Hong Kong property slide divides Wall Street investment banks on recovery outlook for home prices

Morgan Stanley trims outlook for price rebound this year after poor first-quarter economic report, while Citigroup called the bottom in home prices

JPMorgan is concerned a second wave of US-China trade war and social unrest will unhinge any recovery

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Aerial view of residential buildings in front of Lion Rock in the Yau Tong area, east of the Kowloon Peninsula in Hong Kong. Photo: Sun Yeung

Published: 7:45am, 8 May 2020Updated: 7:45am, 8 May 2020

The slide in Hong Kong’s property market is dividing analysts at Wall Street investment banks who are telling clients different stories on the outlook for home prices this year.

Morgan Stanley took a slightly bearish turn this week by tempering its forecast for a 5 per cent rise in prices this year, as economic reports last quarter disappointed. JPMorgan Chase is keeping to a 10 per cent drop in prices, with a dose caution on the risks of a second wave of US-China trade war and social unrest.

The differing views underscore the myriad of challenges confronting the city, where growth has cratered and unemployment surged to near the highest in a decade. While the fight to contain the coronavirus is yielding results, efforts to end social unrest remains unpredictable.

“We had hoped for residential prices to bottom in March 2020 and go up by 10 per cent thereafter,” Praveen Choudhary, a managing director who tracks Asian gaming and Hong Kong property and conglomerates at Morgan Stanley said in a report on May 6.

“Since then, the Covid-19 outbreak has resulted in significantly lower GDP and the unemployment rate has gone up to 4.2 per cent, a 10-year high,” he said. “These are generally negative for residential prices.”

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Hong Kong’s economy shrank 8.9 per cent last quarter from a year earlier, the worst on record, the government said this week. Home prices in the world’s least affordable housing market have retreated by 5.4 per cent on average from the peak in May last year, with some consultants predicting as much as 20 per cent slide.