Hong Kong home prices down 20% from historical peak, rebound hinged on US interest rate cuts

With international investment banks predicting 5 to 10 per cent price declines in Hong Kong homes next year, property agents believe now is an opportune time to consider buying. Victoria Allan, founder and managing director of real estate agency Habitat Property, said it was a good time to buy property provided it was for self use and the buyer was planning to live in Hong Kong for the mid-to-long term. “Prices are off 20 per cent from their highs. We haven’t seen this much negotiability, particularly in the high end of the market, for 15 years,” she said. Allan added that the number of clients wanting to buy luxury homes in Hong Kong is increasing, and that more enquiries have been received due to the “decent price the market is seeing”. Hong Kong homes, some of the most expensive in the world, have dropped in price by almost 20 per cent from their historical peak in 2021, according to data compiled by the Rating and Evaluation department. The luxury market, where homes are priced above HK$20 million, saw a 21.4 per cent drop in residential prices in December compared to its historical peak in 2019, according to Cushman & Wakefield. Two creative ways for Hong Kong to keep its property market on an even keel “In contrast to some of our peers, we are not that bearish on Hong Kong residential home prices due to potential US rate cuts in 2024, more mainlander housing demand due to the relaxation of harsh measures, and increasing residential rents,” Raymond Cheng, managing director and head of Hong Kong and China property at CGS-CIMB Securities, said in a note. Cheng said rental yields could increase to about 3.7 per cent by the end of next year, which means the cost of carry for residential property will improve and could be almost zero or even positive, depending on the extent of US rate cuts 2024. “It is good news for the Hong Kong residential [market] and we believe that the trend, if continued, could lead to more home purchases instead of renting,” he said. Hong Kong attracted about 180,000 applicants under the government’s Talent and Professional Scheme over the past 12 months, with 110,000 approved and 70,000 already in the city, chief executive John Lee Ka-chiu said. Cheng added that based on the newcomers, which will increase in numbers every year, there will be an additional 300,000 potential buyers in the residential market. The positive outlook for Hong Kong’s residential market comes after consultancy firms and banks have forecast a continuous drop in home prices next year. Swiss investment bank UBS expects home prices to decline by 10 per cent in 2024 as high interest rates dent demand and an abundance of housing stock boosts supply. The unfavourable economic environment and high borrowing costs are likely to prompt developers – many already facing a shortage of cash – to offer flats at discounted rates, UBS said in November. “The market will continue to struggle for at least another six months before the US Federal Reserve cuts the interest rate,” said John Lam, head of China and Hong Kong property research at UBS, which anticipates the easing to begin in March. That view echoes the prediction made by S&P Global Ratings, which expects home prices in Hong Kong to fall by 5 to 10 per cent next year, and warned that when the inventory of flats starts to build up it may put even more pressure on selling prices. Knight Frank forecasts overall home prices to drop 5 to 6 per cent over 2023 and another 3 to 5 per cent in the first half of 2024. For the second half of 2024, it said Hong Kong home prices are likely to remain flat due to high interest rates, stretched affordability and abundant supply. Cushman & Wakefield also predicts a 5 per cent decline in local home prices for 2023, and up to a 5 per cent drop in the first half of next year. In lockstep with the Fed’s aggressive tightening campaign, the Hong Kong Monetary Authority (HKMA) has raised rates by a cumulative 5.25 percentage points since March 2022, with the base rate now at a 16-year high of 5.75 per cent. The HKMA adjusts its rates based on the Fed’s moves to maintain the local currency’s peg to the US dollar. Residential transaction volumes are also at low levels. Cushman predicts a total of 2,900 transactions in December, bringing the full year total to 42,973, which would be a decade low. Both Cushman and Knight Frank expect transaction volumes in 2024 will increase around 20 per cent year on year to reach 50,000 to 55,000. They said the increase will be due to the government’s relaxed property cooling measures, the influx of overseas talent under various job schemes, and also because developers are actively slashing prices to clear unsold units.

Hong Kong home prices down 20% from historical peak, rebound hinged on US interest rate cuts

Hong Kong home prices have dropped by almost 20 per cent from their historical peak in 2021, according to the Rating and Evaluation department UBS expects home prices to decline by 10 per cent in 2024 as high interest rates dent demand and an abundance of housing stock boosts supply

Hong Kong home prices have dropped by almost 20 per cent from their historical peak in 2021, according to the Rating and Evaluation department

UBS expects home prices to decline by 10 per cent in 2024 as high interest rates dent demand and an abundance of housing stock boosts supply