Will HK housing market continue to strengthen?

April 01, 2019 10:43
If the unemployment rate spikes, mortgages would become less affordable, and this would have an impact on the property market. Photo: Reuters

Hong Kong’s housing market has rebounded along with the stock market. Transaction volumes have been picking up, and several new projects are selling very well. Does that mean the housing price will keep moving up and hit a new high soon?

Let’s hear what developers are saying. Said a property tycoon: “The housing demand in Hong Kong remains solid while supply remains limited. But there are so many uncertainties outside. Many factors like global politics and economic growth are hard to predict. All these will affect Hong Kong’s interest rate, economy and job market. If local employment is affected, it would most definitely reflect on the housing market.”

Indeed, putting politics aside, global economic growth has shown clear signs of slowing down.

If the unemployment rate spikes, mortgages would become less affordable.

At the moment, Hong Kong’s real estate market is faced with a key risk: the Federal Reserve’s quantitative tightening.

Asset prices are reflecting monetary supply. The Fed’s balance sheet has soared to US$4.5 trillion from around US$1 trillion in the wake of the 2008 financial crisis.

Under the dollar peg scheme, Hong Kong’s monetary base also expanded tremendously. Local housing prices have risen more than three-fold from 10 years ago.

Last year, however, both equities and the housing market struggled after Fed drained US$500 billion. Will housing prices be able to set new highs if the Fed drains another US$500 billion this year?

Sure, the United States may not hike rates further, but does that necessarily mean Hong Kong interest rates will stay flat? No, because we have lagged way behind the US in previous rounds of tightening.

It is noteworthy that one important indicator, the aggregate balance, has come down to HK$60 billion at present from over HK$400 billion at the peak.

If capital continues to flow out of Hong Kong, local banks will race against each other to attract deposits, thus pushing up the rates.

Some quarters have floated the possibility that the Fed might consider another quantitative easing (QE) if the economy slows down.

I do not agree. QE was an emergency move during a crisis. There is no pressing need now.

Even if a recession hits the US, unless the situation is really bad, the US can just rely on innovation to lead the economy out of the downturn.

This article appeared in the Hong Kong Economic Journal on March 29

Translation by Julie Zhu

[Chinese version 中文版]

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Columnist at the Hong Kong Economic Journal