Hong Kong residential property prices have shown signs of stabilization

Hong Kong’s residential property market has experienced a significant increase over the years. After rising to the current high in July 2018, it has adjusted. It is mainly due to the huge increase in property prices, the uncertain economic prospects related to Sino-US trade disputes, the normalization of Hong Kong dollar interest rates, and the recording of financial markets. Great fluctuations have occurred, and the SAR government has been regulating the property market for many years and increasing land and housing supply measures.

According to the statistics of the Rating and Valuation Department and the Central Plains Property, the residential property prices in Hong Kong fell from a high of July 2018 to a maximum of 9.0% and 9.9%. The residential property transactions also experienced a significant contraction due to the weak market sentiment, 2018 In the second half of the year, the average number of monthly residential property transactions was only 3,892, down 31% from 5,649 in the first half of the year.

This round of adjustment is mild

Compared with the increase in the residential property market in the past few years, the current adjustment of the property market is moderate, and since January 2019, the property market has shown signs of stabilization again. The rates of residential property prices have risen 1.6% and 4.4% from the lows of December 2018, respectively. The rates of residential property transactions in January and February are also reported. The rebound to an average of 4,316 cases, more than doubled from the previous low of 2060 in December, mainly due to the easing of negative factors in the market.

Looking back at the development of the Hong Kong real estate market in the past 40 years, there have only been two major adjustments in history. They were the Sino-British negotiations on the future of Hong Kong from 1981 to 1984, and the adjustment of the Asian financial turm in 1997 to 2003. The range is 32.1% and 66.2%. The rest of the adjustment period is generally short, mostly only about 6 months, and the range is also within 20%. For example, the global financial tsunami adjustment period in 2008 was 6 months, with a range of 17.2%. In 2015, the RMB exchange rate adjustment triggered financial market volatility. The adjustment period was the same for 6 months, with a range of 11.3%; in 2018, the Sino-US trade dispute triggered a sharp adjustment in the financial market for a period of five months with an adjustment of about 9%.

Judging from the factors that triggered the adjustment, the Sino-US trade dispute may indeed develop into a long-term uncertain factor affecting the economy and the asset market, so that the adjustment period of the property market may be longer. Judging from the latest situation in the current economic and trade negotiations between China and the United States, the two sides are working hard to reach a certain degree of agreement. Although there are still uncertainties in the final conclusion, and the implemented tariffs will not be revoked at the same time, it is believed that the worst case of trade disputes can be avoided. Furthermore, in the face of the complex and volatile environment in the periphery, the Mainland has intensified its policy efforts to stabilize economic performance, such as tax cuts and fee reductions and infrastructure spending, as well as targeted loose monetary policies and measures to support small and micro enterprises and private enterprises. Wait. Therefore, even if the short-term economic downward pressure is still there and the long-term economic and trade relations between China and the United States may change, the pressure on the global and Hong Kong economies to be affected by Sino-US trade disputes this year will be eased.

Hong Kong dollar interest rate hike pressure relief

The US Federal Reserve’s view on the prospects for interest rate hikes has also changed significantly. The median forecast of the Fed’s interest rate hike in 2019 was 3 and 2 times in the September and December 2018 meetings of the Federal Reserve Board. In March, the meeting was adjusted to expect that interest rates will remain unchanged this year. The interest rate adjustment will remain patience in the future, maintaining a large reserve scale to implement its monetary policy, and the contraction will be completed by the end of September 2019. Current interest rate futures show that interest rates will be suspended in 2019, and it is even expected that interest rates will be cut in 2020. Therefore, it is expected that the Fed will maintain interest rates unchanged until it sends out new signals. With the US interest rate roughly unchanged and Hong Kong dollar liquidity maintained, the pressure on Hong Kong banks to raise interest rates will be greatly eased.

As the above-mentioned Sino-US trade disputes and interest rate hike prospects have changed significantly, the financial market has also rebounded sharply. Take the US S&P 500 index as an example. In December 2018, it set the biggest decline since 1931, in January 2019. It was the January that rose the biggest increase since 1987, enough to reflect changes in the market’s perception of the economic and financial market outlook. The Hang Seng Index also rebounded from the low of 24,500 in October 2018 to the current level of over 29,000, an increase of nearly 20%. As the financial market gradually stabilizes, it is believed that its impact on the property market will gradually turn from support to support.

Finally, after the SAR Government has actively increased the supply of land and housing in the past few years, the latest Budget has estimated that in the next five years (2019-2023), the average annual completion of private housing will be about 18,800, compared with the past five. The annual average has increased by about 20%, but the number of units for the potential supply of private housing land from 2019 to 2020 is only 15,500. Compared with last year’s Budget, the potential supply of private housing land in 2018-2019 is 25,500. The reduction of 10,000 is partly reflected in the government’s latest long-term housing strategy. The ratio of public and private housing from 6:4 to 7:3 will reduce the supply of private housing in the future. Therefore, the supply of medium and long-term private housing is expected to remain stable.

In summary, the worst case of trade disputes between China and the United States is expected to be avoided. In 2019, Hong Kong’s economy will maintain moderate growth. In addition, the employment and financial situation of the people will be stable, interest rate trends and medium and long-term housing supply will remain stable. Maintaining the same, I believe that the residential property market is expected to gradually stabilize.