Hong Kong Home Prices Decline: September Update

HONG KONG (Reuters) – Hong Kong's home prices dropped for the fifth consecutive month in September, according to official data released on Tuesday. The property market is struggling, but realtors anticipate a potential bottoming out soon, influenced by an interest rate cut and easing government policies.

Importance of the Decline

Housing demand in Hong Kong, recognized as one of the world's most unaffordable cities, has diminished since May. A brief surge in demand followed the lifting of property purchase curbs in February, but this pent-up demand appears to have been largely satisfied. To stimulate sales, property developers are offering new flats at significant discounts.

The government has also altered policies this month by lowering the down payment ratio to 30% for all properties. Additionally, there is now allowance for luxury property purchases over HK$50 million ($6.43 million) to be included in the investment immigration scheme.

Price Overview

• Private home prices fell: 1.7% in September from the previous month.
• Prices have decreased: 7.5% since December.
• Total drop: 27.7% from the 2021 peak, reaching the lowest level since August 2016 due to higher mortgage rates, an outflow of professionals, and a bleak market outlook.

Market Insights

Eddie Kwok, Executive Director at CBRE Hong Kong, commented on the potential for residential prices to bottom out soon after five months of decline. Martin Wong, Senior Director at Knight Frank, predicts an 8% decrease in prices for the entire year as interest rates begin to fall. Meanwhile, UBS forecasts that home prices could increase by up to 5% in 2025, driven by rising demand from mainland China and a reduction in mortgage rates, particularly following the removal of the extra stamp duty for foreign buyers in February.

Contextual Background

In the backdrop, major banks in Hong Kong, including HSBC and Bank of China (Hong Kong), shocked the market in September by cutting their best lending rate by 25 basis points, responding to the U.S. Federal Reserve's interest rate reduction. It's noteworthy that while Hong Kong's currency is pegged to the U.S. dollar, local banks set their own rates based on funding costs.

($1 = 7.7708 Hong Kong dollars)