Reopening Buoys Market as Hong Kong Home Prices Rise for Second Straight Month

A broad gauge of Hong Kong’s private home prices rose by 2.2 percent in February, marking a second consecutive monthly increase and a four-month peak, according to statistics released by the government on Wednesday.

The index of territory-wide pre-owned homes reached 345.9 last month, up from 338.4 in January and the highest level since last October’s reading of 350.2, the Rating and Valuation Department said in a worksheet.

Kathy Lee, head of research at Colliers Hong Kong, pointed to the post-COVID reopening of the border with mainland China as a key price driver. But she cautioned of external uncertainties still looming over the market.

“Continued geopolitical tensions affecting China’s export trades and, subsequently, Hong Kong’s import and export market performance, together with the weakened investor confidence in financial markets over the US bank crisis, will potentially slow down Hong Kong’s economic recovery,” Lee said. “We are also cautious about this year’s land sales programme results. If there are more failed tenders or transactions at lower-than-expected bidding prices, property prices will continue to face downward pressure.”

Four Key Drivers

Lee listed four favourable factors contributing to the positive growth trajectory of home prices in the Asian financial hub.

“Firstly, the market has seen improved sentiment following the full border reopening, which released buyer demand from mainland China,” she said. “Secondly, developers who have been holding back 30,000 to 40,000 flats last year have been aggressively launching new projects since the beginning of the year, which triggers transactions in the primary market.”

As a third driver, the government’s lowering of the ad valorem stamp duty on home purchases of up to HK$9 million ($1.1 million) appears to have encouraged transactions of small and medium-sized units. The price index for homes measuring less than 100 square metres (1,076 square feet) rose 2.2 percent in February from the previous month, compared with a 0.6 percent increase for homes of 100 square metres or more.

Lastly, homebuyers are becoming less worried about rising interest rates after the US Federal Reserve and local banks slowed their rate hikes.

Given the better-than-expected market sentiment, Colliers is adjusting its mass home price forecast to more than 8 percent growth for the full year. The agency expects further growth in property prices and transaction volume in March and the second quarter of 2023.

Luxury Looking Up

Hong Kong’s luxury residential market has seen signs of recovery across both transactions and leasing since the full border reopening earlier this year, said Steve Lam, senior director of capital markets and investment services at Colliers Hong Kong.

“Driven by mainland buyers, transactions in the primary market have gained momentum, with transaction prices holding up strong,” Lam said, giving the example of a few new projects in Kowloon that recorded transaction prices in excess of HK$50,000 per square foot.

He said the ultra-high-end market has also seen improved sentiment, with multiple single-lot houses reaching final stages of negotiation. Colliers expects the luxury residential market to maintain momentum and post even stronger growth in the second quarter.