Goldman Sachs Hong Kong home price forecast of 30 per cent drop too bearish, JP Morgan analyst argues
- The most pessimistic forecasts of a 30 per cent decline are ‘fundamentally wrong’, JP Morgan analyst says
- The US investment bank believes the decline will total 20 per cent by May 2023 from a peak in August 2021
Predictions of a 30 per cent drop in Hong Kong home prices by the end of 2023 are too pessimistic, according to JP Morgan.
Goldman Sachs in October forecast that prices would fall by 15 per cent in both 2022 and 2023. But JP Morgan believes the decline will total 20 per cent by May 2023 from a peak in August 2021. The full-year price decline in 2023 will be 8 per cent, mostly concentrated in the first half of the year, it said in a report released on Wednesday.
The view that home prices would correct by 30 per cent based on the median formula was “fundamentally wrong”, Cusson Leung, JP Morgan’s head of Hong Kong property research, told the Post on Thursday.
The most pessimistic forecasts, Leung said, assumed that if mortgage payments increased, home prices would have to drop by enough to maintain the affordability ratio – the ratio of mortgage payment to median household income.
“I think fundamentally, that is very different from what happened in reality,” he said.
The Centa-City Leading (CCL) Index, a gauge of lived-in home prices compiled by Centaline Property Agency, has lost 16.5 per cent since its peak of 191.34 in early August 2021.
“I think other people are wrong,” Leung said. “People are just having a too bearish expectation of the interest rate, that it will keep rising forever. As long as it is not continuing this increase, sentiment from buyers will start to return.”
Hong Kong’s interest rate lags behind the US interest rate, said Leung, and banks already had a strong buffer because they were stress testing loan applications against a higher interest rate.
Meanwhile, Leung does not believe the government is going to relax any of the cooling measures that some believe are holding back the market. “There’s no urgency at all” because doing so would not particularly help with the government’s objectives. In addition, the increase since 2009 dwarfs the current price decline, he said.
Overall property transactions in November fell for the third straight month, nosediving 16.7 per cent month over month to 3,701, the lowest since 3,038 in December 2018, according to Centaline Property Agency. Transaction value fell to HK$30.18 billion (US$3.88 billion), the lowest since HK$29 billion in January 2020.
The slump reflects factors such as the continuous rise of interest rates and the uncertain economic outlook, according to Centaline.