Rising unemployment will depress home prices in mass and luxury residential market by 5 per cent this year amid the coronavirus outbreak, according to Knight Frank, with homes changing hands at lower than market prices amid shrinking transactions. “Rising unemployment will lead to affordability issues, thus reducing property demand and in turn lower property prices,” said Martin Wong, associate director of research and consultancy in Greater China at Knight Frank. Potential buyers will find home purchases less affordable as they cannot pass stress tests at banks with income or jobs at risk, Wong added. The pressure may be more on mass residential prices and prices for luxury homes will be relatively stable for the remaining of the year, he added. The firm’s research indicates a strong “negative correlation” between unemployment rate and prices for mass housing. Higher jobless rates tend to lead to lower home prices by about one to two months, according to a report published this month. The stock market’s Hang Seng Index, which has declined 10 per cent so far this year, typically leads the city’s residential prices by three to six months. Hong Kong’s unemployment rate climbed to 6.2 per cent in the three-month rolling period through June with 240,700 people displaced in the labour market, the highest rate in more than 15 years. It has risen in nine straight months as the Covid-19 pandemic this year added to the pain from months of social unrest in 2019, culminating in four straight quarters of recession. The government last week downgraded its gross domestic product forecast to a 6-8 per cent contraction for 2020, following a 1.2 per cent decline in 2019. But the downside risk is high. If the current wave of the virus is prolonged, business closures and unemployment will rise sharply. While the higher number of unemployed people in the retail, accommodation and food industry has less bearing on home prices, the market may be bracing for more damage once the unemployment rate worsens in the finance and professional services sectors, Wong added. Unemployment in the finance and professional services sectors tends to have the highest correlation with house prices, according to Knight Frank, while unemployment in the retail, accommodation and food services sectors tend to have the lowest correlation. However, the government’s effort to prevent the cracks in the labour market from widening may hold down the jobless rate in the short term. These efforts include the Employment Supporting Scheme under the Anti-epidemic Fund in the second half of 2020, where recipients are not allowed to cut their workforce. Eric Tso, chief vice-president at mReferral Mortgage Brokerage Services echoes the view that the coronavirus outbreak would stock the unemployment rate and dampen home prices. “The economy is once again in trouble and the unemployment rate hits a record high. The property market has been volatile, and market activity has begun to quiet. There has been even price reduction,” said Tso. “The epidemic has brought major concerns to the economy. It is expected that Hong Kong property prices have room for a fall in the third quarter.” Property agents also noted transaction volume and prices of numerous homes have fallen. The number of overall property transactions in August may hit a four-month low at around 6,000, reflecting the impact of the third wave of coronavirus outbreak, according to Midland Realty. Transactions of used homes even plummeted 44 per cent in the first half of this month to just 70 in the 10 major housing estates tracked by Midland. The Centa-City Leading Index, a timelier price index for existing homes compiled by Centaline Property Agency, dipped 0.7 per cent for three weeks from late July through August 9. For instance, a three-bedroom flat at The Pacifica in Cheung Sha Wan changed hands last week at HK$9.33 million (US$1.2 million), 6 per cent lower than market, according to Hong Kong Property Services (Agency). A flat measuring 1,049 sq ft at Sorrento in Kowloon only sold at HK$26.28 million, or HK$25,052 per sq ft, lower than the prevailing market price of HK$26,000, according to Centaline. The homeowner slashed the price by HK$8.72 million. “The pandemic and the US-China tensions [have led to] increased headwinds and … homeowners offering higher discounts [so] home prices fell accordingly”, said Jason Hau, district sales manager at Centaline. Additional reporting by Yujing Liu