Hong Kong home prices: Citibank predicts U-shaped recovery, matches Morgan Stanley’s 5 per cent upside for 2023

Hong Kong’s home prices will drop 5 per cent in the first quarter, before gaining 5 per cent towards the end of the year, Citi said in a report
Property transactions in the city slumped to a 32-year low of 59,604 in 2022, 38 per cent lower than a year earlier, according to Centaline’s estimates

Hong Kong property

Lam Ka-sing

Published: 8:30am, 4 Jan 2023

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Citibank has joined Morgan Stanley in predicting a U-shaped recovery for Hong Kong’s home prices, with the reopening of the city’s border with the mainland to provide a much-needed boost.

Home prices in the city will drop 5 per cent in the first quarter of 2023, before gaining 5 per cent towards the end of the year, Citi said in a research report on Tuesday led by Ken Yeung.

“After a sharp drop in Hong Kong home prices, down 15 per cent in 2022, amid rapid rate rises, Hong Kong’s residential market is starting to see positive drivers that we think will lead to a bottoming of prices in the first quarter of 2023 and a U-shaped recovery,” the report said.

Hong Kong’s home prices dropped by the most in 14 years in November, with analysts predicting another 2.5 per cent decline in December, bringing an end to a 13-year rally. In the first 11 months of 2022, home prices fell by 13.8 per cent and 14.75 per cent since hitting an all-time high in September 2021.

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The Centa-City Leading Index, a gauge of lived-in home prices compiled by Centaline Property Agency, meanwhile has declined 18.07 per cent since its peak of 191.34 in early August 2021.

Citi’s forecast came as property transactions nosedived to a 32-year low of 59,604 in 2022, 38 per cent lower compared with a year earlier, according to estimates compiled by Centaline on Tuesday. It is lower than the previous estimate of 64,000 by Midland Holdings.

The number of first-hand home sales hit a nine-year low of 10,262 last year, while the number of second-hand deals hit 31,814, the lowest since records started in 1996, according to Centaline.

Citi said its forecast is based on four “potential catalysts”. These are: population changes turning favourable, local mortgage rates peaking in the second quarter, border reopening unleashing pent-up demand and policy relaxation in the first quarter if home prices drop more than estimated.

Hong Kong is aiming for quarantine-free travel with mainland China as early as January 8 to pave the way for a full reopening of the border, Chief Secretary Eric Chan Kwok-ki said in his weekly blog on Sunday, echoing Financial Secretary Paul Chan Mo-po’s sentiments.

The border reopening with the mainland will not only help boost the economy but also the housing market, Chan said in his blog on Sunday.

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Hong Kong’s home prices are expected to bottom out in the second quarter and rise 5 per cent by the end of 2023, following a sharp decline in 2022, Morgan Stanley said in a report on December 6.

This is in contrast to the consensus expectation of a further decline of 5 to 15 per cent, Morgan Stanley said, adding that a peaking of rates and reduced outflow of people because of the border reopening between Hong Kong and the mainland will provide the impetus for housing prices this year.

Last year, the property market was weak because of the pandemic and interest rate increases, said Wong Leung-sing, senior associate director of research at Centaline.

“The slowdown in interest rate hikes in the United States, withdrawal of anti-epidemic measures by the government and the news of the imminent border reopening has improved the sentiment of the property market,” he said.