Hong Kong's property prices are falling. Will it continue?

With continued volatility in the global economy and market forecasts that Hong Kong banks will raise interest rates, Hong Kong's housing market prices - which have been on the rise in the last decade - have finally gone back down to the levels of two and a half years ago.

Local property sector players are generally not too optimistic about Hong Kong's property price trends and suggest the Hong Kong government should take cooling measures to stabilise the market. Meanwhile, some academics feel the market should be allowed to self-adjust.

In the 25 years since Hong Kong's return to mainland China in 1997, the property market has weathered events like the 1998 economic crisis and SARS in 2003, with property prices being highly volatile at one point. It was not until after the 2008 economic crisis when countries took quantitative easing measures that Hong Kong's property prices shot up - now, they are some 70% higher than peak prices in 1997.

But negative factors like rising interest rates and the pandemic have seen Hong Kong's resale private property prices starting to fall this year. Latest figures from the Hong Kong government's Rating and Valuation Department (RVD) show that the price index of Hong Kong private homes in July slipped to 376.1, showing a drop over two months consecutively and of 1.65% over the past month, to the lowest level since February 2020 and 5.53% lower than the record 398.1 in September 2021.

Looking at the first seven months of 2022, Hong Kong's private resale property prices have fallen by 4.5%, eradicating the 3.7% rise over the whole of last year.

On 2 September, Centaline Property Agency announced that the Centa-City Leading Index (CCL) reflecting resale housing market prices has gone down by 0.8% in the last week to 173.22, the lowest in three and a half years.

Centaline forecasts that housing prices will continue to fall steadily and the CCL will drop to about 170 around the Mid-Autumn Festival, to the lows of early 2019.

Midland Holdings chairman Freddie Wong also said that developers have recently been selling new properties at low prices. And with the spectre of rising interest rates, Hong Kong's property prices are expected to fall by 8% this year, the worst performance in nearly 14 years, since a 12.5% bleed during the 2008 economic crisis.

To ameliorate the situation, the Hong Kong government could reverse some drastic measures, such as reducing or even removing the Buyer's Stamp Duty (BSD), and relaxing the cap on the loan-to-value ratio for mainland Chinese buyers to 80%.

Hong Kong Executive Council convenor Regina Ip Lau Suk-yee also told the media earlier that the authorities could consider waiving the "double stamp duty" for mainland Chinese buyers. Her New People's Party will be putting forth this recommendation to Chief Executive John Lee in September during his policy address consultations.

However, Hong Kong Financial Secretary Paul Chan Mo-po said in a radio programme late last month that while Hong Kong's property prices could be adjusted again, the property market is unlikely to "fall off a cliff". Furthermore, the authorities have "no plans" and "no intention" of propping up the housing market, and neither is there a need to do so.

Chan pointed out that, in the next three to four years, Hong Kong will have a supply of about 98,000 new private properties. Coupled with the completion last year of roughly 20,000 residential units, he believes that Hong Kong will have a stable supply of private flats in the future. As the burden of mortgage payments will increase, he urged residents to carefully consider the impact of interest rate hikes when buying properties.

Wu Junfei, a researcher with the Hong Kong China Economic and Cultural Development Association, told Zaobao that the housing crisis has become the biggest problem in Hong Kong society. Hundreds of thousands of Hong Kongers live in subdivided flats or cage homes, and Beijing authorities have repeatedly said that it would solve Hong Kong's housing problem. And the reason why Chan said the authorities have "no plans" to support the housing market is because he does not want the government's promise of support to push up property prices again.

Wu pointed out that Hong Kong's home ownership rate is around 50%, meaning that half of the population are homeowners while the other half are tenants. "In other words," he said, "50% of residents hope that housing prices will fall, while the remaining 50% hope that it will soar. Thus, any land and housing policy introduced by the Hong Kong government will easily draw the ire of either side." Hence, the central government hopes that the Hong Kong housing sector will be regulated by the market and that housing prices will fall steadily.

That said, if Hong Kong's housing prices were to take a nosedive, flooding banks with bad debts and harming Hong Kong's position as an international financial centre, the Hong Kong government would intervene to prop up the housing market. At the moment, Wu believes the authorities would accept a 10-15% fall in home prices.

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