Hong Kong Home Prices Fall for the First Time in 29 Months

Hong Kong’s private home prices marked their first decline in 29 months only days after Hong Kong banks announced hikes in raising their benchmark lending rates for the first time in more than a decade. The city’s notoriously high home prices are expected to soften further as the Chinese yuan faces the risk of further depreciation amid an escalating Sino-US trade war.

Property price indices published by Hong Kong’s Rating and Valuation Department for August 2018 indicated that the prices of used homes dropped by 0.076 percent to 393.9 last month, from 394.2 a month earlier. Homes smaller than 430 square feet (40 square metres) on Hong Kong Island fell most steeply – dropping 2.5 percent to HK$17,232 (US$2,201) per square foot from HK$17,671 per square foot on average.

While the declines were slight, they signaled the end of a 29-month property bull run which has endured since March 2016, in what UBS Global Wealth Management in a recent report called “the world’s most overvalued housing market.”

Government Data Confirm UBS’ Call

UBS cautioned in its latest Global Real Estate Bubble Index last week that Hong Kong would likely enter into an era where prices swings are the new normal as it named the city the most likely location globally to suffer from a property bubble.

“Price volatility has to be taken into account: in such a speculative market environment macroeconomic uncertainty, eg. on Sino-US trade or on the yuan can weigh on sentiment at any time. Moreover, further regulatory tightening is a threat to the overheated market,” it noted.

Brokers Watch Deals Disappear

Real estate industry organisation the Royal Institute of Chartered Surveyors (RICS) also reported the first dip in buyer demand in two years as Sino-US trade tensions and rising interest rates put the brakes on Hong Kong’s spiraling property prices.

Members of the professional group reponding to its monthly survey registered a “considerable” slowdown in property inflation in August. The data showed that buyer enquiries from both investors and owner occupiers fell throughout the calendar month. The institute highlighted that home prices are expected to fall a nominal 0.2 percent over the next 12 months across all of Hong Kong, although this figure disguises some regional variations.

Ultra low interest rates, limited housing supply and large flows of capital from mainland Chinese buyers helped push Hong Kong’s housing prices up 165 percent over a decade, but deteriorating affordability has angered many Hong Kong residents. A 60 square meter (646 square foot) flat on Hong Kong Island cost an average of HK$10.8 million by last month, according to official data.

Credit Clampdown Slows Real Estate Market

But, as HSBC, Standard Chartered, Hang Seng Bank and other lenders increased their lending and local currency savings rates last Friday for the first time in 12 years, in lockstep with a move by the US Federal Reserve, abundant liquidity that has been a key factor driving up property prices in Hong Kong is seen as likely to soon recede.

Already anticipating higher prime lending rates, more than 10 local homeowners last week reduced their asking price by least HK$1 million (US$127,951), according to a South China Morning Post report. One 735 square foot flat at the Metro City development in Tseung Kwan O sold for HK$10.48 million last week, down 16 percent or HK$2 million from the asking price of HK$12.5 million.

“Following the government’s plan for a vacancy tax in June this year, developers are even more keen to clear any completed inventory,” said S&P Global Ratings analyst Cindy Huang to the Hong Kong-based newspaper. “Rising supply combined with weaker buyer sentiment due to rising rates and economic uncertainty from trade wars will likely further dampen property prices.”