Hong Kong Property Market Faces Uncertainty Despite Stable Interest Rates

In a recent development, the Hong Kong Monetary Authority (HKMA) opted to maintain its base rate at 5.75 percent, aligning with the US Federal Reserve's decision to hold interest rates steady. While this move signals a potential pause in interest rate hikes, analysts caution that it might not be enough to prevent a further decline in Hong Kong's property prices.

Despite the positive outlook on interest rates, forecasts suggest that home prices in the city will experience a drop in the coming year. CGS-CIMB Securities anticipates a best-case scenario of up to a 3 percent decrease, while UBS warns of a more substantial decline of up to 10 percent.

Raymond Cheng, Managing Director and Head of China and Hong Kong property at CGS-CIMB Securities, remains cautiously optimistic, stating that rising demand from mainland Chinese buyers, eased cooling measures, and increased rental yield could provide support for home prices. He emphasizes that this trend could also benefit Hong Kong-focused developers.

Cheng also notes the likelihood of a rate cut by the US Federal Reserve in March next year, citing a 77 percent chance. However, Chau Kwong-wing, Director of the Ronald Coase Centre for Property Rights Research at the University of Hong Kong, suggests that the Fed's decision may hinge on inflation and the ongoing decoupling with China.

Despite the potential for a US rate cut, Hong Kong's prime rate may not immediately follow suit, according to Wong Mei-fung, Managing Director of Centaline Mortgage Broker. The HKMA itself has cautioned the public about interest rate risks, suggesting that the high-interest rate environment may persist.

Amidst differing opinions, the consensus on Hong Kong's property market leans towards a continued decline. UBS expects a 10 percent drop in home prices, while JLL, Knight Frank, and Cushman & Wakefield forecast declines ranging from 5 to 10 percent.

Developers, however, remain active, pricing new residential projects at close to six-year lows. Sun Hung Kai Properties recently enjoyed robust weekend sales, with 241 flats sold out of the 280 offered in the third round. The average price tag for these flats was reportedly at a level not seen since 2017.

While property agencies like Midland Realty and Hong Kong Properties anticipate a potential rebound of up to 5 percent, others, including Ricacorp Properties, foresee an 8 percent upside next year. Despite this optimism, concerns persist, with primary transactions expected to account for 30 percent of overall transactions, exerting additional pressure on the secondary market.

In a survey conducted by Citi Hong Kong, respondents' sentiment regarding the opportune time to buy a house has slightly decreased compared to a year ago. However, it remains the second most optimistic result recorded in the past 11 years, indicating a mixed sentiment within the market.

By fLEXI tEAM