Hong Kong’s lived-in home prices to drop 5 per cent this year as sales sputter amid new-home glut, high interest rates: Knight Frank
- Property consultancy Knight Frank joins JLL and Citi in predicting a decline in lived-in home prices
- The company’s latest report cites a shrinking labour force as a significant historical indicator of falling home prices
Another property consultancy has joined a growing chorus that believes lived-in home prices are destined to slide in Hong Kong as sales sputter after a recovery in the first quarter proved short-lived.
“Overall, we believe this year’s home prices will be in the downward direction,” said Martin Wong, Knight Frank’s Greater China head of research and consultancy. “Buyers will find new homes more attractive than lived-in homes.”
The consultancy on Monday released its latest analysis of the factors that move the city’s home prices, based on more than 40,000 data points and multiple indicators over 25 years.
“In a high-interest environment, a tough stress test is required for buying lived-in homes,” Wong said. “For new homes, there are often loans from the developers. This factor will affect the decisions of first-time buyers. Lived-in home prices will be under pressure.”
The Hong Kong Monetary Authority early this month raised its key lending rate to a 15-year high, and Wong said an additional increase of 0.125 to 0.25 percentage points is still possible this year.
Home prices may fall as much as 3 per cent in the second quarter and 7 per cent in the second half of the year, Wong said.
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The official lived-in home price index rose 5 per cent in the first quarter after a 15 per cent plunge last year, according to data from the Rating and Valuation Department.
Hong Kong lost 0.8 per cent of its labour force year on year in the first quarter, Wong said, adding that the city lost about 200,000 people in the last two to three years to emigration, in many cases due to Covid-19 restrictions, as well as departures by short-term workers.
The size of the labour force has been “the most significant indicator for home prices and rents, both in the long term and in the recent Covid period”, according to the Knight Frank report.
People who left because of the pandemic and the economy will return when Hong Kong’s economy performs better, Wong said, but another issue – the advancing age of the population – cannot be easily resolved.
“There were quite some deaths amid Covid-19,” he said. “More importantly, Hong Kong’s birth rate has been relatively low. This affects Hong Kong’s long-term labour force.”
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A glut of new homes will also work against lived-in home prices.
The city had 18,000 unsold new homes in the last quarter, a number even higher than the 15,000 units sold in 2021, which was a “good year”, Wong said.
This presses down new-home prices, which will in turn impact the lived-in market.
“Coupled with the incomplete projects that have already applied for presale consent and have not been approved, the number adds up,” Wong said. “So developers are selling under pressure. Recently we have started to see price cuts by 3 to 5 per cent for new-home projects in the market.”
Also not helpful, in Wong’s view, is the government’s attempt to attract overseas talent by refunding the extra stamp duty to eligible homebuyers who become permanent residents after seven years. As the duty is large, the long wait for the refund fails to entice buyers as much as an immediate exemption would, he said.
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“Affected by interest rate hikes, buyers have become cautious and hesitant to enter the market,” said Ken Wong, deputy regional sales manager at Centaline Property Agency. “Turnover in the second-hand property market has been muted. Some homeowners have sharply reduced prices to sell.”
For example, Ma On Shan district saw only 51 lived-in housing deals in the first 22 days this month, down about 25 per cent month on month, according to Centaline. One owner at Mountain Shore lost HK$100,000 (US$12,779) selling a flat measuring 653 sq ft.
Midland Realty on Monday said the number of sales at 35 major estates in the last week slid for the third straight week to a 10-month low of 34.
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Knight Frank’s view echoes that of Citi, which expects overall home prices to stay flat in 2023, indicating around a 7 per cent drop during the second and fourth quarters, it said in a report last week.
Joseph Tsang, chairman of JLL’s Hong Kong office, early this month predicted that home prices in the city would change direction and eventually could fall more than 5 per cent for the whole of 2023, citing challenging economic fundamentals and global geopolitical tensions.
