Slump in Hong Kong’s home prices to continue in 2023

Kin Ming Estate, Hong Kong

Hong Kong’s home prices have plenty further to fall amid rising borrowing costs, a recession and an exodus of residents, analysts say.

Residential prices are expected to decrease by 12% next year and 2% in 2024, taking the drop from the peak in late 2021 to 25%, Natixis analysts led by Alicia García-Herrero, chief economist for Asia-Pacific at the French investment bank wrote in a report on Wednesday (Nov. 30).

“The collapse of immigration and the heated emigration wave have added fuel to the fire,” the Natixis analysts said. “The city’s eroded competitiveness due to the lost years during Covid coupled with investors’ pursuit of diversification to buffer the US-China tensions also affected Hong Kong’s attractiveness.”

Meanwhile, Goldman Sachs Group Inc. sees home prices falling 30% from last year’s levels, according to an October report.

Analysts have grown increasingly bearish on the outlook for the city’s residential property market, as worsening global and local economic conditions continued to weaken market sentiment.

One-month cost of borrowing has surged to the highest level since 2008 due to the city’s currency peg with the US dollar. Higher mortgage rates play a role in deterring lower income households from buying property and weigh on residential property investment demand.

Adding to woes, the city’s gross domestic product will be 3% lower than its pre-Covid level by the end of 2022, compared with average growth of 6% for the rest of Asia, Natixis said.

And the government’s home price index released on Nov. 28 by the city’s Rating and Valuation Department fell 2.4% on a monthly basis to 352.4, the lowest level since November 2017 when it was at 347.2. So far this year, the gauge has lost 10.5%

A ray of hope? “Although there is no clear sign that cyclical headwinds are fading, some of the factors behind, such as Covid-related restrictions and high interest rates, should ebb,” the Natixis analysts said.

With reporting by Bloomberg and South China Morning Post