Hong Kong home prices expected to soften in new year

An imminent rise in interest rates in the United States next week could quicken the correction in Hong Kong home prices, which have bounced back to near record levels last month, according to industry experts.

Analysts estimated that a rate tightening could result in Hong Kong home prices falling 5 to 15 per cent for the next 12 months.

The International Monetary Fund (IMF) said on Wednesday that stretched property valuations mean Hong Kong’s economy is vulnerable if interest rates rise faster than expected.

Centaline Property Agency expects residential prices to drop 5 per cent before Chinese New Year, which will begin on January 28, 2107. Meanwhile, Citi Bank predicts a 15 per cent plunge in home prices next year.

“Home sales in the primary residential market will drop to 400 deals this month and further plunge to 100 in January,” said Louis Chan Wing-kit, managing director at Centaline Property Agency’s residential department. “Most developers will not release new projects this and next month as Christmas and Chinese New Year are approaching.”

His forecast for new home sales means an 81 per cent drop from the 2,216 home sales in November, according to Land Registry data.

Chan said transactions in the secondary market could drop 60 per cent to about 1,500 deals from November, he said.

Denis Ma, head of research at JLL said the impact of higher interest rates is likely to affect the market later in the rate hiking cycle given the difficult business environment in which banks find themselves.

“Higher interest rates and peak supply [of an estimated 25,000 units] is likely to see housing prices fall 5 to 10 per cent in 2018. Significant corrections in the city’s housing market have historically correlated with major economic events. Without such a crisis, it will be difficult to see the market undergo a major correction,” he said.

We are currently forecasting housing prices to remain broadly stable in 2017.

In its annual assessment of the Asian financial hub, the IMF identified the main risks as rising interest rates and potential global market volatility, China-linked stress, and a possible downturn in the property market.

“With stretched valuations, there is the risk of an accelerated price adjustment should interest rates rise faster than expected,” the IMF report said.

In November, the Hong Kong government raised the stamp duty for all residential transactions to 15 per cent, from 8.5 per cent, to curb price growth. The rule will not apply to those who do not currently own a property.

Despite volatility in the residential market, Hong Kong’s office rents in Central surged to the world’s highest this year.

Hong Kong ranks No 1 in terms of the world’s highest rent for a premium office, with London and New York in second and third place respectively, according to JLL’s latest Global Premium Office Rent Tracker.

The price of premium office space, defined as those in grade-A office buildings, located in Central costs US$302 per square foot per year, more than 53 per cent higher than US$197 per sq ft in London’s West End and US$194 per sq ft in New York.

JLL said this was also a new high for Hong Kong compared to an average of US$262 per sq ft a year ago.

“Mainland Chinese wealth and asset companies are moving in as they seek to boost their presence in Hong Kong. This demand is expected to continue with the launch of the Shenzhen-Hong Kong Stock Connect programme in December,” said Megan Walters, head of research at Asia Pacific of JLL.