The View | Sharp rebound in Hong Kong’s property market sentiment underlines its resilience

Prices and transaction volumes are both expected to rise this year following severe declines in 2022

While Hong Kong’s dollar peg makes it vulnerable to US Fed rate hikes, which may not have peaked, stringent macroprudential supervision and ample liquidity in the banking system continue to inspire confidence

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A property agent is seen working in Wong Tai Sin, Hong Kong, in July 2022. The biggest concern about housing in the city remains an acute shortage of affordable homes. Photo: Edmond So

Published: 3:45pm, 13 Feb 2023

Housing markets the world over are being squeezed by steep increases in interest rates. Yet, even before the US Federal Reserve began raising borrowing costs aggressively last year, Hong Kong’s residential property sector was suffering a sharp fall in prices.

A succession of domestic and external shocks since 2018 have taken their toll on the city’s economy. Having risen a staggering 235 per cent between the end of 2008 and mid-2018, the Centa-City Leading Index – a gauge of secondary home values – has been volatile over the past several years, hitting a record high in August 2021, only to plunge nearly 16 per cent last year.

Since the Covid-19 pandemic erupted, most assessments of the performance of economies and industries date back to just before the virus struck. For Hong Kong, however, the time frame is much longer.

This is why the dramatic improvement in sentiment over the past several months marks a major turnaround in the city’s fortunes. The combination of the dismantling of the zero-Covid policy in Hong Kong and, crucially, in mainland China, and the slower pace of rate hikes in the US, has caused house prices to rise nearly 3 per cent since mid-December.

In a report published on February 7, Morgan Stanley predicted home values would increase by 10 per cent this year, with transactions in the primary and secondary markets rising 28 per cent and 15 per cent respectively, following sharp declines last year.

Indeed, even after a 15 per cent rebound in the past two months, Hong Kong property stocks are still trading at a 50 per cent discount to their net asset value, suggesting the rerating has a lot further to run. The recovery in the housing market “was a long time coming”, said Praveen Choudhary, an equity analyst at Morgan Stanley in Hong Kong.

.css-1m2rp1p{color:#34b8b5;}The View | Sharp rebound in Hong Kong’s property market sentiment underlines its resilience

The View | Sharp rebound in Hong Kong’s property market sentiment underlines its resilience