Hong Kong has repeatedly been touted as the least affordable housing market over the years, with the average household needing to save for about 20 years to buy a home. It costs HK$16,239 (US$2,082) per sq ft to buy a property in Hong Kong, according to data from Midland Realty. But Hong Kong saw slower growth in 2021 because of the coronavirus pandemic. It placed 116th among 150 cities surveyed for house price growth in the third quarter, according to Knight Frank’s Global Residential Cities Index. Home prices rose 3.9 per cent in the first 10 months of 2021, according to data from the Rating and Valuation Department. Forecasts for price movement in 2022 range from a drop of 2 per cent from Morgan Stanley to a rise of 10 per cent from Centaline Property Agency. Here are five major factors that may influence home prices in the coming year: 1. Interest rate movement The market should watch out for an acceleration in US interest rate rises if inflation is uncontained, with three increases generally expected in 2022, said Alex Leung, senior director at CHFT Advisory And Appraisal. This expectation has prompted a softening of the Centa Valuation Index (CVI), a weekly gauge that tracks major banks’ valuations for used homes in 133 housing estates, compiled by Centaline. It saw the biggest drop in six weeks to 28.38 points in the week ended December 19. A CVI below 40 indicates a bearish view of the market and a downward trend in home prices, while one above 60 points indicates a bullish trend. If the city’s aggregate bank balance remains sufficient, the Hong Kong Interbank Offered Rate (Hibor), which is widely used for linking mortgage rates , may not keep pace with increases in the US interest rate, according to Centaline Mortgage Broker. Next year, Hong Kong’s mortgage interest rate will remain below 2 per cent, and the low-interest rate environment will continue for the 14th year, the mortgage broker added. For a 30-year mortgage, if the Hibor-linked mortgage rate is increased by 1 per cent, the monthly repayment goes up by HK$495 for a HK$1 million loan, according to Centaline Mortgage Broker. The actual Hibor-linked mortgage rate fell to a 10-year low of 1.36 per cent in 2021. More than 90 per cent of mortgage holders use Hibor linked mortgages, according to the Hong Kong Monetary Authority. 2. Chief Executive election in March 2022 A change of leadership could usher in a new mindset regarding the supply of flats and measures that have restrained demand. A lot would depend on the strength of a new Chief Executive ’s implementation of these measures though, said Leung of CHFT. Things to look out for may include: a) New land and housing policies such as measures to help first-time buyers or restrictions on buying a second apartment, and more details about the Northern Metropolis and the Lantau Tomorrow Vision projects. b) A lower threshold for compulsory sales under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap 545). c) More incentives for redevelopment. 3. Covid-19 developments The market will doubtless be lifted by the border reopening between China and Hong Kong and its positive impact on the economy. Pandemic control measures globally as well as the effectiveness of new vaccines for Covid-19 and its variants are worth monitoring as they will affect the opening of international borders. 4. Hong Kong’s economy Overall economic conditions could be a challenge if there is an escalation in Covid-19 cases and the city ends up back in lockdown, similar to what’s happening in some European countries, said Michael Wu, senior equity analyst at Morningstar. As such, rising unemployment would be a key. Hong Kong had seen 12,599 confirmed or probable Covid-19 cases as of Monday. The Hang Seng Index (HSI) is down around a quarter in 2021 since mid-February. Hong Kong’s property prices tend to decline post-HSI decline, most probably because of a negative wealth effect, according to Morgan Stanley. The performance of the stock market will affect wealth and buying sentiment. Other economic indicators correlated to home price movement include real GDP growth, inflation, rental yield over mortgage and residential sales volume in the secondary market, Morgan Stanley’s report added. 5. Economy in mainland China Meanwhile, GDP growth in mainland China, the financial problems of mainland-based developers and geopolitical factors such as fraught relations with the US, may be causes for concern. They will determine whether mainland buyers return to Hong Kong’s housing market in droves in 2022. Maintaining a stable and healthy economy in the run-up to the 20th congress of the Chinese Communist Party in the second half of 2022 is set as the top priority for the year, according to a Standard Chartered Bank report released on December 10. The bank forecasts GDP growth of 5.3 per cent in China next year. Goldman Sachs expects the People’s Bank of China to inject more long-term liquidity via required reserve ratio cuts. One more cut is expected in the first quarter of the year, as well as various lending facilities, and an easing of property policies at local level. The investment bank said in its report released on December 26 that headwinds to growth remain, however. The property market might continue to cool, the city’s zero-Covid strategy could drag on consumption, and Beijing’s anti-pollution measures before the Winter Olympic Games early next year could weigh on industrial production.