Hong Kong’s overheated office prices to bear brunt of trade war, volatile markets and rising rates, says Savills
- Prices of grade A offices and prime street shops are forecast to drop 5 per cent next year
- Housing prices could fall by up to 10 per cent, says Savills
Savills said that sales prices of offices in Hong Kong will fall next year, becoming the first big consultants to predict the downturn, as the trade war, stock market volatility and rising interest rates take a toll on the sector.
Prices of grade A offices and prime street shops will drop by as much as 5 per cent, while home prices will see a much larger decline of up to 10 per cent, according to Savills. Prices of all other categories, such as Central grade A offices, town houses and industrial units may see no growth.
“Record high prices … have dented Hong Kong’s appeal for investors,” Savills said.
New York office rents catch up to Hong Kong – but Asian city remains world’s most expensive place to set up shop
Prices of grade A offices have rallied 16.6 per cent from December 2017 to September this year, with space in Central costing HK$63,610 per sq ft in September. If prices drop, it will be the first since December 2017, according to Rating and Valuation Department.
Simon Smith, head of research at Savills, said on Tuesday that the property sector has seen a slowdown in price growth “due to interest rate increases and the recent stock market volatility”.
Stock market corrections usually herald property market corrections three to six months later, Savills said, adding that the volatility and muted business confidence has caused occupiers to rein in expansion plans and wait for a clearer picture to emerge.
The consultancy said that supply from strata sales of The Center could cap price growth for the next three to six months.
Demand from mainland investors and developers, already saddled with high debt, also fell as they were reluctant to take on additional debt. They are instead trying to dispose off some property, it said.
For instance, the auction of three floors of foreclosed offices at Convention Plaza Office Tower in Wan Chai, owned by CEFC China Energy, failed late last month.
Jeffrey Liu, chairman of Team Eight Group, which took part in the auction, said investors were cautious in their bidding in the current downbeat market.
Causeway Bay’s Russell Street trumps 5th Avenue in New York as the world’s most expensive retail rental market
Meanwhile, real interest rates, which has a negative correlation with home price index and remained negative for nine years, are expected to move out of negative territory later next year under lower inflation, marking a clear sign of a turning market, according to Savills.
Smith said they expect three to four interest rate increases next year to a level closer to 5.5 per cent to 6 per cent for prime rate. The prime rate now stands at around 5.125 per cent.
“The mass [residential] market is more interest-rate sensitive than the luxury market,” said Smith. “That will take a hit next year.”
Knight Frank too said that home prices will drop by around 10 per cent next year because of the property cooling measures, rising interest rates and a slowing Chinese economy.
“When you have a long period of price growth, and then you get higher rising rates the market begins to react to that,” said Liam Bailey, global head of residential research at Knight Frank. “As Hong Kong is tied to the Chinese economy, it has an impact here. It does slightly undermine confidence in the short term.”
Separately, property transactions fell 26.4 per cent month on month in November to a 32-month low of 3,953, according to Land Registry data compiled by Midland Realty.
“Sales of new developments plummeted [69.1 per cent] while the market for used homes remained downbeat,” said Buggle Lau, chief analyst at Midland.
Additional reporting by Cheryl Arcibal