HK property prices down 3-5% on protests, trade war

Property prices in Hong Kong have been declining since anti-extradition protests started in June, while the city’s economy has also suffered from the trade war between China and the United States.

Cents-City Leading Index, compiled by the Centaline Property Agency to reflect secondary private home prices, decreased 1.58% to 185.45 for the week ended September 1 from one month earlier. The sub-index dropped 3.73% in Kowloon, 2.47% in the New Territories West and 0.55% on Hong Kong, but increased 0.58% in the New Territories East.

Hong Kong’s overall home prices have eased from 3% to 5% from the historical peak in June and may further decline by 5% to 10% in the fourth quarter of this year if the protests continue, DTZ Hong Kong managing director Alva To Yu-hung told local media on Tuesday.

The average rent of residential apartments in 107 major real estate firms in Hong Kong fell to HK$37.5 (US$4.79) per square foot in August from a historical high of HK$37.9 per square foot in July, according to data compiled by the research department of the Centaline Property Agency on September 10.

A reason to protest

In the past few weeks, Beijing and the international media have said that high property prices were one of the main causes of the Hong Kong protests. In early September, Hong Kong chief executive Carrie Lam Cheng Yuet-ngor said the Hong Kong government would set up a task force to tackle the city’s deep-rooted problems, including high property prices and low social mobility.

It was the first time August has seen a decline in Hong Kong rents since 2008, said Wong Leung-sing, Centaline’s senior associate director of research. The decline, caused by a slowing Hong Kong economy amid the US-China trade war, showed Hong Kong’s rents could have entered a correction cycle, Wong said.

Luxury rental prices have also declined by up to 30%. Several developers have dropped prices by at least 10%.

On September 10, Culling West III, jointly developed by Sun Hung Kai Properties and the MTR Corp and located at Nam Cheong station, announced it was selling 235 apartments at an average price of HK$21,772 per square foot, including all discounts, only 2.7% up from the price in November 2017.

Developers said the conservative selling price was set due to the recent social unrest.

Due to the lower-than-expected sale prices in Culling West III, individual sellers in the same district also cut their prices. On Wednesday, a homeowner sold a 449-square-foot apartment in Park Avenue in Tai Kok Tsui for HK$9.7 million, about 3% lower than the market price and 15.7% down from the original asking price of HK$11.5 million.

The seller still made a profit of HK$6 million as he bought the apartment for HK$3.7 million in 2007, according to the Hong Kong Property Services (Agency) Ltd.

On Tuesday, a homeowner sold a 678-square-foot apartment in Mei Foo Sun Chuen for HK$9.5 million, 17% off the original asking price of HK$11.5 million. The seller made a HK$2.2 million profit over four years, according to Ricacorp Properties.

Home prices in Mei Foo Sun Chuen have decreased 9% to the current level of HK$13,400 per square foot, from HK$14,700 per square in May, according to Midland Holdings.

At the end of this year, prices will probably be flat from one year ago, To said.

In July, the private home price index was 394.4, down 0.1% from June, or 0.7% from May, according to data compiled by the Rating and Valuation Department. However, the rental index surged 0.3% from 196.7 in June to 197.3 in July, the highest in 10 months.

Restaurants, hotels, high-end retailers and travel and property agencies have been affected by the protests since June, but their owners have not cut their staff so far, said Ivan Yeung Chun-man, chief investment officer at Infinitus Partners Asset Management Ltd.

This was why property prices had not dropped significantly as homeowners could still pay their mortgage loans with their salaries or savings, Yeung added.

Property prices will drop significantly only if homeowners have no choice but to sell their apartments amid a slowing economy in Hong Kong, he said.

The recent unrest will hurt potential buyers’ confidence in investing in Hong Kong’s apartments, said Alicia Garcia-Herrero, chief economist for Asia Pacific at French investment bank Natixis. New buyers may consider diversifying their property investments to Australia, the United States, Southeast Asia and the United Kingdom, she said.

Increasing land supply

The Hong Kong government may launch stronger measures to increase land and housing supply in the long run as high property prices were cited as one of the reasons for the social conflicts, she said. These two factors will continue to add pressure to Hong Kong’s home prices, she added.

On Wednesday, Democratic Alliance for the Betterment and Progress of Hong Kong, a pro-Beijing political party, suggested the Hong Kong government buy back farmland owned by local property giants to increase the land supply.

The Real Estate Developers Association of Hong Kong said property developers were not opposed to the suggestion. However, it remained unclear whether the Hong Kong government would buy the farmland at market prices or discounts.