In response to the significant downturn in the property market in recent years, the Hong Kong government implemented a comprehensive “cooling measure” earlier this year, leading to a surge in real estate transactions. However, after the short-term absorption of accumulated housing demand, the current residential property transactions have started to noticeably weaken, nearly erasing all previous gains.
The term “cooling measure” in the local language of Hong Kong refers to the government announcement on February 28 to abolish all residential property demand management measures (commonly known as “cooling measures”), eliminating the need for additional stamp duties, buyer’s stamp duties, and new residential stamp duties in all residential property transactions.
Reports indicate that second-hand property prices have fallen to the levels of 2016, while new property launches are even lower than those in 2015, adding further downward pressure on the resale market. Concerns arise regarding the future outlook of the property market post “cooling measures,” with uncertainties about how long the rebound after the measures can last and worries about how far property prices are from bottoming out.
A report released by the global leading commercial real estate and investment management company JLL on July 2 revealed that the overall second-hand residential property price index in Hong Kong has retraced to the levels of 2016. According to the Rating and Valuation Department (RVD) Private Domestic Price Index, May recorded 305.9 points, close to 306.7 points in November 2016.
Meanwhile, prices of new residential properties seem to have dropped back to even earlier levels. For instance, the average per square foot price of some recent new projects (known as “developer’s price” after deducting all discounts) is more than 10% lower than similar projects in 2015.
According to the report, as of May 2024, the average per square foot price of Class A units (less than 431 square feet in usable area) in Yau Ma Tei has decreased by 10.6% from 22,768 Hong Kong dollars ($2915) to 20,346 Hong Kong dollars ($2605) compared to 2015, while in Kennedy Town, the price dropped by 6.0% from 23,424 Hong Kong dollars ($2999) to 22,022 Hong Kong dollars ($2819).
Despite developers adopting price reduction strategies, sales rates remain challenging to significantly improve. For example, only 13 out of 63 units were sold on the first day of listing at “THE HADDON” in Hung Hom, with a sales rate of 20.6%. Similarly, “Amber Place” in Cheung Sha Wan was unable to sell any units on the first day of opening.
Senior Director of Research at JLL, Chung Cho-yeuk, noted that in May, the transaction volume of new residential properties dropped to nearly half of April’s level. With new property prices significantly falling, it requires existing property owners to lower their prices to compete in the market, thereby exerting greater downward pressure on the resale market.
The so-called “cooling measures” in the property market, including additional stamp duties and new residential stamp duties, have been in place for 13 years. However, since Finance Secretary Paul Chan announced the complete “cooling-off” in the budget for this year on February 28, the property market briefly experienced a slight upturn followed by a downward trend, almost completely retracing all previous gains.
According to data released by the Rating and Valuation Department on June 27, after the “cooling-off” in late February, the private domestic price index for March to April was 308.1 and 309.7 respectively, dropping to 305.9 in May, ending the consecutive two-month upward trend and falling to a low point three months earlier; comparing the first five months of this year, property prices have accumulated a 1.73% decline, a 12.7% drop year on year, and a 23.16% drop compared to the historical high of 398.1 points in September 2021.
Furthermore, the index of over a hundred popular residential estates followed the trend of property prices, halting a two-month uptick. According to the Rating and Valuation Department data, the latest index for May was 262.4 points, a decrease of nearly 1.32% compared to April’s 265.9 points, with the downtown area index reporting 257.2 points, down by almost 1.23% from 260.4 points in April.
Issac Kwok, Chief Manager of the Sales Department at Cheung Kong, commented that the monthly property price index decline primarily reflects the disappearance of the “cooling measures.” He believes that with the positive impact of the “cooling measures” gone, transaction volume will significantly decrease in the second half of the year, but he remains optimistic about the luxury property market.
Raymond Wong, Senior Director and Head of Research and Consultancy in Greater China at Colliers International, indicated that with the market failing to receive favorable news post the “cooling measures,” factors like high mortgage interest rates and unsold new properties continue to weigh down property prices. He predicted the property market trend for this year to show a “blunt corner” shape, with a roughly 3% decline in the first half of the year and a slight narrowing of the decline in the second half, maintaining the initial forecast of a 5% annual property price drop.
Colliers International’s report suggests that economic factors are causing a gradual decrease in confidence among self-use buyers in the market. Philip Lee, Senior Director of Project Strategy and Consulting at Colliers International, stated that this involves factors such as previously stable and reliable economic factors like job security and income growth now becoming significant concerns.
According to the TransUnion’s Consumer Pulse Survey for the second quarter of 2024, regarding income, only 29% of consumers reported an increase in household income over the past three months, significantly lower than the 42% during the same period last year. The decrease mainly concentrated among respondents approaching retirement age. Looking ahead, only 38% of consumers expect an increase in income in the next 12 months, lower than the 50% in the second quarter of the previous year.
Furthermore, respondents’ optimism about household finances has declined, with only 44% feeling optimistic about their family’s financial situation in the next 12 months. This means that over half of the respondents are not optimistic about their future financial situation, lower than 62% during the same period last year.
Additionally, 20% of respondents expect they will not be able to pay all existing bills and loans, estimated to be higher than 17% in the second quarter of last year, while 23% of Generation Z consumers indicated facing financial difficulties.
Legislator Julian Kwok from the accounting sector pointed out that the latest property price trend has resulted in many homeowners, especially those who purchased properties off-plan in recent years, exceeding their budgets. Due to significant adjustments in property prices, there is a risk of underestimating the valuation when applying for mortgage loans, leading to the possibility of complete loss of capital.
To address the continued downward trend in property prices, the Hong Kong Monetary Authority issued guidelines to banks on June 14, making technical adjustments to the mortgage loan countercyclical macro-prudential regulation measures announced on February 28 this year and other related regulatory requirements.
This measure extends to temporary sales and purchase agreements signed before February 28 this year and expected to be completed on or after this date for mortgaging owner-occupied residential properties. It allows eligible borrowers to arrange up to 70% of the mortgage loan needed.
Colliers International believes that this adjustment will help mitigate the risk of valuation underestimation for buyers who opt for progressive payments when applying for mortgage loans in recent years.
Philip Lee noted that this move reflects the Hong Kong government taking corresponding actions, yet banks still maintain a cautious attitude towards approving mortgages. Despite ongoing home demand from owner-occupiers, many potential buyers have delayed entering the market due to mortgage application concerns, affecting residential transaction volume.
Lee emphasized that the market requires more policies supporting demand to restore supply-demand balance and prevent property price declines from descending into a vicious circle. This situation may lead buyers to postpone purchases anticipating further price drops, indirectly fulfilling the expectation of price declines.