Failed trade talks could cool Hong Kong’s housing market, but not enough to ease supply concerns

The gains in property prices this year show that legitimate concerns over trade war negotiations are not priced in. Yet, demand and limited land mean housing prices will continue to bedevil Hong Kong

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Newly constructed apartments in Kowloon, Hong Kong. The city has the world’s least affordable housing market. Photo: AFP

Published: 7:00am, 14 May 2019Updated: 7:00am, 14 May 2019

Whatever happened to the chill that enveloped Hong Kong’s housing market towards the end of last year? When secondary home prices fell almost 10 per cent from their peak last July in the space of five months – just about satisfying the typical definition of a correction – real estate brokerages and analysts fell over themselves in forecasting further price declines.

Last November, credit-rating agency Moody’s Investors Service predicted that Hong Kong home prices would drop by up to 15 per cent in the ensuing 12 to 15 months, warning that the declines “could eventually inspire similar discounts in the primary market”.

That same month, property adviser Jones Lang LaSalle projected similar falls in values if the trade war persisted and the slide in equity markets continued, adding that the drop could even reach 25 per cent if the government “didn’t reassess and adjust its property cooling measures”.

Fast forward six months, and these dire predictions have not only not come true; they have turned into upbeat forecasts.

Three straight months of price gains that began in January, preceded by a sharp recovery in Hong Kong’s benchmark real estate stock index which started in November, have brightened the outlook for the market significantly. In a report published last Wednesday, Moody’s said it now expected home prices to grow 8-10 per cent this year.

An even more bullish report published by UBS last week forecast continuous price gains for the next decade, underpinned by inflows of residents as the “Greater Bay Area” project integrates a cluster of mainland cities with Hong Kong.

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