Date
24 November 2017
Local housing prices are very likely to peak out in the next three months, possibly in the middle of this year. Photo: HKEJ
Local housing prices are very likely to peak out in the next three months, possibly in the middle of this year. Photo: HKEJ

Why Hong Kong home prices may drop 15%

The Hong Kong Monetary Authority (HKMA) has further tightened mortgage loan rules, which may have a direct impact on housing market transactions and mortgage applications, in particular for starter homes in the secondary market.

So far the regulator has tightened mortgage seven times after the 2008 financial crisis. Housing market transactions usually drop significantly after the government tightens the lending rules.

However, the tightening measures may not have any immediate impact on housing prices as we’ve seen in previous times.

Still, all these tightening measures will add up and cool down the insanely hot starter-home market. And that should reflect on housing prices sooner or later.

Frankly speaking, we should not expect any substantial fall in housing prices. The previous two rounds of tightening measures only cooled swelling property prices and led to a long period of market consolidation.

There are many other factors that would weigh on housing prices.

That said, the property market is likely to level off amid a mixture of a strong US dollar, narrowing price gap between large and small flats, peaking new home sales and further tightening policy.

In addition, newly approved mortgage growth has started to moderate. Technical analysis shows that the housing price in 118 estates has rebounded 22.2 percent from the lowest level in the previous year. The current level is also the resistance level since 2003. The trend line shows that it has failed to exceed the level for more than three months.

Therefore, local housing prices are very likely to peak out in the next three months, possibly in the middle of this year. And the latest tightening measures could become the trigger.

However, the housing price may only have downside of 10 to 15 percent unless a financial crisis or a black swan event occurs.

The US Federal Reserve is expected to hike interest rates within this year, but at a very modest level. Therefore, the rate rise may have limited impact on the housing market.

This article appeared in the Hong Kong Economic Journal on March 12.

Translation by Julie Zhu 

[Chinese version 中文版]

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JZ/JP/CG

Hong Kong Economic Journal chief economist and strategist

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