Property prices in Hong Kong continue to fall while rents rise against the market trend. While some analysts believe that it’s not easy for the property market to rebound, others even predicted that the continuous fall in property prices would lead to financial turmoil.
Property Prices Broke Nearly Seven-Year Low
The Hong Kong Institute of Economics and Business Strategy of HKU estimates that high-interest rates will hit consumption and investment desire, triggering a slowdown in the global economy in the first half of 2024.
Yue-Chim Richard Wong, an economist and Deputy Vice-Chancellor of HKU, said that since the economic environment is not favourable, the United States may not cut interest rates in the middle of 2024 as generally predicted, so it is not easy for Hong Kong’s property market to rebound, and the public should not be over-optimistic.
Hong Kong’s property market continues to weaken. The Centa-City Leading Index (CCL), which reflects the trend of the second-hand residential property market in major large estates, has dropped for seven consecutive weeks, breaking a new record low in nearly seven years and dropping as much as 23.06 percent compared with the record high in August 2021. The Midland Property Price Index (MPPI) is down for 21 consecutive weeks and at a record low for over seven years.
The Rating and Valuation Department (RVD) announced last month that its price index of Hong Kong’s overall private residential property in November 2023 was 316 points, breaking the 81-month low since February 2017, and the cumulative decline has been 5.6 percent since 2023. In addition, all of the Department’s eight major private residential property price indices have fallen for seven consecutive months, the most extended wave of decline since records were started in 1993.
More Mainland Chinese, Strong Rental Uptrend
On the other hand, the Centaline Rent Index (CRI), which reflects the trend of private residential rentals, rose by 7.37 percent in 2023, which is a record high since 2014.
According to the RVD, the rental index for November was up 6.44 percent since 2023, rising for ten consecutive months and reaching a record high since December 2019. In a report released in December 2023, Bloomberg Intelligence estimated that residential rents in Hong Kong will rise by a further 5 to 10 percent in 2024.
Rents were supposed to drop during the pandemic, yet, some clients who have been planning to buy a flat since early 2023, have decided not to do so for the time being and have switched to becoming tenants, a Hong Kong property agent told The Epoch Times.
“They thought there was a chance that the property market would fall a lot, and they wanted to be certain before taking action. All the landlords were pretty fast in taking up the trend, so rents went up instead of down,” the agent said.
After the border reopening, the return of mainland Chinese students and enterprise workers from around the world, as well as the Admission Scheme for Mainland Talents and Professionals, have all been driving demand, resulting in a rise in rents against the market, Derek Chan, head of research at Ricacorp Properties, told The Epoch Times on Jan. 11.
Mr. Chan is optimistic about future rents, as foreigners will first rent a flat in Hong Kong, and expects the rents to rise by 6 percent in 2024. He attributed the fall in property prices and rise in rents to the rise in interest rates affecting the desire to enter the market and developers selling their flats at reduced prices, causing the secondary market to be under pressure.
Mr. Chan also expects that the first quarter will still be under pressure, before favourable factors emerge later, including the peak of interest rates and the huge number of new professionals coming to Hong Kong.
If they stay in Hong Kong for a long time, the tax concession will encourage them to buy homes. “The Government announced that 80,000 people have come to Hong Kong through various professional schemes. If 15 percent of them [want to buy homes], there will be demand for 12,000 flats,” he said. Driven by demand, it is expected that from the second quarter or mid-year onwards, property prices are likely to stabilize and rise, and property prices are estimated to increase by 8 percent for the whole of 2024.
However, some professionals are of the view that if property prices continue to fall sharply, it will be difficult for rents to continue to rise.
Property Prices Determined by ‘Supply and Demand’
In the programme “HK Hope China” on Jan. 1, Hong Kong economic analyst Law Kar-chung said that rents would follow the fall of property prices. When property prices in a bear market fall more than 20 percent, it is difficult for renters to hold out. Mr. Law expects property prices to fall by 10 percent in 2024.
The rise and fall of property prices is actually a matter of “supply and demand,” Cai Zi, a financial columnist for The Epoch Times, wrote in an article in late 2023. While the authorities control supply, demand is made up of three core factors: population in the long term, property prices in the medium run, and interest rates in the short run.
At present, all three demand factors of Hong Kong are blowing against the wind, it says. Property prices in Hong Kong continue to fall while rents rise against the market trend. While some analysts believe that it’s not easy for the property market to rebound, others even predict that the continuous fall in property prices would lead to financial turmoil. Population factors including the brain drain, discouraged foreign investors, and fewer Hongkongers wanted to have children. For property prices, although the property market transactions are low, Hong Kong’s property is still the most expensive globally. In addition, interest rates have risen suddenly and rapidly over a short period of time, acting as a deterrent.
Scholar: Hong Kong Will Face Financial Crisis if Property Prices Keep Falling
Yip Sau Leung, an Economics lecturer at the Chinese University of Hong Kong, thinks Hong Kong’s property market has entered the final stage before the bubble bursts. He wrote in Ming Pao in late 2023 that the first wave of declines in property and banking stocks had already occurred. The bursting of the bubble and the subsequent financial turmoil will be unavoidable, and property prices may cumulatively fall by 60 to 75 percent from the high level.
Mr. Yip further predicted that if property prices fall by over 30 to 40 percent, it will drag down the banking stocks in anticipation of foreclosure and trigger pessimism in the market. The stock market investors will adjust their asset portfolios accordingly.The fall in property and stock prices will also trigger a negative wealth effect and liquidity constraint, resulting in a drop in consumption and a freeze on investment by enterprises, which will further lead to a decline in property and stock prices, with a cycle of consumption, investment, output, and asset prices pulling each other downwards. This will eventually lead to financial difficulties or even closure of a large number of companies, serious economic recession, and massive layoffs in both the public and private sectors, he said.
