Hong Kong Home Prices Set to Drop 10% in Next 12 Months Says Moody’s

Hong Kong home prices have dropped for the past two months, but any investors dismayed by the market turn after 29 months of climbing prices should get ready for more of the same, according to analysts keeping a watch on the world’s most expensive property market.

Home prices in Hong Kong are set to slide by another ten percent in the coming twelve to fifteen months, bringing average levels back to the same point that they were at in the fourth quarter of 2017, Stephanie Lau, vice president and senior analyst at Moody’s Investors Service said at a media briefing on Wednesday.

The home price gains of the last year are evaporating, as investors continue to keep their cash in their pockets after a combination of rising interest rates, new tax policies and apprehension over a brewing trade war keep deflating what had been one of the world’s hottest property markets during the first six months of 2018.

C&W Forecasts a Gloomy Winter and Chilly Spring

The analysts at Moody’s are not alone in forecasting a major shift in Hong Kong’s housing market, with one of the world’s largest property brokerages expecting that prices could drop 10 percent within the next seven months.

“More buyers are moving to the sidelines in the face of uncertainties arising from rising mortgage rates and continued US-China trade tensions,” said Reed Hatcher, head of research at Cushman & Wakefield. “Right now, in the absence of any speedy resolution to the trade war, Cushman & Wakefield forecasts home prices to drop by around 10 percent through the first half of next year.”

Deals Dry Up

So far in November Hong Kong’s falling prices have translated into fewer deals.

According to the latest statistics, last week the city’s 20 largest housing estates recorded just 16 transactions of second-hand homes — 25 percent less than the week that ended on November 11th.

During the month of October there were a total of 182 sales of second-hand homes in all of Hong Kong, down by 10.3 percent from September, notching the fifth straight month of declining transactions in the city’s secondary market. Residential rents have also begun to slide, with average housing rents falling 1.2 percent in September for the first decline in years.

Overall, the level of transaction activity dropped by as much as 65 percent in the third quarter compared to the previous three month period.

Letting Some Air Out of the Bubble

The slide of the last two months follows a two year period of much faster growth in Hong Kong’s housing market.

Over a two-year period ending this past July, average home prices in Hong Kong increased by 45 percent from HK$16,173 ($2,073) per square foot to an average of HK$23,506 per square foot. That climb meant that the average cost of housing had more than doubled compared to 2010 prices, despite GDP per capita in the city, adjusted for purchasing power parity, having increased just 16.5 percent over the same eight year period. In this September, Hong Kong topped UBS’s Global Real Estate Bubble Index with analysts at the investment bank noting that the average worker would need to save for 22 years in order to buy a 60 square metre home in the city.