World’s Most Expensive Housing Market, Transactions at Three-Decade low

Hong Kong's number of residential mortgage loans in negative equity in late 2023 has surged to 25,000, a record high in nearly 19 years. (Ruth Lee/The Epoch Times)

Hong Kong, the world’s most expensive residential market, is facing a downward trend as it drops out of the top 10 world’s wealthiest cities. The economic downturn, immigration wave, and the Federal Reserve’s interest rate hike have all caused Hong Kong’s property prices to face deep declines. With the decoupling of China and the United States and following Beijing’s tight COVID-19 measures, the Hong Kong property market has become a microcosm of Hong Kong’s deteriorating situation. Veteran investor says Hong Kong is waiting for Beijing’s policy.

Industry Specialist Expected Market to Fall 30 Percent

The U.S. Federal Reserve started its interest rate hike cycle in March. On Sept. 23, after the Federal Reserve raised interest rates for the third time by 0.75 percent, the U.S.-Hong Kong interest rate spread widened, and the Hong Kong dollar interest rate related to housing mortgages continued to rise. One of the note-issuing banks in Hong Kong, HSBC took the lead in announcing that it would raise the prime interest rate on Sept. 23, kicking off interest rate hikes by Hong Kong banks.

Under the effect of interest rate hikes, Hong Kong property market transactions were bleak. According to the latest data from Centaline Property, a Hong Kong leading real estate agent, in the first 9 days of October, only 20 registered transactions were recorded in the top ten housing estates in Hong Kong, which was 83 percent less than the 116 transactions in the same period in August 2003, and 85 percent less than the 130 transactions in December 2008. It reflects that the current activity level of the Hong Kong property market is worse than that during the period of the SARS (2002/2003) and the financial crisis.

In addition to the shrinking transaction volume, Hong Kong property prices also recorded a sharp decline. A reference indicator reflecting the trend of Hong Kong’s property prices, the “Midland Property Price Index” was last at 157.5 points, down 0.27 percent on a week-on-week basis. The property company predicts that the decline in property prices in Hong Kong will expand to double digits this year and see the largest decline since 2008.

Chan Wing-kit, president of the residential department of Centaline Property said that in fact, property prices have dropped by more than 10 percent, and many buyers who have entered the market with high-percentage mortgages in recent years have fallen into a crisis of negative equity.

He said the current sluggish transaction volume has proven that the property market has entered an “ice age.” He described Hong Kong’s property market as “a backwater.”

Midland Realty, one of the largest real estate brokerage companies in Hong Kong, expects overall property registrations, both residential and non-residential, will hit a level of about 64,000 this year, which will tumble to a 32-year low since 1991.

Property Market Seeing Repeat of 1999 to 2003

The double-digit decline in the Hong Kong property market this year may be just the beginning of a downward cycle. The market expects that the Hong Kong property market may experience a sharper decline in the coming two to three years.

Joseph Tsang Managing Director of JLL (Jones Lang LaSalle) Hong Kong, said at a press conference on Oct. 12 that although property prices will not fall off a cliff, under the influence of various factors such as interest rate hikes, global and regional economic weakness, and geopolitical situations, the Hong Kong property market will continue to decline. The long downward cycle history experienced from 1999 to 2003 has a good chance of repeating itself. Property prices fell by 10 percent annually from 1999 to 2003, with a cumulative decline of 45.5 percent. A repeat of this decline is expected in 2023. As the decline in property prices intensifies, the number of negative equity cases will increase sharply.

Bloomberg quoted Hong Hao, chief economist at GROW Investment Group, pointing out that under the influence of factors such as economic deterioration, capital outflow, and interest rate hikes, Hong Kong property prices will face a long-term downward trend, and it is expected that there may be a potential decline of 40 percent within three years.

Investment bank Goldman Sachs also released a report recently, estimating that in the next two years, the decline in Hong Kong property prices will expand to 30 percent from the original forecast of a cumulative decline of 20 percent. Goldman Sachs previously estimated that between 2022 and 2024, property prices will fall by five percent, 10 percent, and five percent, respectively. The latest estimate is that they will fall by 15 percent in 2022 and 2023, respectively.

The bank also pointed out that based on current property prices, a decrease of at least 35 percent to 40 percent of the current price is required to attract investors to return to the market.

The forecasts of star analysts and Wall Street investment banks coincide. Recent moves by Hong Kong’s homegrown property tycoon have further reinforced market expectations.

Li Ka-shing, the city’s richest person and founder of CK Hutchison Holdings, issued an announcement on Sept. 28, confirming that it sold the remaining 152 residential units and parking spaces of a hilltop luxury project to Singapore Sino Suisse Capital at a price of about HK$20.7 billion (about $2.64 billion). The transaction price per square foot of this transaction is about 30 percent lower than the average price per square foot of the units sold previously.

