Goldman Sachs forecasts 20 per cent decline in Hong Kong homes prices between 2022 and 2025, as borrowing costs, unemployment rise

US bank lowers forecast to 5 per cent decline in each year between 2022 and 2025
Forecast comes as Rating and Valuation Department data shows prices of lived-in homes in February fell the most in more than three years

Hong Kong property

Cheryl Arcibal

Published: 7:15pm, 29 Mar 2022

Why you can trust SCMP

The prices of Hong Kong homes are likely to fall by a fifth over a four-year period, as borrowing costs increase and demand slumps because of rising unemployment, Goldman Sachs said.

Goldman lowered its forecast from flat prices this year, followed by 5 per cent declines in 2023 and 2024 and a return to flat again in 2025, with a 5 per cent decline in each year between 2022 and 2025.

“This cumulative 20 per cent price fall from year end 2021 levels would be enough to compensate for the 230 to 240 basis points higher borrowing costs, as it restores affordability along with an expected pickup in household income of 10 to 15 per cent by then,” the bank said in a report published on Monday.

The American investment bank’s forecast came as Rating and Valuation Department data revealed on Tuesday that the prices of lived-in homes had in February fallen the most in more than three years.

Hong Kong analysts slash forecasts in home prices as Covid-19 bites

Hong Kong’s economy most likely contracted in the first quarter of this year, Financial Secretary Paul Chan Mo-po said, as the jobless rate for the three-month period ending in February rose to 4.5 per cent, the highest level in nearly five months. The retail and catering industries were hit particularly hard by the city’s strictest social distancing curbs since the pandemic began two years ago.

Given current dynamics for mortgages, including 55 per cent of loan-to-value ratio and about 27 year tenor, every 25 basis point rate hike would need a 5 per cent increase in income or a 5 per cent decline in property prices to maintain affordability at pre-rate hike levels, the bank said. “We forecast just under 4 per cent peak mortgage rates by 2024, up from about 1.5 per cent currently,” the report said.

No roaring start to Year of the Tiger for Hong Kong home sales, say analysts

The decline in the Hong Kong’s lived-in home prices last month came as owners continued to sell properties at deep discounts and even at a loss amid the city’s struggle to contain a fifth wave of the Coronavirus pandemic.

The Rating and Valuation Department price index for lived-in homes dropped 4 per cent from a peak of 398.1 in September last year, according to the latest data. On a monthly basis, home prices slipped 2.1 per cent to 382.1 from January’s 390.2.

“This is the largest fall in a single month since December 2018,” said Derek Chan, head of research at Ricacorp Properties.

Hong Kong’s 2021 home prices soar for the 13th straight year

In recent weeks, sellers have been disposing of homes in Hong Kong at lower prices. In the upscale neighbourhood of Mid-Levels, mainland Chinese homeowners have reduced prices by between 10 and 20 per cent, according to property agency Midland Realty.

An example of this was Sun Hongbing, the younger brother of Sun Hongbin, the chairman of mainland Chinese developer Sunac China Holdings, who sold three luxury flats at The Morgan and Arezzo in West Mid-Levels at a loss of about HK$126 million (US$16.10 million) this year, according to the Ming Pao newspaper.

Sun sold a 2,343 sq ft flat with a 460 sq ft rooftop at The Morgan for HK$138 million, 27 per cent lower than the HK$189 million paid for it in October 2018. The overall loss added up to HK$109 million, the biggest loss since the coronavirus outbreak two years ago, if the 30 per cent stamp duty was taken into account, the newspaper report said.

Hong Kong’s lived-in home prices will drop 5 per cent in 2022, UBS says

The creditors of another Chinese tycoon from Zhejiang province put two foreclosed duplex flats and two parking spaces at the Marinella in Wong Chuk Hang for sale at HK$283 million, according to online news portal HK01 on Monday.

“Hong Kong home prices could tumble by 10 per cent this year,” said Albert Wong, an honorary consultant at AA Horses Mortgage Brokerage Services. He said it would be the first full-year fall since a 15 per cent drop in 2008.

If the pandemic is brought under control soon, however, then prices and transaction volumes were likely to pick up in the coming months, said Martin Wong, director of research and consultancy for Greater China at property consultancy Knight Frank.