Hong Kong’s Property Market Slides Again As China Tries to Rescue Its Own Plunging Real Estate Sector

A woman walks past real estate posters in Hong Kong on May 13, 2022,. Isaac Lawrence/AFP via Getty Images

News Analysis

Hong Kong’s property market showed signs of returning health earlier this year, after the financial hub lifted previous real estate policies in the hopes of breathing life into its ailing property market.  However, after a brief rebound, the city’s real estate market has resume its slide, with no apparent end in sight.

The Centa-City Leading Index (CCL), a measure of secondary private residential property prices in Hong Kong, has dropped for four consecutive weeks, erasing most of the gains seen since the policy adjustment.

Since late April, Hong Kong’s second-hand property prices have declined. The slump coincided with market rescue measures enacted by Beijing to prop up China’s real estate market, which continues to plunge.

Faced with significant price cuts from local developers, high interest rates, and increased emigration, Hong Kong’s property market appears to be at risk of continued decline.

Hong Kong Lifts Restrictions

In late February, Hong Kong lifted curbs on property deals after home prices fell to a seven-year low. All curbs, such as extra taxes, that had been imposed to cool the property market were lifted.

The government lifted a 15 percent stamp duty imposed on non-permanent residents buying property in Hong Kong, and a 15 percent stamp duty charged on purchases of a second property. A separate duty on sales of homes purchased less than two years prior was also lifted.

Shares of property developers in Hong Kong jumped after the scrapping of cooling measures was announced, and the city’s private home prices for both new and used properties climbed in March and early April, reversing a 10-month decline.

However, those gains were erased in late April when values for used homes dropped once more, falling lower than they had been before the government scraped the measures. The latest CCL index, released on May 24, stands at 144 points, hitting a new low from its previous level of 144.19 points before the policy change.

Competing for Chinese Buyers

Over the past year, various industries in Hong Kong have faced increased competition from China, with shipping and logistics businesses being drawn away from Hong Kong to Chinese cities such as Shenzhen and Guangzhou, taking jobs with them.

The competition extends to the real estate market, with policy shifts aiming to attract Chinese real estate investors.  The real estate sector had high hopes of attracting buyers from China after cooling measures were lifted.

On April 8, Wheelock Properties vice chairman and managing director Wong Kwong Yiu cited figures from Wheelock’s new project, Seasons Place, indicating that 40 percent of the development’s buyers were from China and the remaining 60 percent were local buyers with “rigid demand.”

Additionally, CK Asset Holdings Sales Manager Jim Fan Wing predicted on April 22 that Chinese buyers would account for 20-30 percent of the market.

At the moment, however, it appears to be insufficient to reverse the declining trend in the market.

China’s Rescue Measures

In mid-April, Chinese state media reported that Beijing was considering purchasing millions of unsold properties as part of a plan to rescue the real estate market. Further, major cities in China have announced the cancellation of various real estate purchase restrictions, raising market expectations across the country.

In May, the Chinese Communist Party (CCP) introduced a support package with new measures to rescue the real estate sector.

On May 17, China’s central bank and financial regulatory bodies launched three major measures, including the establishment of a 300 billion yuan ($41.5 billion) fund to purchase unsold properties.

Notably, as China began its market rescue, Hong Kong’s property prices were starting to decline.

Excess Supply of HK Properties

Despite the falling prices, Hong Kong faces a severe surplus of new properties.

According to a quarterly data report from the Hong Kong Housing Bureau, as of the end of March there were 21,100 completed but unsold new apartment units. There were 72,000 units under construction and unsold, and 19,000 units where construction may start at any time. The report estimates that the supply of private flats for the next three to four years is 112,000 units, 3,000 more than previously estimated.

The number of flats under construction in the first quarter was 4,300, while 5,000 units were completed during the period.

To put these numbers in perspective, from 2019 to 2023, the average annual transaction volume for new properties in Hong Kong stood at 14,959. Therefore, even if this trend continues, it will take four years or longer to sell the current inventory.

The most common method for developers to reduce inventory is to cut prices. Major property developers such as CK Asset Holdings have reduced prices by 20 percent, and up to 30 percent in some areas.

Increased Emigration After the Passage of ‘Article 23’

The base of Hong Kong’s property market, its local population, is shrinking. On May 23, the UK Home Office announced its latest British National (Overseas) visa application figures, revealing that as of the end of March, the UK had approved nearly 202,000 applications for the visas—known as BN(O) visas—with over 144,000 Hong Kongers having already arrived in the UK.

The first quarter of 2024 alone saw 10,737 BN(O) visa applications, nearly double the previous quarter. That increase coincided with the passage of Hong Kong’s Article 23 in March.

After the CCP imposed its draconian National Security Law on Hong Kong in 2020, without the consent of the semi-autonomous territory’s legislature, the British government announced the BN(O) visa scheme, which allows Hongkongers born before the 1997 handover, as well as their descendants, to apply for settlement in the UK.

On March 23 of this year, Hong Kong passed a sweeping new national security law known as “Article 23.” The measure was passed unanimously in a Legislative Council dominated by CCP-backed politicians, all opposition lawmakers having been previously disqualified in the city’s elections.

A survey released in November of last year by the UK’s “Welcoming Committee for HongKongers” revealed that 99 percent of Hongkongers who moved to the UK under the BN(O) visa scheme intended to apply for UK permanent residency, reflecting a persistent trend. The survey also showed that 38 percent of Hong Kong immigrants to the UK purchased properties outright.

According to statistics from UK real estate agency Benham and Reeves, as of the end of last year, former Hongkongers owned 24,759 properties in England and Wales—a property portfolio valued at £10.8 billion ($13.76 billion). Those numbers indicate a significant amount of capital leaving Hong Kong for the UK.

Hikes in Mortgage Rates and Management Fees

For those remaining in Hong Kong, hikes in mortgage rates and other expenses such as management fees have become barriers to homeownership.

HSBC and other major banks have canceled most mortgage cash rebates this year, effectively increasing actual mortgage interest.

Further, in high density Hong Kong, property management fees are among the world’s most expensive. A Hong Kong Consumer Council survey indicated that management fees, on average, now account for 7.4 percent of a household’s monthly income.

One Hong Kong resident told The Epoch Times that she and her husband bought a two-bedroom apartment for her elderly mother in late 2022. Continuous interest rate hikes have increased their monthly mortgage payments by HK$4,000 (US$512), and management fees have risen to HK$4,400 (US$563) per month.

The Associated Press contributed to this report.