Industry insiders are divided on house price forecasts for this year, but most analysts believe price growth will slow or even fall.
Hong Kong is often labelled the "world's most expensive residential market," but according to some local industry insiders, house prices are expected to fall slightly in 2022. So for wealthy buyers and investors with cash, the cosmopolitan city's luxury property market could hold lucrative deals.
Residential prices in Hong Kong are expected to fall by 2% this year, according to a recent research report by global financial services firm Morgan Stanley. The result contradicts other real estate experts' forecasts of a 3 to 10 percent rise in home prices. If the fall in house prices materialises, it would mark the end of a 13-year run in Hong Kong's property market.
In the first 10 months of 2021 alone, residential prices in Hong Kong have risen by 3.9%, with the current average price of HK$16,239 (US$2,082) per square foot, according to the Rating and Valuation Department. .
The Hang Seng Index, the benchmark for blue-chip stocks on the Hong Kong Stock Exchange, plunged 18% in the second half of last year, creating a "negative wealth effect" for investors, Morgan Stanley researchers noted.
Existing-home sales in Hong Kong could fall by as much as 15% in 2022, in stark contrast to the 29% increase in the first 11 months of last year, the firm's equity analyst Praveen Choudhary wrote in a report published on Dec. 15, 2021. The report also forecasts that transactions for new homes could fall by 5 per cent this year, before recording a 24 per cent increase in 2021.
Choudhary said that historically, the "negative wealth effect" fueled by falling stock markets can lead to falling house prices. Morgan Stanley subsequently downgraded its rating outlook on Hong Kong's property sector to "prudent" from "attractive".
No matter which side you stand for - a slight decline or a modest increase, it has to be acknowledged that Hong Kong's house price growth has entered a "slow lane", which means the market is expected to open a window of opportunity for buyers in 2022.
In the Demographia International Housing Affordability survey, Hong Kong has been ranked as the least affordable property market in the world for 11 consecutive years. But recent figures suggest housing affordability in the city-state may be at its highest level in more than a decade.
However, Hong Kong's cross-border travel policy will be a major unpredictable factor affecting the trend of housing prices. While much of the preparations for the reopening of Hong Kong's customs clearance with mainland China are well underway, Beijing has yet to decide when the restrictions will be lifted. With Hong Kong currently under China's Covid-zero strategy, when the international borders will reopen remains an unknown. The border has been closed to most travelers since February 2020.
Unlike Morgan Stanley's forecast of falling house prices, other real estate analysts are still sticking to the view of positive house price growth.
Among them, Knight Frank predicts that residential prices in Hong Kong will rise by 3% this year, and Jones Lang LaSalle reports that the increase can reach as high as 5%.
Martin Wong, head of research and consulting at Knight Frank Greater China, said that although there were different voices in the industry, they still maintained their original forecast for the trend of Hong Kong house prices in 2022, saying that tight supply was the main reason for the positive price growth. one.
"We're forecasting 0 to 3 per cent for the average home and 3 to 5 per cent for luxury," he said.
He added, "There are still many positive factors in the market supporting house price appreciation, including a low interest rate environment and moderate economic growth, as well as a shortage of housing supply for some time to come."
Like many other high-density cities, Hong Kong's real estate market will see slower growth in 2021 due to the impact of the pandemic.
Wang explained, “As residential prices are hovering near record highs, buyer confidence has generally weakened, and it takes longer for them to make a home buying decision. In addition, the current pandemic-led environment will also delay real estate development. The pace of new real estate launches.”
He pointed to the much-anticipated reopening of the border between the city of nearly 7.5 million residents and mainland China in the wake of the coronavirus pandemic-induced quarantine, a move that will no doubt push up home sales and prices.
"The reopening of the border with mainland China will further boost transaction volumes in the overall market, while high-end residential prices are expected to continue to move higher given that most of the purchasing power of the luxury market comes from the mainland," he said.
In theory, higher interest rates would eventually dampen house price increases, but property experts say it is not advisable for potential buyers to take a long-term wait-and-see approach to price declines.
Wang explained, “We don’t think there will be two or more rate hikes in Hong Kong in 2022, as local economic conditions do not warrant multiple rate hikes, and inflation is expected to remain in a moderate range. "
Victoria Allen, managing director of Habitat Property, a Hong Kong-based real estate agency, said the lower starting point would give cash-rich buyers plenty of wiggle room, even if interest rates were to rise during the year.
"Even with one or two hikes over the next 12 to 18 months, our rates are still relatively low, but such a move could weigh on buyer confidence, especially in Hong Kong's slow-to-open borders," Allen said. As more and more mainland Chinese residents seek to settle down and invest in Hong Kong, this should play a positive role in boosting residential prices in Hong Kong.”
Prices for mid- to low-end homes may fall slightly or remain the same as before as homeowners become more cautious in responding to higher interest rates, but the luxury market may not behave the same, she said.
"I think the high-end residential market is more resilient to rate hikes and has minimal impact," she said. "In fact, in this segment of the market, we're likely to see inflation driving up prices."
Allen said that while price forecasts are divided in the industry, Hong Kong's luxury market in 2022 offers huge opportunities for homebuyers and investors.
She said: "Hong Kong has limited land, so the tight supply situation will not be relieved in the short term. At the same time, due to the policy of the Guangdong-Hong Kong-Macao Greater Bay Area to promote urban development, and more and more companies choose to list in Hong Kong, the housing demand in Hong Kong will continue to thrive.”
But Allen cautions that buyers in the future should be aware that the various segments of Hong Kong's real estate market do not keep pace.
She said: "When talking about the Hong Kong property market, it should be divided by price range. In general, house prices may decline slightly, especially in the ordinary residential market. This part of the market is relatively vulnerable to the phenomenon of population out-migration and epidemic prevention and control. Continued containment measures will lead to weaker buyer confidence and price growth, as well as uncertainty about employment for many."
She added, “But I still believe that if the Covid-19 pandemic subsides and borders reopen, the high-end secondary market could see a 5% increase or more this year. This part of the market enjoys a lot of liquidity and low interest rates, and May benefit from inflationary pressures."
According to Naomi Budden, founder and managing director of real estate brokerage Nest Property, Hong Kong's housing prices are likely to fall moderately in 2022, which is expected to bring excellent entry opportunities for high-end buyers. "Hong Kong is certainly one of the most expensive residential markets in the world, but you also have to admit that it has one of the most competitive tax systems in the world and is a thriving business and financial centre, so everything is relative," she said. . The city is still full of investment opportunities.”
Budden added, “I would even say that the current turmoil has created a certain amount of mobility. We do see a clear exodus boom after the outbreak, not to mention the expatriates who have settled in Hong Kong since colonial times. The departure of people. They have had enough of the increasingly stringent epidemic prevention and control measures, so they are determined to return to places such as the UK and Australia, but it is this population migration that has reinvigorated the market.” She herself agrees with Morgan Stanley Prediction of falling house prices in Hong Kong.
"But conversely, I don't think that's a bad thing," she said. "There will be more sales of second-hand homes, and sellers will be more pragmatic and rational about what they're pricing and what they're trying to achieve. Today, we're seeing second-hand sales. The housing market has seen a surge of splendid and unique properties that have not been seen in more than 20 years.”