Hong Kong home prices to face deflation trend by end of year, analysts say

Hong Kong home prices could slip into deflation by the end of the year, as a cocktail of concerns ranging from the downbeat stock market to trade war fears and rising interest rates take their toll on sentiment, according to market observers.

Home price deflation is likely to set in by December in the form of a single-digit drop month on month, while a sharper 10 per cent decline is possible in the first quarter of 2019 from the prior quarter, said Lee Shu-kam, associate professor in economics and finance at Hong Kong Shue Yan University.

“Home prices may start to fall at the end of the year when market sentiment reverses amid a downbeat stock market and higher interest rates. Fears will grow in the market with more homeowners listing their properties,” Lee said.

“If the market cannot take the pressure from the negative factors, there may be a turning point early next year after which home prices may start to plummet.”

Lee said home prices could also continue to trend upwards depending on how markets viewed the mounting headwinds.

Last week Norman Chan, chief executive of the Hong Kong Monetary Authority, said there was a general expectation that the Federal Reserve would lift interest rates at its September meeting.

“It is difficult to predict the future development of the China-US trade conflict. If the situation worsens, it may have an impact on the US inflation and economic outlook, as well as global capital flows,” said Chan.

The monetary authority urged investors and businesses to manage interest rate and market risks prudently, noting that volatility in global financial markets may also increase.

According to Centaline Mortgage Broker, local banks will likely lift their prime rate in September, reflecting the first increase in 12 years.

Citibank has forecast that Hong Kong new home prices could fall by 7 per cent in the second half amid the downbeat stock market.

Still, one mortgage brokerage said she did not expect a significant impact on home prices, even amid new housing supply and rising lending rates.

“Increases in the prime rate have been widely expected in the market. The increase in mortgage repayment as a result is also not really high,” said Sharmaine Lau Yuen-yuen, chief vice-president of mReferral Mortgage Brokerage Services.

Cathie Chung, national director of research at JLL, remained upbeat on home prices given the high economic growth and strong demand for housing.

“We believe mass residential capital values are on track to achieve 10 to 15 per cent growth full year 2018 and about another 5 per cent next year despite the expected increase in mortgage rates in Hong Kong,” said Chung.

JLL estimated that about 45 per cent of the 39,300 units of upcoming new supply through to the end of next year are small flats of less than 429 square feet.