Hong Kong’s floundering residential property market has not yet bottomed out, and the road to recovery will be long and difficult given headwinds including high interest rates, a glut of unsold new units and a lack of buying power from mainland China, according to JLL.
Factors including a volatile stock market, a challenging external economic environment and a decrease in new births and marriages are also affecting housing demand, the real estate company said in its midyear property market report, released on Tuesday.
“Hong Kong’s housing market is now having the longest price adjustment since 2008, and the market has not found a bottom,” said Joseph Tsang, chairman at JLL in Hong Kong.
Home prices fell by 1.2 per cent quarter-on-quarter in the second quarter of 2023, after rebounding by 4 per cent in the first quarter, and have plunged 15.9 per cent from a peak 20 months ago, JLL said.
The company now expects prices to drop 5 to 10 per cent in the second half, resulting in a total drop of 5 to 8 per cent in 2023.
The number of unsold units in completed projects is the highest since 2007, the report added. There are 83,000 housing units available in Hong Kong, with 18,000 in completed projects and the rest under construction. In addition, about 25,000 more units are expected to hit the market in 2023, according to JLL.
“Based on observations from previous cycles, current conditions do not warrant a sustainable home price recovery,” Tsang said, adding that given the headwinds surrounding the sector, the current down cycle will be longer than previous troughs.The world economy is not expected to recover significantly in the next one to two years, Tsang said, nor would China’s relationship with Europe and US improve significantly in the near future.
Hong Kong’s economy grew by 2.7 per cent in the first quarter over a year earlier, ending four consecutive quarters of contraction. The government’s full-year forecast for growth is between 3.5 and 5 per cent.
A recovery in the property market will only begin with a downward trend in interest rates, Tsang said.
The Hong Kong Monetary Authority (HKMA) in June paused its rate hikes for the first time since March 2022, keeping the city’s base rate at 5.5 per cent after the Federal Reserve’s move to stagger potential further increases after 10 consecutive hikes.
But the mortgage rate has more than doubled to 3.5 per cent from 1.5 per cent before the rate hike cycle. This means the monthly mortgage payment for a HK$6 million (US$766,640) flat with a 90 per cent loan-to-value ratio spread over 30 years has surged 30.1 per cent to HK$25,461, according to Midland Realty.
The HKMA on Friday evening eased mortgage rules for the first time since 2009 to make borrowing easier for first-time homebuyers and those who want to upgrade to bigger flats. The move has piqued the interest of potential homebuyers and current owners, but will not make a big difference for the overall property-market outlook, according to brokers and bankers.
JLL’s home-price forecast echoes those of other analysts. Knight Frank has predicted a drop of up to 5 per cent in lived-in home prices for the whole year, while Citi expects prices to end the year flat compared with 2022.
In contrast to the for-sale market, JLL’s Tsang said the residential leasing market will gain support from a population inflow from mainland China and the arrival of people recruited under the Top Talent Pass Scheme.
“These [people] may not buy a house immediately, but they will definitely rent one, and this will benefit the leasing market,” he said.
Hong Kong has received more than 100,000 applications to various talent schemes so far this year and approved over 60 per cent of them, nearly double the number targeted.
Luxury rental prices will increase up to 5 per cent in the second half, according to JLL. This aligns with a Cushman & Wakefield forecast that said the rental price index will increase by around 5 to 8 per cent in 2023.