Hong Kong’s rising home sales still face economic headwinds

HONG KONG – Hong Kong’s home sales uptick is expected to struggle with momentum due to the city’s weak economic outlook and elevated interest rates.

The number of new home transactions in the seven days after Chief Executive John Lee’s policy address on Oct 15 rose 20 per cent compared with the same period earlier, according to data from broker Midland Realty.

This comes amid several major launches, such as Sun Hung Kai Properties’ new project in Kai Tak. Prices of second-hand transactions rose 0.5 per cent in the week of the policy address, according to Centaline data.

But property agents are sceptical on whether this growth will last. Despite the short-term improvement, Hong Kong faces challenges ahead, with high borrowing costs and poor economic sentiment deterring more people from buying.

“The residential market is greatly affected by interest rates and economic circulation,” said Cushman & Wakefield head of research Rosanna Tang. “Coupled with the cautious lending attitude of banks, the stimulus effect on the residential and non-residential investment markets in the short term is limited.” 

Even after a rate cut in September, Hong Kong’s one-month interbank rate remains relatively high at about 4.2 per cent. Almost all of Hong Kong’s new mortgages are tied to a floating rate.

Hong Kong has also been weighed down by sluggish consumption, China’s slowing economy and geopolitical concerns. The city faces a “highly challenging” environment for growth in the near term, UBS Group economists said in a note after the policy address. 

The measures are not strong enough to reverse the downward trend in housing prices, said Mr Joseph Tsang, Hong Kong chairman of Jones Lang LaSalle. The future of Hong Kong home prices will largely depend on the effectiveness of mainland China’s economic stimulus efforts, he added. 

With the city’s prices hovering at eight-year lows, the Hong Kong government eased its mortgage rules in October to allow home buyers to fork out lower down payments. The loan-to-value ratio for all residential properties will be set at 70 per cent. 

The change will mainly affect the required down payment for homes valued above HK$35 million (S$6 million), which previously had a ratio of 60 per cent. The loan-to-value ratio for company-held properties will also rise to 70 per cent.

During the weekend immediately following the policy address, Sun Hung Kai sold all apartments at a development in Kai Tak, with prices set at multi-year lows compared with other homes in the district. 

Mr Eric Tso, chief vice-president of mReferral Mortgage Brokerage Services, said his company has received about 10 per cent more inquiries in the five days after the policy address compared with the same period before. Interest typically revolves around secondary and higher-value properties, he added. 

“Lower interest rates and the policy address can help the market to achieve some stabilisation,” Mr Tso said, but he added that the market outlook still depends on the economy and interest rates. 

In the luxury property market, the government announced that residential property transactions of no less than HK$50 million can be counted towards the New Capital Investment Entrant Scheme, where the wealthy can invest at least HK$30 million to gain residency.

The amount of real estate investment that can be counted towards the total capital investment is capped at HK$10 million. 

Habitat Property, a broker focused on high-end properties, has seen “increased interest” since the US Federal Reserve reduced rates, said its founder Victoria Allan. “We’ll see prices start to rise mid next year as more inventory starts to be taken up,” she said. BLOOMBERG