26 October 2016
A slide in equity prices has dampened the mood in Hong Kong's property market. Photo: HKEJ
A slide in equity prices has dampened the mood in Hong Kong's property market. Photo: HKEJ

HK property prices could face more pressure near term

Hong Kong’s property market is facing pressure along with the slide in equity prices. 

Residential property sales tumbled to a record low of 2,045 units last month, while the sales value plunged to HK$15.8 billion, the lowest since February 2009, according to data from Centaline Property Agency.

And the figures for February are expected to disappoint further due to the Chinese New Year holidays.

In 2015, the number of sale and purchase agreements for first-hand residential units totaled 16,826, almost the same as the previous year’s 16,857 figure. However, the transaction value dropped by HK$15.1 billion or 8.6 percent to HK$161 billion last year.

It means that property developers have offered discounts to boost sales amid waning demand.

Also, the sentiment index, an oscillator of investor confidence in the housing market, has hovered in the range of 50 and negative 50 for most of the time. The benchmark has always moved in line with housing prices, in particular after 2005. And the index usually reflects market shift one to six months in advance.

As of January, the sentiment index plunged to negative 78, the lowest since early 2009. That points to an extremely pessimistic view or even panic in the housing market.

The good news is that the index has recently shown signs of stabilizing, fueling hope that sentiment may not deteriorate further. However, it will still take some time to confirm whether the benchmark has bottomed out. As there will be a time lag of several months between index-bottoming and housing price recovery, prices may correct further in the near term.

Currently, the housing market is dominated by self-users, with very limited leverage. Authorities have launched various tightening measures to squeeze out speculators. The loan-to-value ratio was seen at 50.1 percent by the end of last year, according to HKMA data.

Hong Kong’s economy has yet to show sign of any drastic slowdown despite the equity market turmoil, and the unemployment rate remains low at 3.3 percent. But if the economic growth deteriorates rapidly, it could weigh on the property market.

This article appeared in the Hong Kong Economic Journal on Feb. 4.

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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