HONG KONG - Home owners in the world's most expensive and resilient property market will have no respite any time soon, dragged down by an unyielding coronavirus pandemic.
Some market observers are expecting private housing prices, which have been sliding since protests hit Hong Kong in the later half of 2019, to fall further this year as the pandemic and containment measures weigh heavy on the domestic and global economy.
Mr Christopher Yip of S&P Global Ratings believes the city's residential property prices could fall by 10 to 20 per cent by year-end from their peak in May 2019, while OCBC Wing Hang's Ms Carie Li projects housing prices to drop by up to 15 per cent by end 2020.
The residential property price index between January and March dropped by 1 per cent quarter on quarter, while rentals fell by 4.1 per cent.
There is, however, a silver lining. "The market is well supported by structural undersupply and low interest rates, which protect it from more severe drops compared to past crises," said Mr Yip.
In a research note on Monday (May 4), Citi property analyst Ken Yeung expected home prices to rise between 5 and 10 per cent from this month through the rest of the year.
Land Registry data for April released on Tuesday recorded almost 4,900 property transactions worth HK$38.4 billion (S$7 billion) last month, up 7 per cent from March in both volume and value. The transactions comprised homes, offices and car parking spaces.
The data coincided with an announcement by the Hong Kong government that schools would be reopened in phases from May 27. Some restrictions will also be lifted on other establishments such as gyms, cinemas and beauty parlours as the city's number of new coronavirus infections stabilises. As of Wednesday, total confirmed cases stood at 1,040.
Optimism returning was reflected in the pick-up seen in the Centa-City Leading Index (CCL), which tracks the secondary housing prices, as investment sentiment rallied on the positive news surrounding the global Covid-19 pandemic, said Ms Li.
But she also cautioned that sentiment may soften again due to worsening economic fundamentals and corporate earnings, as well as heightened United States-China tensions.
"We doubt the sustainability given the rising unemployment and salary cuts which are expected to dent housing demand," added Ms Li.
Government data showed Hong Kong's jobless rate rose for six straight months. In April, unemployment hit 4.2 per cent, the highest in more than nine years. Underemployment also crept up in tandem as the pandemic ravaged multiple sectors.
Home owners with cash-flow problems are adding to the distress in the market. Local media have reported cases of businessmen liquidating their residential properties at deep discounted prices to keep their companies afloat.
"Prices of larger flats' (above 100 sq m) dropped by 3.3 per cent year on year or 1 per cent month-on-month in March, while transaction volume of flats priced at HK$10 million or above plunged by 61 per cent year-on-year in April. This was worse than the 48 per cent decline in overall transaction," noted Ms Li.
PwC China's deals advisory partner James Dilley remained guarded in his outlook for the future.
"In Q1, even through April, there's not been as much volume in real estate distress debt in Hong Kong or actually distressed sellers of individual high-end residences as you'd expect," he said.
He said that for now there was still headroom for lenders to support commercial mortgages, property developers and landlords.
That said, Mr Dilley believed there would be more defaults and the impact would likely be felt in Q3 and Q4.
"There's a big difference between temporary rent discounts versus deferring rent. At this point, there's quite a lot of rent that's being deferred. To give an example, when the retailer starts opening again, it'll have accrued six months of rent that's not paid. I think some of that pain is being kicked down the road and not recognised at this point."
