With Hong Kong’s property market reeling from falling deals and prices, an uptick in rates will dampen mood further, analysts say
- Deals have fallen by nearly half since earlier this year, which are expected to pressure prices further, market observers say
- The headwind of high interest rates will only begin to ease in 2024, Knight Frank’s Martin Wong says
An elevated interest-rate environment is likely to weigh on Hong Kong’s secondary housing market until next year, given the possibility of further rate hikes by the US Federal Reserve and its consequent impact on mortgage rates in the city, analysts said.
Higher interest rates have taken a toll on the transaction volumes of lived-in homes, which have fallen 40 to 50 per cent of this year’s weekly average, according to executives from two leading Hong Kong property agencies. They expect the high rates to push prices further down in the short term.
“There are still many uncertainties about whether the interest rate will peak, [as a result] the wait-and-see sentiment in the market will continue,” said Louis Chan, the Asia-Pacific vice-chairman and chief executive of the residential division at Centaline Property Agency.
Home prices may fall by up to 5 per cent in the third quarter, he added.
The possibility of mortgage rates rising further has not been ruled out. The Fed, which held rates steady for the first time after 10 consecutive hikes since March 2022 to control inflation, sees one or two more increases.
Even the Hong Kong Monetary Authority (HKMA) CEO, Eddie Yue Wai-man, cautioned on Thursday that interest rates in the city may continue to stay at the current high level for some time before any cuts take place.
Why are Hong Kong homeowners cutting prices when the market’s on the rise?
“The public should not take the pause in rate rise today as the end of the interest rise cycle or any rate cut in the near future,” Yue said. “They should carefully assess interest rate risks before making investment decisions or taking a mortgage loan.”
Since the Fed embarked on its interest-rate hike cycle in March last year, the Centa-City Leading Index – Centaline’s gauge of lived-in home prices – has fallen by 6.6 per cent.
In Yuen Long, second-hand deals plummeted over 40 per cent month on month to 27 in the first half of June, with owners cutting prices slightly, according to Centaline.
That figure compares with those collated by Midland Realty, which tracks transactions of 35 large-scale housing estates in the city. The agency said it has seen consistently lower deals since March, which fell below 100 for 14 consecutive weeks and have sunk to less than 50 since the beginning of May, according to data compiled by the agency. The weekly average stood at 34 transactions in the past six weeks, compared with this year’s overall average of 73, it said.
In the short term, to lure buyers from competitively priced new residential projects, secondary homeowners eager to sell may have to cut prices further, Midland said.
Hong Kong home price growth slows down sharply as rising rates sap confidence
Since the mortgage rate has more than doubled to 3.5 per cent from 1.5 per cent before the rate hike cycle, 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 headwind of high interest rates will only begin to ease in 2024, said Martin Wong, Knight Frank’s Greater China head of research and consultancy.
“Some buyers of small and medium-sized units may not pass banks’ stress tests, which will depress home prices in the short term,” Wong said.
“The US interest rate hike cycle has not yet ended,” he said, adding that there is still a chance Hong Kong banks might increase their prime rate.
Meanwhile, Yue said the HKMA was not considering any changes to its mortgage policy, pointing to the nature of the property market.
“Property prices went down 15 per cent last year but have bounced back this year,” he said. “The HKMA will need more time to monitor demand and supply, transactions, prices and other economic data to determine if it should relax the mortgage policy.”
