Hong Kong’s Property Rally Proves Short-Lived as Sales Dip

Shawna Kwan wrote . . . . . . . . .

Hong Kong’s property market is falling again, just three months after government tax breaks propelled a brief rally.

New home sales plunged by 46% in May from a month earlier even as the city’s developers offered discounts on apartments to lure buyers. In the secondary market, sales in the first weekend of June dropped by 40% from the previous one.

The dip underscores the challenges that Hong Kong’s residential market faces. It’s a reversal of the three-year high transactions seen in March after the government removed all buying curbs to aid the sector.

With interest rates staying high longer than expected, buyers are staying on the sidelines, said Sam Wong, an equity analyst at Jefferies LLC.

“Everyone expected that the momentum would slow,” said Wong. “There is no way that we will have HK$10 billion ($1.3 billion) worth of sales every week forever.”

The weak economy and dimmed prospects for salary growth are also deterring buyers and weighing down prices, he added. Wong expects residential values to decrease by low single-digits in the second half of the year.

Expensive Rates

Used-home prices are down 2.3% since the beginning of the year, Centaline data show.

The average mortgage rate in Hong Kong was 4.16% in March, more than double the 1.72% rate two years ago, according to data from mReferral Mortgage Brokerage Services.

Banks have pulled back cash incentives, with HSBC Holdings Plc and Bank of China Ltd. nearly eliminating cash rebates on home mortgages as yields from the business decrease, according to Eric Tso, chief vice president at mReferral. Borrowers received rebates of about 3% on home loans last year, he added.

To rein in risks, lenders are also scrutinizing mortgage applications from mainland Chinese buyers, who accounted for 57% of new home sales by value in April, according to Midland Realty.

Ample Supply

Longer term, Hong Kong’s uptick in housing supply will put a lid on prices. The city is expected to see about 19,000 private units completed annually between 2023 and 2027, compared with 9,900 units from 2007 to 2012, according to data from Our Hong Kong Foundation.

It’s not possible for the market to surge as it did in the past two decades because of an increase in land and housing, said Mark Leung, an analyst with UBS Group AG.

To lift housing prices in the early 2000s, the government halted land sales and paused the conversion of areas for housing development. The subsequent price jump made Hong Kong’s properties unaffordable for many, leading to social grievances. Since then, the government has ramped up the development of residential land to ensure sufficient home supply.

“Things are different now,” Leung said. “It’s difficult for prices to rise as much as they did.”

Source : BNN BLoomberg