Hong Kong property

Ignore the rebound, Hong Kong housing market headed lower says JP Morgan

Prices set to continue lower amid weak home buying momentum

PUBLISHED : Tuesday, 31 May, 2016, 11:59am
UPDATED : Tuesday, 31 May, 2016, 8:40pm

Hong Kong’s housing market, clouded by a dim economic outlook, is expected to weaken further even as government data shows a minor recovery in home values.

Analysts said the city’s home market has been in a downcycle, and the trend will not reverse until the economies in both Hong Kong and China show signs of bottoming out.

“The one-month recovery does not change the whole picture - the falling trend in the market,” said

said Cusson Leung, head of conglomerates and property research at JP Morgan.

The Rating and Valuation Department’s monthly supplement released on Tuesday showed the general price index for private homes rose 0.7 per cent month-on-month to 273.1 in April. This is the first recovery after six consecutive months of decline.

But in the first four months of this year, the home price index accumulatively fell 4.17 per cent as buying momentum has been falling, plagued by negative factors including an anticipated interest rate hike, increased home supply and a slowing domestic economy.

Analysts said market sentiment will be hit further if the Federal Reserve decides to raise interest rates at its meeting in mid-June.

Home prices have dropped 10.78 per cent from the market’s peak in September, according to the Rating and Valuation Department.

“It is not a matter of how much prices have dropped. Buying momentum is weakening as home seekers do not see our softening economy bottoming out,” said Leung.

Hong Kong’s economy grew 0.8 per cent in the first quarter of the year, its slowest quarterly growth in four years. The figure fell short of analysts’ estimate of 1.48 per cent, and was down from the 1.93 per cent growth recorded in the fourth quarter of last year.

Developers also spooked the market outlook by providing as much as 95 per cent mortgage financing to homebuyers in an effort to speed up sales.

But analysts said prices would fall at a slow pace as flat owners, with sound financial health, were in no rush to dump their stocks. Hong Kong home prices are expected to fall a further 19 per cent through the second quarter of 2017, but the decline could go even deeper in the event of yuan devaluation or an uptick in interest rates, according to Nomura forecasts last month.

As prices fall, the home rent index fell 0.12 per cent month-on-month to 163.2 in April, for an accumulative decline of 8.05 per cent from its peak in September.