating and Valuation department.

Despite the possibility of US interest rate cuts next year, Hong Kong’s prime rate is still more likely to move sideways for a period of time, and may not be able to follow US rate cuts immediately, said Wong Mei-fung, managing director of Centaline Mortgage Broker.

Even the HKMA cautioned the public on the interest-rate risks, saying the high interest rate environment may last for some time. “The public should carefully assess and manage the relevant risks when making property purchases, mortgages or other borrowing decisions,” the de facto central bank said.

Joseph Tsang, chairman of JLL Hong Kong echoed Wong’s sentiment, saying Hong Kong banks will delay lowering their prime rates.

“Cutting interest rates doesn’t mean the market is going to rebound, we saw that in 1997,” Tsang said, adding that JLL will not change its forecast on property price declines next year.

The consensus on Hong Kong’s property market is for prices to continue to fall next year. Swiss investment bank UBS expects home prices to drop by 10 per cent because of factors such as high interest rates and abundant housing supply.

JLL also expects a slump of up to 10 per cent next year, while Knight Frank and Cushman & Wakefield have each forecast a drop of up to 5 per cent in home prices in the first half of 2024.

Still, property agencies remain optimistic.

Midland Realty and Hong Kong Properties expect a rebound of up to 5 per cent, while Ricacorp Properties sees a potential upside of 8 per cent next year.

Sales of flat SHKP’s Yoho West in Tin Shui Wai have been brisk. Photo: Google

Meanwhile, developers have been pricing their new residential projects at close to six-year lows. The average price tag of Sun Hung Kai Properties’ (SHKP) flats at Yoho West, whose sale was launched this month, was at a level not seen since 2017.

Hong Kong’s biggest developer enjoyed another round of robust weekend sales. A total of 241 flats were sold on Saturday, about 86 per cent of the 280 units offered in the third round of sales. More than 640 units were sold in the previous two rounds, bringing in more than HK$3.3 billion (US$422.8 million), according to SHKP.

Primary transactions will account for 30 per cent of the overall transactions next year, according to Martin Wong, Knight Frank’s Greater China head of research and consultancy.

He expects developers will offer greater discounts on new homes, which will exert further pressure on the secondary market.

A survey released by Citi Hong Kong last week found that the number of Hongkongers who say it is a “good time” to buy a house fell three percentage points from a year ago, but it was the second most optimistic result recorded in the past 11 years.