A picture of the area around Mount Nicholson which is one of the most expensive luxury residential lots in Hong Kong. (Anthony Wallace/AFP via Getty Images)
Responding to the significant decline in the property market in recent years, the Hong Kong authorities lifted all so-called spicy measures earlier this year, leading to an initial sharp increase in real estate transactions.
However, after a mini-recovery in the housing market, residential property transactions have weakened again, nearly reversing all gains.
A July 2 report released by JLL, a leading global commercial real estate and investment management company, showed that Hong Kong’s overall second-hand residential price index had fallen to 2016 levels. According to the Rating and Valuation Department (RVD), the private residential price index recorded 305.9 points in May this year, close to 306.7 points in November 2016.
Prices for new properties seem to have dropped even further back to earlier levels. For example, average discounted prices for some recent new properties are more than 10 percent lower than similar properties in 2015.
According to the JLL report, as of May 2024, the average transaction price per square foot for Class A properties (smaller than 431 square feet in usable area) in Yau Ma Tei decreased by 10.6 percent compared to 2015, dropping from HK$22,768 (about $2,915) to HK$20,346 (about $2,605). Similarly, in Kennedy Town, Class A properties’ prices during the same period dropped by 6.0 percent, from HK$23,424 (about $2,999) to HK$22,022 (about $2,819).
The report highlights that despite developers implementing price reduction strategies, sales rates have struggled to improve significantly. For instance, at The Haddon in Hung Hom, out of 63 properties listed for sale on the first day, only 13 were sold, representing a sales rate of 20.6 percent; at Amber Place in Cheung Sha Wan, no properties were sold on the opening day.
Chung Chu-ju, Senior Director of Research at JLL, stated that in May, first-hand residential transaction volumes dropped to nearly half the level of April. Prices for new projects repeatedly hit multi-year lows. Since many prospective property buyers prefer purchasing newly built properties, with significant declines in new property prices, owners of second-hand properties are under pressure to reduce prices further to compete with new properties and attract buyers, which has intensified downward pressure on the secondary market.
Mini-Recovery Post Removing ‘Spicy Measures’ Ends
The property market experienced a mini recovery after Feb. 28, when Hong Kong financial secretary Paul Chan fully lifted all commonly known “spicy measures,” including additional stamp duties, buyer’s stamp duties, and new residential stamp duties, which had been in place for 13 years.
However, the market trend quickly reversed after two consecutive months of price increases, with the property price index almost entirely retracing its gains.
According to data released by the RVD on June 27, following the removal of all “spicy measures” in late February, the private residential price index showed a trend as follows: it was 308.1 points in March, rose to 309.7 points in April, but then fell to 305.9 points in May. This decline marked the end of two consecutive months of increases, dropping back to the level seen three months earlier. Looking at the first five months of 2024, property prices have accumulated a decline of 1.73 percent, a 12.7 percent drop year-on-year and a 23.16 percent drop from the historical high of 398.1 points in September 2021.
Additionally, the index reflecting the selling prices of over 100 popular housing estates has followed the property price trend and ended its two-month upward trend. According to the RVD, the latest index in May was 262.4 points, down nearly 1.32 percent from 265.9 points in April. The index for the urban area was 257.2 points, down approximately 1.23 percent from 260.4 points in April.
Price indices of the popular housing estates up to May 2024. (Credit to the Rating and Valuation Department)
Factors such as high mortgage rates and stockpiling of new property inventories continue to drag down property prices, he said.
He forecasts that the property market this year will exhibit an “obtuse angle” trend, with prices dropping by about 3 percent in the first half and the rate of decline narrowing slightly in the second half, maintaining the earlier prediction of a 5 percent decline in property prices for the entire year.
Reduced Buyer Confidence
JLL report indicates that economic factors are gradually reducing the confidence of owner-occupiers in the market. Norry Lee, Senior Director of Project Strategy and Advisory at JLL, noted that factors involved include once stable and reliable economic factors such as job security and income growth, which are now major concerns.
According to TransUnion’s Consumer Pulse Survey for Q2 2024, in terms of income, only 29 percent of consumers indicated an increase in household income over the past three months, significantly lower than the 42 percent reported during the same period last year. The decline was most pronounced among respondents nearing retirement. Looking ahead, only 38 percent of consumers expect an increase in income over the next 12 months, down from 50 percent in the second quarter of 2023.
Optimism among respondents regarding household finances has also decreased, with only 44 percent of consumers feeling optimistic about their family’s financial situation in the next 12 months. In other words, more than half of the respondents are not optimistic about their future household finances, a decline from 62 percent reported year-on-year.
Furthermore, 20 percent of respondents anticipate being unable to fully pay their existing bills and loans, which is higher than the 17 percent reported in the second quarter of 2023. A total of 23 percent of Generation Z consumers (born between 1995 and 2010) indicate they are facing financial difficulties.
An advertisement posted by one real estate agency branch in North Point, Hong Kong Island, citing urgent sales of luxury homes in excess of HK$20M (about $2.6M-2.7M) by emigrant owners. (Adrain Yu/The Epoch Times)
Expert Concerns With Price Decline Vicious Cycle
To address the ongoing trend of declining property prices, the Hong Kong Monetary Authority issued a circular to banks on June 14, announcing technical adjustments to the countercyclical macroprudential measures (Measures) for property mortgage loans that were announced on Feb. 28 and other related supervisory requirements.
“The applicability of the Measures will be broadened to include mortgage applications for residential properties under construction for self-occupation where the provisional sale and purchase agreements were signed before Feb. 28 and the properties are scheduled for completion on or after Feb. 28. The adjustment, which will take effect from today, will allow eligible homebuyers who are in need to take out mortgage loans with a maximum loan-to-value (LTV) ratio of up to 70 percent,” reads the circular.
JLL believes that these adjustments will help alleviate the risk of valuation shortfalls encountered by buyers who opted for installment payments during the construction phase when applying for mortgage loans.
Norry Lee noted that this move reflects the Hong Kong government’s responsive actions, yet banks remain cautious in mortgage approvals.
“Despite ongoing homebuying demand from end-users, many have been unable to enter the market due to mortgage difficulties, impacting residential transaction volumes,” he said.
“The market needs more policies supporting demand to restore supply-demand balance and prevent property prices from falling and entering a vicious cycle, where buyers delay purchases in anticipation of further price declines, indirectly realizing the expected price drops.”
Julia Ye is an Australian-based reporter who joined The Epoch Times in 2021. She mainly covers China-related issues and has been a reporter since 2003.
