Hong Kong has one of the world's most unaffordable housing markets, considering the space you get for the price. But, a housing slump, expats leaving the city, economic headwinds and interest rate hikes have brought luxury home sales down to a 15-month low.
The city braced for the high commercial rate because it has followed the Fed's interest rate hikes since the local currency is pegged to the greenback. Because of the tightening policies, the city's housing market is on track to become the least affordable to buyers in 24 years. This and other headwinds leave more vacant properties, driving prices down.
On Monday, official data showed the financial hub's private home prices fell 2.4% in October, the biggest drop in four years. In fact, home prices have fallen 10.5% in the first 10 months of this year because of rising mortgage costs and a pessimistic economic outlook in the city. Goldman Sachs projects that Hong Kong's home prices will decline 30% from 2021 levels by 2025.
“We are in uncertain and unchartered waters,” said Hong Kong developer V Group founder Vivien Chan. “People, I think, will be hesitant to trade up because of the hike in interest rates and the uncertainty of the markets, and of course Hong Kong is not totally out of our quarantine culture.”
“Some clients have cash on hand, they are ready to buy, but they say ‘okay let’s wait and see, I just want to see whether we can see the end of interest rate hikes or the uncertainty clear,’” said Maggie Lee, Knight Frank’s head of the residential agency and senior director.
“I’m expecting it not to turn around as fast as it has in the past,” said Victoria Allan, founder of Habitat Property, a real estate agency for luxury homes in Hong Kong. “That’s the big difference, in the past everyone’s gone ‘Hong Kong will bounce back’ but I don’t think the framework is there at the moment for Hong Kong to bounce back so quickly.”
“A higher interest rate usually contracts economic activity, especially considering the already weakened demand in Hong Kong under the pandemic and control measures,” said Aries Kin-Ming Wong, an economics professor at Hong Kong Baptist University. “It can have an even greater impact on property markets as the recent wave of emigration has already put a downward pressure on the prices.”