Hong Kong’s residential property market has seen some softening over the past two months.
The Centa-City Leading Index has come down by 3.1 percent to 182.73 points as of November after hitting a peak at 188.6 points in August.
Given that the index lags by about two weeks, factoring in the latest transaction prices, home prices have probably dropped by about 5 percent compared to the top.
It’s almost certain that prices would fall further in the near term.
But is this a temporary pullback, or have we seen a reversal of the long-term uptrend?
The market view is quite divided.
Some believe the city’s housing market would head south for a sustained period as a result of increasing supply, rising interest rates and China’s economic slowdown.
However, others argue that Hong Kong’s land supply has lagged behind demand for more than a decade. It would take quite a long time for the government to step up supply from land reclamation. Moreover, the economic fundamentals of Hong Kong remains robust, they point out
In my opinion, a collapse of home prices like what happened between 1997 and 1999 looks highly unlikely. There are a number of supportive factors.
First of all, the 15-year-long bull run in housing market has left most Hongkongers convinced that property is a good long-term bet. Given that there are many people who failed to jump on the bandwagon earlier, if there is notable pullback, say 20 percent, now there would be lots of buyers getting in.
Also, authorities still have plenty of room to relax the sector policies, which would serve as cushion against a sharply weaker market.
Since 2009, the Hong Kong Monetary Authority (HKMA) has unveiled a series of counter-cycle tightening moves to curb demand.
HKMA chief Norman Chan has hinted that the quasi central bank could consider easing some of the measures once it’s confirmed that the housing market has entered a downtrend.
Also, we must remember that the government had launched numerous measures to curb demand from mainland buyers. The steps included an extra 15 percent buyer stamp duty (BSD) since 2012. In addition, an investment visa program has been suspended since 2015.
Now, if authorities remove the BSD and resume the investment visa scheme, it would put a floor under the housing market.
All in all, the most likely scenario for the Hong Kong market would be for housing prices to lose 15 to 20 percent over a correction period of 6 to 18 months.
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