Hong Kong home prices fell in August to lowest since February 2019, unlikely to be boosted by ‘0+3’ quarantine relaxation

Prices of homes in Hong Kong fell by 2.26 per cent in August, their largest monthly decline since November 2018
Official property price index for the whole year will fall by around 8 per cent, Knight Frank executive says

Hong Kong property

Cheryl Arcibal

Published: 3:00pm, 28 Sep 2022

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The prices of homes in Hong Kong fell by 2.26 per cent in August to their lowest level in three-and-a-half years, and are unlikely to get much support from the city’s reduced Covid-19 hotel quarantine requirements.

An index measuring overall home prices slumped to 368.2 in August from 376.7 in July, according to official data released on Wednesday by the Rating and Valuation Department. Prices for flats of at least 752 sq ft fell 2.3 per cent in August, while prices for flats smaller than that decreased by 0.83 per cent. The August reading is the lowest since February 2019, when it settled at 367, government data shows.

It is also the largest sequential monthly decline since November 2018, said Martin Wong, director and head of research and consultancy for Greater China at Knight Frank.

“It is expected that the official index will continue to find the bottom in September,” Wong said. “As the HKMA [Hong Kong Monetary Authority] relaxes the threshold for stress testing, property prices are expected to bottom out in the fourth quarter, and the official property price index for the whole year will fall by around 8 per cent.”

Home prices have so far this year retreated by 6.5 per cent, and reflect the impact of higher interest rates and the lingering effects of Hong Kong’s coronavirus restrictions.

The HKMA has raised its base interest rate five times this year to 3.5 per cent, a 14-year high, in lockstep with hawkish US Federal Reserve rate increases. Commercial banks such as HSBC and Bank of China (Hong Kong) raised their prime rates last week to a four-year high, making it costlier to fund big-ticket purchases such as housing.

The government has also scrapped hotel quarantine for international arrivals.

“The epidemic has begun to ease, and the entry quarantine has become ‘0+3’, which brings some good news for overall market sentiment. But purchasing power is still insufficient in the short term, and overall transaction volumes remain at a low level and are expected to fall by about 30 per cent year on year to 50,000 to 53, 000 transactions,” Wong said.

The higher interest rates are also likely to make new properties buyers’ preferred investment choice, as prices of new homes will compete with the secondary market, further weighing on second-hand property in the coming months, Wong added.

How Hongkongers’ home buying power has shrunk by HK$1 million

The HKMA on Friday also asked banks to lower the threshold for interest-rate stress testing for mortgage lending, relaxing the rule for new borrowers.

Meanwhile, overall home rents increased slightly in August, rising by 0.73 per cent from July, which could also provide cushion to landlords. It was the third consecutive month of increases in rents.

“Home prices are sensitive to interest-rate increases, especially when the upswing is too fast,” said Vincent Cheung, managing director of Vincorn Consulting and Appraisal. The continuing rebound in home rents could help improve property yields despite rising mortgage payment costs and interest costs, he added.