27 October 2016
Starter homes and small flats, like those in Whampoa Garden, have posted sharp falls. Photo: HKEJ
Starter homes and small flats, like those in Whampoa Garden, have posted sharp falls. Photo: HKEJ

HK housing market reaches critical point

Hong Kong’s secondary housing market started to ease in mid-September last year. So far, overall housing prices have lost 10 percent from their peak level.

Let’s review a few gauges to help us see the future trend.

The Centa-City Leading Index (CCL), an index for secondary housing prices, touched a peak of 146.92 points last Sept. 13. As of Jan. 10, the CCL has tumbled 8.5 percent from the peak, with the different districts posting a price decline of 8 to 11 percent.

This means secondary housing prices have dropped 10 percent, the lower end of our projection last year, after four months of correction.

Out of 118 housing estates, 54 have reported price declines of over 10 percent.

I’ve noted in this column last year that starter-homes or small flats, like those in Whampoa Garden, City One Shatin and Kingswood Villas, have posted sharp falls. Even some blue-chip housing estates like Cityplaza have gone through deep corrections.

Meanwhile, the price ratio between large flats and small and medium-sized units has started to trend up again after leveling off since last September. That means large flats have outperformed smaller flats in the last four months.

The ratio has been slipping between early 2012 and the third quarter of last year, which suggested that smaller flats performed better than bigger units during the market rally that started in 2012.

Local buyers have been flooding into smaller flats amid the low interest rate and abundant liquidity. As such, this segment is under substantial pressure during a market downturn.

Of the city’s 118 housing estates, only eight are above the 10-week average, the lowest since 2008. That’s a sign that the whole housing market is under pressure.

The ratio of market breadth below the 10-week average rarely drops below 10 percent as indicated by historical data. It’s usually a prelude to a prolonged housing market correction.

Another gauge, the Advance Decline Line, even plunged to a record low of negative 48. That means 48 housing estates have shown more price falls than price rises in the last three months. It’s also a sign that the housing market has been oversold rapidly within just four months.

Both benchmarks show that the housing price correction is abnormal. The average secondary-housing price has taken a deeper dive than it did in 2011 and 2013. It may drop by another 15 percent in the short term.

Nevertheless, the housing market may show some temporary uptick as the market breadth data showed the market has been heavily oversold.

Indeed, the housing market has reached a critical point.

This article appeared in the Hong Kong Economic Journal on Jan. 21.

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal chief economist and strategist

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