Hong Kong’s second-hand home price falls for the first time since December as May’s index dips on supply glut and looming rate hikes
- Hong Kong’s official lived-in home price index declined to 351 in May, according to data from the Rating and Valuation Department
- The index could drop by as much as 1 per cent in June given the lack of positive factors to support price growth, Knight Frank’s Martin Wong says
Industry observers expect prices to continue to fall, with property consultancy Knight Frank predicting declines of up to 5 per cent for the whole year. Last year, property prices fell 15 per cent because of the impact of the pandemic and a weak economy.
“We expect the home price index in June to drop another 0.5 to 1 per cent, as the market lacks positive factors to support price growth,” said Martin Wong, Knight Frank’s Greater China head of research and consultancy.
“Following the revenge-buying rebound in the first four months, factors such as high interest rates, insufficient buying power and the accumulation of new inventory have hindered a further rise in home prices.”
In the second half of this year, mortgage rates could still rise, which will weigh on prospective buyers, Wong said, noting that the interest rate factor will not fade until early next year.
The dire forecasts came as the widely watched pre-owned home price index fell 0.7 per cent month on month to 351 in May, the lowest since February and the first time since December, according to data from the Rating and Valuation Department. On an annual basis the index slumped 8.9 per cent.
Hong Kong’s private home market could be flooded with new supply up to 2025, according to the latest forecast from Our Hong Kong Foundation cited by Bloomberg Intelligence. An annual average of about 20,200 private residential units will be completed during 2023-25, with peak completion of about 20,900 units coming in 2025, the think tank said.
Hong Kong Monetary Authority CEO Eddie Yue Wai-man warned earlier this month that the cycle of rising interest rates was far from over despite the de facto central bank hitting pause following 10 straight increases in its base rate since March 2022.
Hong Kong developers cut prices to 2018 levels for new projects to boost sales
Bank of East Asia said it expected lenders to raise the prime rate by 25 basis points in July due to rising interbank lending rates or Hibor, which this month reached their highest level since 2007.
The decline in property prices in May reflected the impact of the interest rate increases, said Derek Chan, head of research at Ricacorp Properties.
Chan expects transactions of lived-in homes in June to sink about 10 per cent to a five-month low of 2,400, as buyers adopt a wait-and-see approach because of competitively priced new projects.
More sellers of lived-in homes made a loss in the first five months of the year, according to Centaline Property Agency, which tracks transactions in 117 major estates.
More than 65 per cent of deals for houses bought between 2018 and 2022 suffered from losses, 10.9 percentage points higher compared with the second half of last year, the data showed.
Centaline attributed it to homeowners seizing the opportunity to sell following a recovery in prices earlier this year after a 15 per cent slump last year.
With Hong Kong’s property market reeling, higher rates will dampen mood further
Buying demand continued to fall in May after a strong start to the year, data from online real estate platform Spacious showed. Prices, too, appeared to have plateaued.
“I believe [the strong start seen earlier] was due to the release of pent-up demand, revenge buying or renting, following the relaxing of Covid-19 restrictions and optimism around the reopening,” said James Fisher, chief operating officer at Spacious.
The market is looking for another catalyst while it faces headwinds from higher interest rates, Fisher said.
