Hong Kong home prices will fall by 10 per cent in 2024, UBS says, amid high interest rates, housing glut

The Swiss investment bank expects home prices to fall as high interest rates dent demand and an abundance of housing stock boosts supply
UBS expects the number of negative equity cases in Hong Kong to continue to rise as home prices keep sliding

Hong Kong property

Peggy Sito,Jiaxing LiandCheryl Arcibal

Published: 6:14pm, 16 Nov 2023

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Home seekers in Hong Kong can anticipate even more favourable deals in the coming year, according to UBS, as house prices continue to slide.

The Swiss investment bank expects home prices to decline by 10 per cent in 2024 as high interest rates dent demand and an abundance of housing stock boosts supply.

The unfavourable economic environment and high borrowing costs are likely to prompt developers – many already facing a shortage of cash – to offer flats at discounted rates, UBS said on Thursday.

“The market will continue to struggle for at least another six months before the US Federal Reserve cuts the interest rate,” said John Lam, head of China and Hong Kong property research at UBS, which anticipates the easing to begin in March.

In lockstep with the Fed’s aggressive tightening campaign, the Hong Kong Monetary Authority (HKMA) has raised rates by a cumulative 5.25 percentage points since March 2022, with the base rate now at a 16-year high of 5.75 per cent. The HKMA adjusts its rates based on the Fed’s moves to maintain the local currency’s peg to the US dollar.

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The high inventory of completed homes is also likely to push developers to cut prices and sacrifice some profit margin to maintain liquidity.

There are 18,300 unsold new homes in the market, the most since 2007, according to property consultancy JLL.

The combination of high interest rates and excess housing stock has created a scenario where developers are eager to generate liquidity by providing attractive discounts, according to UBS. The bank says it would take four years for buyers to absorb the current housing stock.

Its view echoes the prediction made by S&P Global Ratings on Wednesday. The ratings agency expects home prices in Hong Kong to fall by 5 per cent to 10 per cent next year, and warned that when the inventory of flats starts to build up it may put even more pressure on selling prices.

UBS expected the number of negative-equity cases in Hong Kong – where the value of a property falls below the outstanding balance of the mortgage – to continue to rise as home prices keep sliding.

The number of negative-equity loans more than tripled to 11,123 in the third quarter, according to data released on October 31 by the HKMA.

People visit the show flat the eResidence Tower 3, a Starter Homes (SH) Project for Hong Kong Residents developed by Urban Renewal Authority in Hung Hom, at a sales office at The Harmonie at Cheung Sha Wan. 15OCT23 SCMP / Sam Tsang

Property agents said that although the recent reduction in stamp duties on property transactions has started stimulating demand, the small increase in deals is insufficient to turn around falling prices.

Loss-making deals are becoming more common in the market.

For example, a 495 square-foot unit at Park YOHO Milano in Yuen Long recently sold for HK$5.3 million (US$679,000), which is HK$2.36 million lower than the HK$7.66 million the owner paid in August 2018, according to Centaline Property Agency.

In his policy address last month, Chief Executive John Lee Ka-chiu announced the halving of buyers’ stamp duty to 7.5 per cent from 15 per cent for non-permanent residents or residents buying a second home. He said special stamp duty equivalent to 10 per cent of the home price will be waived for owners who resell after two years, down from the previous three-year requirement.

Eligible overseas professionals are no longer required to pay stamp duty on property purchases, unless they fail to qualify as permanent residents.

Meanwhile, with the residential property market in decline, developers are “losing their appetite for land acquisitions,” JLL said in a report released today.

Four residential sites have been withdrawn from government tender since 2022, compared to just three between 2015 and 2021, the property consultancy said. Recently two such parcels, in Tung Chung and Tung Chung east station, which could yield 1,614 units, were withdrawn.

“We expect this trend will continue and more sites will be withdrawn from tender as the sales in primary market failed to improve after the government relaxed the cooling measures,” said JLL.

“If there is no significant development in the primary market, developers will continue to give the cold shoulder to the tender,” said Norry Lee, senior director of projects strategy and consultancy department at JLL in Hong Kong. “The prevailing market conditions could pose challenges in achieving the long-term private housing land supply target.”