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.