Emigration Tide Continues, Property Market Under Pressure

Goldman Sachs pointed out that the supply in the property market has risen, but China and Hong Kong have not resumed normal traveler clearance, and the emigration wave has led to a decrease in the number of households in Hong Kong. Although the relationship between supply and demand will not directly affect Hong Kong’s property prices, it is still a factor that cannot be ignored in the context of Hong Kong’s economic downturn and the Federal Reserve’s raising interest rates.

According to public statistics, since the implementation of the Hong Kong National Security Law, Hong Kong has recorded a net outflow of the population for three consecutive years, and the annual net migration population has increased from 27,000 in mid-2020 to 95,000 by the middle of this year.

The major industries in Hong Kong, finance and insurance, are facing a brain drain. According to the Hong Kong Census and Statistics Department, employment in the financial and insurance sector had fallen to 233,000 in the second quarter of this year from 239,000 in the fourth quarter of 2019.

Since the implementation of the Hong Kong National Security Law, foreign capital has been decreasing month by month, and many bankers and fund managers have left Hong Kong. Hong Kong’s financial regulator, the Securities and Futures Commission, acknowledged earlier this year that it had a 12 percent staff turnover rate last year.

Bank of America previously estimated that from 2021 to 2026, the United Kingdom alone will welcome 320,000 Hong Kong immigrants, and the total capital outflow is expected to reach HK$588 billion (about US$74.9 billion).

Chan Wing-kit of Centaline Property said that the entry and exit restrictions under the epidemic and the economic downturn caused by the epidemic have caused the market to lack normal flow. In the past two years, buyers in the Hong Kong property market have mainly focused on local demand.

The chairman of Midland Group, Wong Kin-yip, called on the Hong Kong government to put forward more “investment attraction” plans in the forthcoming “Policy Address,” and even relax the immigration and study policies in Hong Kong to attract talent and funds from home and abroad.

In the face of the emigration wave and entry restrictions, the Hong Kong government still maintains its goal of building 430,000 homes in the coming ten years.

Investment Advisor: Hong Kong Awaits Beijing Policy

Mike Sun, a former businessman from mainland China and a senior North American investment consultant, told the Epoch Times that in the long run, the population is the most basic factor supporting the property market. The outflow of families and young people took away rigid demands, but this has given Beijing an opportunity to “empty the cage and let the right birds in.” Now we have to see what policies Beijing will give to Hong Kong after the 20th National Congress of the Communist Party of China held on Oct. 16.

Hong Kong Chief Executive Lee Ka-chiu plans to announce the first “policy address” during his tenure on Oct. 19.

Mike explained that Hong Kong’s previous position in international finance was established and cultivated by the United Kingdom, and its degree of freedom is much better than that of Singapore. He said that when he came out of the mainland to do business, “the first choice was Hong Kong, and Singapore was Plan-B.” However, looking at Hong Kong from an overseas perspective now, the obvious feeling is that Hong Kong’s status as a financial center is declining. Especially since the implementation of the Hong Kong National Security Law, Hong Kong’s situation and its freedoms have deteriorated.

According to the Global Financial Centres Index (GFCI) report, Hong Kong dropped from the top three in the GFCI ranking and has been replaced by Singapore.

Economically, Hong Kong has fallen into recession for the second time in three years. Hong Kong’s GDP contracted by 6.1 percent in 2020, and despite a 6.4 percent GDP growth in 2021, the market expects that Hong Kong’s GDP will contract again this year.

Buyers from mainland China have become the biggest buyers of luxury condos in Singapore, according to a report released by Singapore-based real estate agency OrangeTee & Tie, amid falling prices for luxury properties in Hong Kong.

“However, from the feedback received from Beijing and China, everyone is still waiting for the borders to reopen. There are still many people who think that after the borders are open, everything will be restored, and Hong Kong’s status as a financial center will be restored.” Mike believes that this is understandable, even if property prices in Hong Kong are still higher than those in the mainland. He believes that funds that want to escape the mainland and still have illusions about Hong Kong will still choose to invest here.

Referring to Numbeo data (cost of living database), comparing the price per square foot of urban centers in Hong Kong dollars, the property price in Hong Kong (HK$23,153) ($2,949) is almost twice that of the most well-known cities in China, Beijing (HK$12,682) ($1,615), Shanghai (HK$12,414) ($1,581) and Shenzhen (HK$12,697) ($1,617).

From a political viewpoint, Beijing would rather let the funds go to Hong Kong to support the market than to other places such as Singapore or the United States. “If Beijing does not introduce policies, Hong Kong’s status will soon be lost. The next step is to see what policies Beijing will give Hong Kong after the 20th National Congress.”