25 October 2016
Hong Kong's property market could face more rough weather despite some intermittent bounces. Photo: Bloomberg
Hong Kong's property market could face more rough weather despite some intermittent bounces. Photo: Bloomberg

Hong Kong property: What lies in store?

In the past, housing market and equities had moved in tandem in Hong Kong, albeit with some time lag. However, since the 2008 financial crisis, the stock market appeared to have decoupled from the property sector.

Secondary home prices on average had a correlation coefficient of 0.84 with the Hang Seng Index since 1980. 

The positive correlation between the two kept declining since early 2011. And it even dropped to a negative 0.54 in August 2012, the second lowest level in record. That suggests that housing prices were moving in opposite direction to the stock market.

And the correlation has weakened again since mid-2015.

Nevertheless, it seems that the year-on-year change of Hang Seng Index does have close relation with the year-on-year housing price. Statistics show a 1 percent change in the Hang Seng Index would translate into 0.43 percent same-direction change in secondary housing price.

Hong Kong’s housing prices have started falling back from a peak since the third quarter of last year, and posted a drop of 13.3 percent as of the first quarter of this year. However, the price decline has eased or even stabilized since April.

I’ve noted before that the prospects of the housing market would depend mainly on the quality of the rebound. 

The proportion of housing estates that posted prices above the 10-week moving average has dropped to less than 10 percent early this year and in mid-March. That reflected a widespread correction in the housing market.

It also pointed to some over-sold conditions, helping trigger a rebound.

The market width indicator has picked up, with the ratio rallying to a high of 51.7 percent. The latest figure stands at 48.3 percent.

However, only 57 housing estates have average price above the 10-week moving average, far below the benchmark of 70 percent. Simply speaking, the housing market has yet to bottom out.

The market advance/decline line tumbled to a record-low of minus 59 on February 21, which means 59 more housing estates showed price declines than price rises over the previous three months. The gauge has rebounded to minus 14 now, still below the positive territory.

It shows that the market is still in an over-sold rebound phase.

Both market width indicators show that the local housing market has yet to find a bottom despite varying degrees of rebound in recent months. If the indicators fail to break the range or decline further, it would mean that the housing market might face more rough weather.

This article appeared in the Hong Kong Economic Journal on May 26.

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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