Hong Kong’s Property Market Faces Headwinds Even After Curbs Are Scrapped

Daisy Ratnasari

(Bloomberg) — Hong Kong’s real estate sector faces an uphill battle even after the government made its most forceful attempt in years to revive the market. 

Buyers remain cautious amid high interest rates, ample inventory and a weak economy, analysts said after authorities eased homebuyer levies and mortgage lending restrictions.  

The actions, part of sweeping budget measures to revive the financial hub, came after home prices tumbled to a seven-year low and politicians and industry representatives urged for the removal of the stamp duties, which were introduced more than a decade ago to curb demand. 

While developer shares jumped after Wednesday’s announcements on expectations that the moves will help to boost home sales, analysts expect prices to stay depressed as long as borrowing costs remain elevated.  

“The measures are better than the market expected,” said Sam Wong, an equity analyst at Jefferies LLC. But the impact won’t be significant because “interest rates are still high, creating a negative spread for buyers,” Wong said. He expects home prices to stay flat or drop by low single digits in 2024. 

Hong Kong’s mortgage rates remain higher than rental yield, making residential property investment a money-losing proposition. Overall yield for homes stood between 2% and 2.5% in 2023, compared with an average mortgage rate of 3.9% in October, data from the government and mReferral Mortgage Brokerage Services show. 

Nonetheless, transaction volume will likely increase after the change, as developers launch more new projects, said Joseph Tsang, chairman of Jones Lang LaSalle Inc. in Hong Kong. He expects home sales will rise as much as 15% in 2024 while prices continue to fall, albeit at a slower pace.

“It will require interest-rate cuts and an economic improvement for prices to bottom out and rebound,” Tsang said. 

Until now, non-residents had to pay a combined 15% tax when purchasing properties, while resident buyers who already own a home were subject to a 7.5% levy. Owners who sold their properties within two years of purchase had to pay extra duties. The rate for regular home purchases, which is capped at 4.25%, remains in place. 

In addition, the Hong Kong Monetary Authority eased mortgage rules to allow some homebuyers to purchase properties with lower down payments. For example, the maximum loan-to-value ratio for properties worth as much as HK$30 million ($3.8 million) was changed to 70%. Previously, only homes valued up to HK$15 million were eligible for a 70% LTV ratio.

The HKMA also suspended a stress test for home mortgages that required borrowers to reach a certain level of income to cover a potential rise in interest rates. 

Real estate has been a pillar of Hong Kong’s growth, underpinning government revenue, economic expansion and wealth creation for homeowners and property tycoons. Following the former British colony’s handover to China, property prices skyrocketed on the back of the city’s thriving capital markets that lured global financiers and ultra-wealthy mainland buyers alike. 

The stamp duties were introduced to cool homebuyer demand fueled by plunging interest rates in the wake of the global financial crisis. But they did little to curb prices, which more than doubled from 2008 to 2013. 

“Just as past tightening measures failed to cap housing-price gains on the way up, the loosening may fail to quickly stem losses on the way down,” said Eric Zhu, an economist at Bloomberg Economics. 

Read more: Housing Boost, Stimulus Cut = Mixed Bag for Growth

The housing boom made Hong Kong one of the world’s least affordable residential markets. Steep prices spurred frustration among the city’s younger population, adding to social tensions that culminated in the protests in 2019. The scrapping of all anti-speculation taxes in the budget has led some to say that the government cares more about the market’s capital gains than residents’ access to the property ladder. 

“It’s not a timely move to remove the measures when Hong Kong’s housing unaffordability is still near its historical high,” said Brian Wong, a researcher at think tank Liber Research Community. “This shows that the government welcomes speculative investments” over citizens’ access to affordable housing, he said.

But even sacrificing affordability is unlikely to bring back the booming market anytime soon. Home prices are likely to remain under pressure this year, said Bloomberg Intelligence analysts Patrick Wong and John Wong.  

“Major developers might struggle to raise prices, with unsold new homes at a 20-year high,” they said. 

©2024 Bloomberg L.P.

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