Hong Kong’s home prices will continue to fall despite recent pick up in sales momentum

If history is anything to go by, the recent pick-up in home sales in Hong Kong will soon come to an end and the housing market will continue to head downward due to mainland China and Hong Kong economic uncertainties.

The fall out from Brexit and concerns about increased global economic risk may delay increases in US interest rates, while the devaluation of the yuan could prompt some mainland Chinese, once a key source of property buying in Hong Kong, to consider buying properties offshore to diversify their asset allocation . However, analysts said these positive factors won’t reverse the coming downturn in the city’s housing market.

“When we made a prediction that Hong Kong would be entering a correction in the next two years, we did not expect a sharp dive in home prices in such a short period of time, but a spiralled decline. Prices and sales will go up and down during the correction process,” said Eva Lee, executive director and head of Hong Kong/China property research at UBS.

Lee said the recent sales pick-up is just a repeat of what the market experienced in previous downward cycles.

During a period of falling prices, some buyers would be attracted to enter the market and that would stabilise prices for a while, but then prices would drop again, she added.

UBS maintains its view that Hong Kong home prices could tumble by as much as 30 per cent by the end of 2017 as buying demand is hurt by a deteriorating economy, rising unemployment rates and lower inflation.