The View | Why Hong Kong’s housing market is hurting but will dodge a full-blown crisis

Spare a thought for Hong Kong’s cursed real estate market. Ever since 2018, it has faced a series of seemingly never-ending domestic and external shocks. Every time a recovery appears to be taking hold, another crisis erupts, casting doubt over whether a durable upturn will ever materialise.

The residential market has fared better than its commercial counterpart, mainly because of persistent undersupply, the low rate of home ownership and, until recently, rock-bottom interest rates.

Yet, since the beginning of last year, the strains on the housing market have intensified. Since its peak in August 2021, the Centa-City Leading Index, a gauge of secondary home prices, has plunged more than 20 per cent to its lowest level since April 2017.

Even the dramatic reopening of mainland China’s economy in December 2022 – which was seen as the key catalyst for a restoration of confidence in Hong Kong – failed to bring about a sustained improvement in sentiment. Weaker-than-expected growth and sharp declines in asset prices in China this year, mainly because of the meltdown in the country’s housing market, have contributed to the Hang Seng Index’s staggering decline since January 27.

As if this was not damaging enough, Hong Kong has had to contend with an ultra-hawkish US Federal Reserve. By importing monetary policy through its currency peg to the US dollar, the city has been caught between the most aggressive Fed tightening cycle since the 1980s and a deep downturn in China that has evoked comparisons with Japan’s “lost decade” in the 1990s.