Hong Kong home prices face a reverse trend after a 12-year upcycle

A reverse trend is coming for Hong Kong home prices after a nearly 12-year upcycle, according to consensus opinion among property experts, although the magnitude and pace of the expected price correction remains a source of contention.

Last week’s quarter-point rise in interest rates by the US Federal Reserve has helped to dampen interest among buyers, even as local banks have yet to factor the tightening into their mortgage rates. Expectations of additional interest rate rises next year, coupled with concerns over China’s slowing economy are expected to take a further toll on confidence, pushing the housing market into a deeper downtrend.

Some experts forecast home prices to fall up to 30 per cent next year, while others believe only a 5 per cent dip is likely in 2016.

“It will be less painful if prices corrected 30 per cent in a single year,” said Alfred Lau, a property analyst at Bocom International.

Prices for some new project launches have fallen 20 per cent, he said.

Owners are expected to offer steeper discounts in the first and second quarter next year, he said, adding that the market believes the US Fed will tighten interest rates twice more in 2016.

“Individual owners are still reluctant to sell right now, but they will become more realistic once they see rents decline at a faster pace early next year,” said Lau, who is bearish on the market outlook for 2016.

The number of projects due for completion early next year is another concern, he said, adding that a sharp increase in units for the rental market will put downward pressure on rents.

One example is the Hemera development next to Lohas Park MTR Station where offering units at rents of HK$19.50 per square foot, a new low in the project.

A 943 sq ft unit at Hemera, where owners will receive their keys in the next two weeks, are being leased at HK$18,500 per month.

Average monthly rents in the area were HK$22 per sqare foot, according to Centaline Property Agency.

Louis Chan Wing-kit, the managing director of Centaline Property Agency’s residential department, said he forecast home prices would fall 15 per cent before the end of the first quarter next year.

“It is hard to come up with a prediction more forward than three months,” he said.

He believed home prices would be unlikely to drop significantly as most owners were offering modest 5 to 10 per cent discounts so far.

However, property consultant JLL was among the most optimistic, saying the latest round of policy tightening by the Fed would have minimal impact on the market. It forecast home prices would fall just 5 per cent next year.

Hong Kong home sale prices soared nearly fivefold from an average of HK$1,941 per square foot in June 2003 to HK$10,487 per square foot in November this year, according to data from Midland Realty.

Prices and rents touched a record in September before retreating about 6 per cent so far this year. In spite of the recent cooling, prices are still up 4 per cent this year as of December, according to Centaline.

Hong Kong’s secondary home prices fell to a 41-week low as home-buying interest was dented by fear of an interest rate rise after Thursday’s increase.

The Centa-City Leading Index showed prices fell 0.67 per cent week on week to 137.3 for the week to December 13. It represents a 6.23 per cent fall in home prices after peaking in September.

Recently, developers have extended financial support to buyers in the form of 95 per cent mortgage financing. This has helped to draw buyers away from the secondary residential market, reflecting the dramatic plunge in transactions, as just 1,891 deals were completed in November.

“It is the worst number in the past 20 years,” said David Chan , a director at Ricacorp Properties.

In a bid to combat frothy small flat prices at the start of the year, the Hong Kong Monetary Authority in February ordered banks to curb their loan-to-value ratios for self-use homes under HK$7 million to 60 per cent from 70 per cent.

However, buyers became more cautious as mainland China stock markets plunged in early summer, and as Beijing suddenly devaluated the yuan in August.