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PROPERTY

Hong Kong home prices could fall 45pc: Midland-controlled agent

HK Property forecasts that taxes, higher interest rates may spark a major plunge in the market

PUBLISHED : Thursday, 18 July, 2013, 12:00am
UPDATED : Thursday, 18 July, 2013, 4:17am

Home prices could fall as much as 45 per cent over the next three to five years amid higher property taxes, rising interest rates and a bleak outlook for commercial property, says one real estate agent.

Hong Kong Property, controlled by Midland Holdings, the city's only listed real estate agent, made the bearish forecast yesterday.

"The property market has been severely hurt with sales volumes declining sharply after the introduction of the extra stamp duties," said Jeffrey Ng Chong-yip, senior executive director at Hong Kong Property.

The city will enter an era of higher interest rates once the US Federal Reserve's curbs its stimulus, Ng added.

Over the past 23 years, Hong Kong's mortgage rate has averaged 6.2 per cent, with an affordability ratio of 45.7 per cent. The measure is the ratio of mortgage instalment payments to household income.

If mortgage rates increase from their current 2.3 per cent to 6 per cent, Ng said home prices would have to drop 27 per cent in order to maintain an affordability ratio of 45.7 per cent.

With the government stepping up measures to cool the market, Ng said average monthly transactions in the secondary market could drop to 4,500, a level close to that during Sars in 2003.

"In the worst scenario, home prices will drop by as much as 45 per cent," he said.

The more than 10,000 people who bought homes at peak prices last year risk falling into negative equity, he said.

Meanwhile, property consultancy Cushman & Wakefield forecast growth in rent for grade A offices in Hong Kong to slow to 0.5 per cent in the second half, from 1.4 per cent in the first half. Grade A office take-up would shrink to 1.2 million square feet in the second half from 2.1 million sq ft in the first six months of this year, the firm predicted.

It also said rents in Central would bottom out toward the end of the year or early next year, after declining 3.5 per cent in the second half of this year. Prime grade A offices will drop about 4 per cent in the second half, it forecast.

"Transactions will involve mainly small- and medium-sized companies which want smaller spaces of about 4,000 to 6,000 sq ft only," the firm's head of commercial properties, Gary Fok Cho-ping, said.

Michele Woo Wing-sze, Cushman & Wakefield's head of retail, said retail rents had already peaked. Retailers had become more cautious in the last few months, with fewer new leases in prime locations and higher vacancies in secondary locations.

Thousands of property agents marched to government headquarters at Tamar in Admiralty earlier this month to urge the government to withdraw property market measures designed to curb soaring prices.

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This article is now closed to comments

Puddy
If this is indeed true. Then good.
Significantly lower property prices will make the city more competitive.
High property prices has prohibited new enterprises and discouraged foreign investment.
It has also skewed the whole economy towards properties.
This is precisely the type of change needed in Hong Kong.
radianhk
HK mortgage rate averaged at 6.2% over past 23 months?? Guess it should be 2.6% instead.
charlie212
Great way to try to get some sales going there Hong Kong Property ! You are one person who doesn't know the future. Yes prices may go down 45 %, --- actually prices may even go down 80-90% but also they actually may even go up 40-50% or even 75%. This is a purely speculative article trying to drum up business.
caractacus
How can this article encourage people to buy?
philipharsh
Prices would only fall if something serious goes wrong across the border or other International events that cause significant unemployment in HKG. It's impossible mortgage rates would go up significantly. Word has come to an special era from where economic growth activity would happen only if the rates are kept ultra low with loose monetary base. No political power can afford to see Asia falling as Europe.
impala
Ah I see... so basically, this time is different, right?
samsaxena
For the luxury segment (apartments larger than 800 square feet), households are already spending 75% of their pre-tax income on monthly mortgage payments. Also, for this segment, the vacancy rate is almost 15%! You do the math, but when rates go up by just 200bps, mortgage payments will rise by 30%!!! It will get ugly!!!
impala
Clarification that is absent from the article: what is called the 'affordability ratio' here (the 45.7%), is normally more precisely named the Gross Debt Servicing (GSD) ratio (or sometimes Total Debt Servicing Ratio if you also include potential other debts, a minor consideration in Hong Kong): the % of household income spent on mortgage payments (interest+amortisation). All based on averages of course.

Mr Ng perhaps forgot to mention that a GSD of 45.7% is already incredibly high. A 30% GSD is normally seen as the benchmark, with most jurisdictions that actively use this ratio (UK, Canada and others) seeing 33% as the upper limit for healthy lending.

So here we are... interest rates can't realistically go in any direction but up, and even under those really low rates, we have a GSD of nearly 46%. Let the games begin. Morituri te salutant.

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