Swiss bank UBS has released a report indicating that the recovery momentum in the Hong Kong residential market is weakening, with both first-hand and second-hand transactions falling back to levels seen before the Chinese New Year.
The bank believes that amidst uncertain interest rate prospects, buyers are more inclined to adopt a wait-and-see approach, leading to a lack of short-term purchasing drive. Under different scenarios, it is estimated that annual property price increases will range between 5% and 10%. However, if the Federal Reserve decides to raise interest rates, the property market may experience a turnaround and decline.
According to the report, several new property projects in Hong Kong have seen cooling sales, including projects by Wheelock Properties in collaboration with MTR Corporation Limited (00066) and projects by Emperor International Holdings Limited (00369). Subscription responses for projects under Sino Land Company Limited (00083), Henderson Land Development Company Limited (00012), and K. Wah International Holdings Limited (01243) have also been lukewarm, reflecting a decrease in market acceptance.
On a macroeconomic level, escalating tensions in the Middle East have led to an increase in oil prices, with market expectations for a US interest rate hike within the year rising to approximately 45%, a significant reversal from earlier expectations of rate cuts. UBS points out that in a scenario where oil prices reach $100 per barrel and interest rates remain unchanged, property price increases in Hong Kong may only reach around 5%. However, if oil prices fall and rate cuts are implemented, there is potential for an increase close to the 10% upper limit.
Additionally, the bank believes that rising interest rates and cost pressures pose challenges to Hong Kong real estate stocks and retail sectors, a situation similar to the rate hike cycle of 2022 to 2023. Higher oil prices driving up airfare costs may weaken tourist spending, affecting Hong Kong’s retail properties negatively. Meanwhile, on the mainland, with slowing economic growth and limited room for interest rate cuts, the property market may face slight downward pressure.