HONG KONG • Hong Kong private home prices fell for the first time in 29 months in August, and are expected to soften further as interest rates rise and the US-China trade war clouds the outlook for the city's economy.
Prices eased 0.076 per cent last month from July, government data showed. While slight, it marked the first decline since March 2016, a cooling sign for one of the world's more expensive property markets.
Still, prices have surged 11.7 per cent so far this year, and rocketed 16 per cent year on year, according to Reuters' calculations based on an index compiled by Hong Kong's Rating and Valuation Department.
Ultra low interest rates, limited housing supply and large flows of capital from mainland Chinese buyers helped push housing prices up 165 per cent over a decade, prompting repeated warnings from the authorities about the risks of an asset bubble.
Soaring real estate prices have angered many Hong Kong residents and prompted the city's government to set aside plots of land for public housing and propose a vacancy tax on empty new homes to discourage developers from hoarding.
The latest UBS Global Real Estate Bubble Index published on Thursday ranked Hong Kong as the city with the greatest bubble risk.
People who earn the average annual income in the highly skilled service sector would need to work 22 years to afford a 60 sq m (646 sq ft) flat, surging from the 12 years required 10 years ago, the study showed. A flat of that size on Hong Kong Island cost an average of HK$10.8 million (S$1.9 million) last month, according to official data.
But the days of cheap money are coming to an end.
Hong Kong commercial banks raised their benchmark lending rates on Thursday for the first time in 12 years, increasing the cost of home mortgage repayments. More hikes are expected into 2019.
Increasingly, potential home buyers have stayed on the sidelines.
According to a survey published by realtor Hong Kong Property Services last week, 33 per cent of the 379 respondents said they were considering buying an apartment in the next 12 months, less than the 36 per cent surveyed in the second quarter and 64 per cent in the first quarter.
Data from another realtor, Centaline, showed total housing transaction volume this month was expected to shrink to the lowest since July last year.
To lure buyers, developers were selling new flats at prices closer to the secondary market, with premiums dropping to 5.3 per cent in the third quarter to the lowest in seven quarters, according to Midland Realty data. The premium was 20.7 per cent in the second quarter.
Many investment banks and realtors revised their forecasts on Hong Kong property prices in the last few weeks, predicting a 10 to 15 per cent correction in the next 12 months.
"But a sharp correction seems unlikely, given the pent-up investment demand and ongoing low mortgage rates," UBS said in a report.