With continued volatility in the global economy and market forecasts that Hong Kong banks will raise interest rates, Hong Kong's housing market prices - which have been on the rise in the last decade - have finally gone back down to the levels of two and a half years ago.
Local property sector players are generally not too optimistic about Hong Kong's property price trends and suggest the Hong Kong government should take cooling measures to stabilise the market. Meanwhile, some academics feel the market should be allowed to self-adjust.
In the 25 years since Hong Kong's return to mainland China in 1997, the property market has weathered events like the 1998 economic crisis and SARS in 2003, with property prices being highly volatile at one point. It was not until after the 2008 economic crisis when countries took quantitative easing measures that Hong Kong's property prices shot up - now, they are some 70% higher than peak prices in 1997.
On a downward trend
But negative factors like rising interest rates and the pandemic have seen Hong Kong's resale private property prices starting to fall this year. Latest figures from the Hong Kong government's Rating and Valuation Department (RVD) show that the price index of Hong Kong private homes in July slipped to 376.1, showing a drop over two months consecutively and of 1.65% over the past month, to the lowest level since February 2020 and 5.53% lower than the record 398.1 in September 2021.
Looking at the first seven months of 2022, Hong Kong's private resale property prices have fallen by 4.5%, eradicating the 3.7% rise over the whole of last year.
Property prices expected to drop by 8% this year
With the spectre of rising interest rates, Hong Kong's property prices are expected to fall by 8% this year, the worst performance in nearly 14 years, since a 12.5% bleed during the 2008 economic crisis.
To ameliorate the situation, the Hong Kong government could reverse some drastic measures, such as reducing or even removing the Buyer's Stamp Duty (BSD), and relaxing the cap on the loan-to-value ratio for mainland Chinese buyers to 80%.
Hong Kong will have a supply of about 98,000 new private properties. Coupled with the completion last year of roughly 20,000 residential units, he believes that Hong Kong will have a stable supply of private flats in the future. As the burden of mortgage payments will increase, he urged residents to carefully consider the impact of interest rate hikes when buying properties.
Authorities reluctant to get involved and trigger a price hike
The housing crisis has become the biggest problem in Hong Kong society. Hundreds of thousands of Hong Kongers live in subdivided flats or cage homes, and Beijing authorities have repeatedly said that it would solve Hong Kong's housing problem. The authorities have "no plans" to support the housing market is because he does not want the government's promise of support to push up property prices again.
In the next three to four years, Hong Kong will have a supply of about 98,000 new private properties. Coupled with the completion last year of roughly 20,000 residential units, and we believes that Hong Kong will have a stable supply of private flats in the future. As the burden of mortgage payments will increase, he urged residents to carefully consider the impact of interest rate hikes when buying properties.
Hong Kong's home ownership rate is around 50%, meaning that half of the population are homeowners while the other half are tenants. In other words, 50% of residents hope that housing prices will fall, while the remaining 50% hope that it will soar. Thus, any land and housing policy introduced by the Hong Kong government will easily draw the ire of either side. Hence, the central government hopes that the Hong Kong housing sector will be regulated by the market and that housing prices will fall steadily.
That said, if Hong Kong's housing prices were to take a nosedive, flooding banks with bad debts and harming Hong Kong's position as an international financial centre, the Hong Kong government would intervene to prop up the housing market. At the moment, we believes the authorities would accept a 10-15% fall in home prices.
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