23 February 2019
Limited supply, ample liquidity and stable economic growth are expected to keep any housing price pullback limited. Photo: HKEJ
Limited supply, ample liquidity and stable economic growth are expected to keep any housing price pullback limited. Photo: HKEJ

Why home prices just won’t fall

Several months ago, most believed housing prices would fall this year. However, an increasing number of people have changed their views recently, including Shih Wing-ching, founder of Centaline Property Agency.

Instead of forecasting a drop of 8 to 13 percent, Shi now expects Hong Kong’s housing prices to gain 20 percent in two years.

Fund manager Alex Wong said he is not interested in buying properties but he sees a bigger upside than downside.

“I am definitely not a buyer. But it’s hard to think of selling, because in the worst case, it might fall 20 percent, but over the long term, you may have to pay a lot more to buy back,” Wong told an investment seminar organized by the Hong Kong Economic Journal.

Wong’s views are probably shared by a lot of high net-worth individuals in Hong Kong.

Most of them may already own their homes, or even have a couple of properties kept for rental income.

With rental yields of less than 3 percent and an extra double stamp duty of 15 percent imposed on buyers who already own at least one property, it’s not wise for them to jump onto the housing bandwagon right now.

But in the mean time, they are reluctant to sell. First of all, the downside is limited. If one sells and hope to buy back later, the fall has to be big enough at least to cover the tax and other transaction costs.

Justin Chiu, Cheung Kong Property (Holdings) executive director, expressed a similar view.

Ample liquidity and stable economic growth are going to keep any housing price pullback limited.

Factors such as increasing supply and a US rate hike could weigh on home prices but they are not sufficient to trigger any panic selling.

As all these seemingly negative factors have failed to suppress home prices, buyers are increasingly fearful of further home price rises. Those who are eagerly waiting for a home price collapse have almost become desperate.

As these potential buyers keep chasing limited supply in the market, we are seeing panic buying instead, hence the constant news about secondary market transactions hitting record highs.

What might change the situation? Perhaps a much faster and steeper rate rise in the US, or a global financial crisis, or a dramatic housing supply increase in Hong Kong.

This article appeared in the Hong Kong Economic Journal on Mar. 6

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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