Hong Kong house prices fall to five-year lows and could fall further
View of the Hong Kong skyline from Hong Kong Island.
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Hong Kong residential property prices fell to a nearly five-year low as rising interest rates and a massive exodus of expatriate workers drove prices down in one of the most expensive cities in the world to work.
And industry insiders warn the worst is yet to come.
Hong Kong House Price Index for October fell 2.4% to 352.4 from the previous month, marking the gauge’s lowest level since November 2017.
According to a Natixis report, the city house prices could fall 25% from their previous peak at the end of 2021 before starting to recover.
The crisis should deepen 12% in 2023 and then only 2% in 2024, said analysts led by Alicia Garcia Herrero.
Hong Kong, the world least affordable housing market, has seen declines in some of its larger private housing estates. In City of Yohoa 393 square foot apartment that is currently listed at HK$5.98 million — this represents approximately HK$15,216 per square foot and a price drop of 20% from the previous month.
A confluence of factors, including weaker growth forecasts and the mainland’s Covid policies contribute to the bleak outlook, but Hong Kong’s immigration crisis and snowballing interest rates remain salient sticking points.
As declining fertility rates and a rapidly aging population exert pressure, the slump in immigration and the fiery wave of emigration have added fuel to the fire.
Hong Kong recently raised its benchmark interest rates at 4.28%, driving up borrowing costs highest since March 2008.
“The weak economic environment both in Hong Kong and globally, and rapidly rising borrowing costs are the most significant factors driving down property prices,” Nelson told CNBC. Wong, executive director of research at real estate firm Jones Lang LaSalle.
“The magnitude was a little deeper than expected, mainly due to escalating geopolitical risks [from the Ukraine war] and the path of sharply rising interest rates,” Wong continued.
Population growth a key factor
Hong Kong’s growing population plays a decisive role in its domestic demand.
“While there are pressures from deteriorating fertility rates and rapidly aging populations, the slump in immigration and the heated wave of emigration have added fuel to the fire,” said Natixis.
that of Hong Kong residents left town in droves since 2021, partly due to the strict Covid measures implemented in 2020 which were only recently relaxed in October. In his inaugural speech as Chief Executive of Hong Kong, John Lee pledged to attract talent from around the world.
Hong Kong Chief Executive John Lee during a press conference following his political speech session at the Central Government Complex on October 19, 2022 in Hong Kong, China, where he delivered his first political speech with measures to attract foreign talent and companies to the city by offering incentives. (Photo by Anthony Kwan/Getty Images)
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What could stem the fall
While the downturn in the real estate market is likely to continue, the pace of decline could slow over the next two years, according to Natixis.
The French investment bank said there will be limited declines in 2024 if there are no further economic and political adjustments to bolster sentiment.
However, analysts say a lifting of Covid restrictions in China could restore investor confidence.
Further relaxation of stamp duties for non-permanent residents and for permanent residents intending to buy a second property could also help strengthen the real estate market, they said.
– CNBC’s Monica Pitrelli contributed to this report.