Hong Kong’s property prices are expected to be under pressure in the first half of 2020 as the unresolved political dispute continues to shake potential buyers’ confidence.
The Centa-City Leading Index, compiled by the Centaline Property Agency to reflect secondary private home prices, slightly rebounded to 179.18 for the week ended December 15 from 179.11 in the previous week.
The sub-index dropped 1.43% in Kowloon, 0.88% in the New Territories West and 1.87% in the New Territories East, but increased 0.68% on Hong Kong Island from a month ago.
The index reached its historical high at 190.48 in the final week of the first half of this year, up 10.8% from 171.92 six months ago. However, due to the intensifying US-China trade dispute and the rise of anti-extradition protests in Hong Kong, the index gradually eased to about 179 this month. Throughout the year, the index still gained 4.22%.
In June, the private home price index was 393.7, up 9.54% from December 2018, according to data compiled by the Rating and Valuation Department. The index then declined 4.47% to 376.1 in October from June. The change in the first 10 months of this year was 4.64%.
Hong Kong’s home prices have been declining since protests broke out in the middle of this year, said Addy Wong Wai-hung, chief executive (Asia Pacific) of Centaline Property Agency Ltd.
Although the social situation appeared to have stabilized this month as China and the US are set to sign the first phase of a trade agreement in January, the Cents-City Leading Index would probably decrease by 6% to 8% to below 170 in the first half of next year, Wong said.
“The most unstable period in Hong Kong should have already passed,” Wong said. Whether the city’s property prices could be stabilized would depend on how the government would resolve the political deadlock and open a dialogue with the protesters, he said.
In the second half of next year, Wong expected Hong Kong’s home prices to remain flat.
David Chan Tai-wai, a director at Ricacorp Properties, said the good news about China and the US going to sign a trade deal had not yet given any significant boost to Hong Kong’s property markets as potential buyers remained skeptical in their purchases amid local political disputes.
Chan said many individual home sellers had adopted a wait-and-see approach after the government announced a loosening of the mortgage rules of the Hong Kong Mortgage Corp Ltd in October.
On October 16, Chief Executive Carrie Lam announced in her third Policy Address that the maximum property value eligible for mortgage loans up to 80% loan-to-value (LTV) ratio, offered by the Hong Kong Mortgage Corp, was increased to HK$10 million (US$1.28 million) from HK$6 million.
For mortgage loans up to 90% LTV ratio and applicable to first-time homebuyers, the maximum property value was HK$8 million, up from the previous level of HK$4 million.
According to an index compiled by Ricacorp Properties, the number of property transactions in 50 key real estate areas in Hong Kong fell to 74 in the week ended December 8, down 11% from 83 a week ago. It has been the fourth week that the number had dropped below 85, a relatively low level compared with the usual figure of between 100 and 200.
Clashes between police and protesters have de-escalated since the pro-democracy camp won 385 seats, or 85% of the 452 seats, and 17 chairman positions in 18 District Councils on November 24.
On December 8, the Civil Human Rights Front organized a large scale march on Hong Kong Island. They said a total of 800,000 people showed up for the peaceful rally, while the police said there were 183,000 there at its peak. Police did not use tear gas that day.
However, some protests continued in different districts across the city this month. Some protesters used their lunch hour to march on the streets, while others rallied in shopping malls. Stand-offs between black-shirted people and police were seen in several places with tear gas canisters fired and pro-Beijing shops vandalized.
Protesters vowed to continue to hold more rallies until the government meets their five demands, which include an independent inquiry into alleged police brutality and the implementation of genuine universal suffrage. Beijing leaders have not yet made any compromises, but urged the Hong Kong government and police to keep suppressing the protests.
While the secondary home market in Hong Kong remained sluggish, some homeowners were willing to cut prices significantly. According to Centaline Property Agency, a homeowner sold his apartment measuring 528 square feet in Tierra Verde in Tsing Yi at HK$8.43 million, about 10% down from the previous asking price of HK$9.4 million, which was also the market price.
Another homeowner sold his apartment measuring 480 square feet in Allway Gardens in Tsuen Wan for HK$5.25 million, a 10% discount from the market price, according to Midland Realty.
About 51% of participants expected that Hong Kong property prices would fall in 2020, according to a survey commissioned by Centerline Mortgage and done by the Hong Kong Public Opinion Research Institute. About 17% of participants said they expected an increase in the city’s home prices for 2020, while 25% said prices would stay flat. The remaining 7% declined to make a prediction.
The Hong Kong Public Opinion Research Institute interviewed 504 people by phone between December 2 and 3. One in five participants in the survey expected home prices would drop by 10% in 2020.
Ivy Wong Mei-fung, the Managing Director of Centaline Mortgage Broker, said people expected a decline in property prices for 2020 as they predicted the social unrest and the weakening economy would continue at least within the coming few months.
Some analysts said more homeowners would cut prices to sell their flats only if the job market turned sour.
From September to November, the seasonally adjusted unemployment rate increased to 3.2% from 3.1% in August to October, according to figures released by the Census and Statistics Department on December 17. The underemployment rate remained unchanged at 1.2% in the two periods.
An increase in the unemployment rate (not seasonally adjusted) was mainly seen in the retail sector. As for the underemployment rate, increases were mainly seen in the decoration, repair and maintenance for buildings sector and food and beverage service activities sector, while a decrease was mainly observed in the repair, laundry, domestic and other personal service activities sector.
Hard hit by local social upheavals, the unemployment rate of the consumption- and tourism-related segment rose further to a three-year high of 5.2%, said Law Chi-kwong, the Secretary for Labour and Welfare.
“In particular, the unemployment rate of the food and beverage service activities sector increased to 6.2%, the highest level in more than eight years. The unemployment rates of many other sectors also recorded increases,” he said. “The labor market will be under even more pressure in the near term if the overall economy continues to weaken.”
Hong Kong’s property prices would probably remain flat or see a slight decline in the first quarter of 2020 amid the worsening local economy and rising unemployment rate, said Sammy Po Siu-ming, chief executive of the residential division at Midland Realty.
However, Po added that a little rebound could happen in the second quarter if social unrest continued to de-escalate. He said home prices in the city would increase by 5% for the full year of 2020.
Buggle Lau Ka-fai, Chief Analyst of Midland Realty, said property prices in the primary market had so far stayed firm this year as property developers refused to cut prices to sell their new apartments. Lau said the total sales volume of new apartments in Hong Kong would reach 21,000 this year, up 34% from 2018, but the total sales amount would decrease 9% to HK$204 billion due to a stronger focus on smaller flats.
He said the total sales volume of new apartments in the city could decline to 18,000 next year, while the total sales amount would fall below HK$200 billion as property developers tended to slow down their sales campaigns due to their limited land reserves.