Hong Kong property

Fear not the bear: There's a silver lining to lower home prices in Hong Kong

PUBLISHED : Friday, 13 November, 2015, 1:26am
UPDATED : Friday, 13 November, 2015, 1:26am

There are strong signs pointing to a bear market in the property sector. Banks have been slashing valuations, while the more bearish analysts are pointing to a correction of 30 per cent or more in the coming years.

Even the city's top finance officials are warning of volatility ahead. Of course, no one can be certain about the future.

But interest rates are arguably the single most important influence in the property market. And the latest economic data coming from the United States indicate the US Federal Reserve is ready to raise rates next month for the first time in nearly a decade.

In the US, robust employment figures and annual wage growth have overcome market scepticism about the possibility a rate hike. With our currency pegged to the US dollar, borrowing costs in Hong Kong will rise as the US Fed starts to raise interest rates. That is bound to have a negative impact on local market sentiment.

Lower valuations by banks mean people are offered smaller mortgages. Some sellers are already slashing prices in the secondary home market.

Meanwhile, major property developers are offering preferential first mortgages of up to 90 per cent of the selling price to offload inventories. And on the back of that, the administration of Leung Chun-ying has promised a record 86,000 flats to come on the market by 2019.

People shouldn't be unduly worried, though. Property prices have gone up more than 300 per cent in the past decade, making Hong Kong host to some of the world's most expensive homes.

READ MORE: Why you shouldn’t trust the latest ‘record’ housing price index reading for September

A correction is long overdue and may even be healthy. At the very least, it will offer first-time homebuyers a fighting chance to own a decent flat. Since the government imposed a series of measures to cool the property market in the past two years, most speculators have left the scene. Buyers today are mostly end users.

Having suffered for a long time from ridiculously high prices, they deserve a break. So long as home prices correct gradually rather than collapse, a long-overdue adjustment may help boost home ownership in Hong Kong.