Hong Kong poised for first annual decline in home prices in 12 years as coronavirus deepens recession, adds to unemployment woes

The fourth wave of Covid-19 infections is likely to tilt the market into negative territory in December after home prices slipped again last month
Analysts predict house prices will drop by as much as 5 per cent next year

Hong Kong property

Lam Ka-sing

Published: 1:44pm, 29 Dec 2020

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Hong Kong looks likely to record its first annual drop in home prices for 12 years as a fourth wave of coronavirus infections threatens to worsen the city’s recession and unemployment problem.

The official price index for used homes slipped 0.2 per cent to 380.4 in November, the lowest level in seven months, according to an earlier-than-expected release from the Rating and Valuation Department on Tuesday.

November’s index is 1.3 per cent lower than it was a year ago, and although it is 0.2 per cent higher than it was in January, analysts believe the full impact of the current spike in Covid-19 cases will show up in this month’s data.

“Including December, home prices should drop about 1 per cent for the whole year,” said Derek Chan, head of research at Ricacorp Properties. “This would be the first drop in 12 years, because of the rally of 11 years from 2009 to 2019.”

The slide could be attributed to the coronavirus pandemic, which has led the city into its deepest recession and highest unemployment level in decades, Chan said.

“The impact of the fourth wave will be fully reflected in December, when the drop will widen to about 1 per cent,” Chan said. Home prices in January and February “will be relatively downbeat because turnover is downbeat in the new year traditionally, coupled with the [impact of] social-distancing measures”.

Home prices will be down 5.4 per cent at the end of the year, compared to their peak of 396.9 in May 2019, he added.

The outlook for Hong Kong’s famously pricey housing market is not good for 2021 either, according to most forecasts.

Prices in the non-luxury “mass market” will drop by as much as 5 per cent next year, according to Knight Frank, though the fall will stabilise by the second half. Colliers International sees prices in the luxury residential segment falling by about the same amount.

“If the local economy further contracts in 2021, this may directly impact on the employment level and hence purchasing power of homebuyers,” said Rosanna Tang, head of research at Colliers. “The containment of Covid will also impact short-term purchase sentiment in the market, as reflected in the previous falls in transaction volume whenever a new wave of Covid emerged.”

The total value of pre-sold new homes in the coming six to nine months is likely to be lower, according to Moody’s Investors Service.

“When people are cautious about the general economic outlook, and investment demand is weak, the luxury market’s residential prices and volumes are likely to be more affected and see higher volatility in the near term,” said Stephanie Lau, vice-president and senior analyst of Moody’s Investors Service. “Wider discounts are already observed.”

Launches of new developments have been frequently delayed during the pandemic amid slow government approvals, unfavourable market sentiment, and difficulties in making sales arrangements.

Only about 13,000 units were launched in 2020, far less than the average range of 18,000 to 20,000 units recorded previously, according to developer K Wah International.

But Tony Wan, director of sales and marketing for Hong Kong property at K Wah, struck an optimistic note, predicting that transaction volumes will bounce back to pre-pandemic levels and prices will see a single-digit percentage growth.

Wan expects the number of new units to go on sale in 2021 to be around 30,000, mainly in developments located in strategic locations or above MTR stations, such as those at Kai Tak, Wong Chuk Hang and Lohas Park.