Hong Kong property market may improve in the second half of the year

Hong Kong property market may improve in the second half of the year

According to the Hong Kong Central Plains City Leading Index, the overall property market in Hong Kong saw the highest point of the current round of rising cycle at 188.61 points in late July 2018. After that, it turned downwards. By mid-January 2019, the index fell to 170.19 points, down about 10%. However, for some local real estate projects, the decline is greater than the average decline. For example, some new properties opened in the near future, the offer price is about 20% to 30% lower than the second-hand unit price in the same district. It seems that in the face of certain sales pressure, the promotion is quite positive.

From the historical performance, Hong Kong’s property market has been in a state of rising, falling, and rising. In the past two decades, the lowest tide of the property market was the SARS period in 2003. At that time, under the double impact of economic downturn and SARS, the property market became almost a stagnant water. Later, after the central government launched the “individual tour" policy to support Hong Kong, the economy and the property market. It gradually improved. Later, even in the wake of the 2008 financial tsunami that hit the world in the United States, the property market did not drop to the 2003 low.

Multi-factors help the Hong Kong property market rise and fall

The reason why Hong Kong’s property market can rise frequently is related to its own uniqueness:

First of all, Hong Kong’s innate restrictions are that there are fewer people and more land resources. Under this congenital restriction, about 40% of the land is classified as a country park and nature reserve by the government and cannot be used. As a result, only about 7% of the land can be used for residential development. In the case of extremely lack of housing construction, high land prices and high property prices have become normal in Hong Kong;

Second, low interest rates provide strong support for the property market. After the 2008 financial tsunami, global low interest rates became the norm, and Hong Kong also had a large inflow of funds. Thanks to the abundant supply of low-cost funds, the general supply capacity of the owners has been enhanced. Coupled with Hong Kong’s traditionally rich areas, the private sector has a lot of wealth. These wealth and a loose financial environment combine to support the needs of the property market;

Hong Kong’s unique advantages, such as “one country, two systems" and a free, legal, pluralistic and convenient environment, have attracted a large number of wealthy mainlanders, wealthier groups, and foreigners to buy property in Hong Kong, which has also greatly supported Hong Kong’s property market.

Among the above factors, the problem of a small number of people or insufficient land supply is basically a short-term solution. Even if the government temporarily finds ways to increase some land supply, it is basically a drop in the bucket or a change of “three to four" to “four to three." However, it does not help the fundamental solution of the problem;

The financial support brought by low interest rates is also likely to be long-term from the current situation. According to the latest comments from the Fed officials on raising interest rates, the current round of interest rate hikes in the US is likely to end in 2019, due to the linked exchange rate of Hong Kong and the United States. The mechanism is that Hong Kong’s interest rate will also peak in the middle of the year. That is to say, Hong Kong’s interest rate may rise by a maximum of 25 basis points or half a percentage point, and there is not much room for improvement. As for the rich and wealthy people from the Mainland to come to Hong Kong to buy The building may be related to the tightening of national policies at the time. For example, in the past, the country cleared the shadow banking, which made the groups relying on shadow banking loans suffer and the funds were scarce. This will first affect the group’s investment in Hong Kong. In severe cases, they will even be forced to sell previously purchased properties, adding pressure to the Hong Kong property market.

To sum up, the two pillars that have supported the rise of the property market in Hong Kong, the shortage of land and housing, and the abundance of funds due to low interest rates seem to exist for a long time. Therefore, the long-term trend of the Hong Kong property market is not big, and the current decline is more likely. A normal adjustment.

The decline before the current round of decline (September 2015 to March 2016) occurred in the context of the Fed’s interest rate hike at the end of 2015, the strengthening of the US dollar, the impact of the renminbi, and the economic slowdown in the Mainland. The property market buyers are worried about the mainland. The economy has been hit hard and Hong Kong will be implicated. In addition, the rise in the interest rate of the US dollar will lead to an increase in the interest rate of mortgages, which will reduce the ability to provide mortgages. In addition, the property market has also accumulated a certain increase, so adjustments have occurred. However, after the mainland economy became stable and the Hong Kong interest rate outlook turned positive, the panic in the market gradually declined and the property market began to pick up again.

The adjustment of the property market in this round directly induces similar reasons with the previous round. It is still worried about the weakening of the mainland economy and the increase in interest on mortgages. Of course, the intensification of de-leverage measures in the Mainland and the large increase in property prices are also an adjustment factor. Since the Sino-US trade war that began in March last year has been deteriorating for most of 2018, the mainstream market is generally worried that the mainland economy will have greater difficulties. It is also worried that Hong Kong will be affected and investment confidence will be greatly damaged, directly leading to the property market. Adjusting the increase in pressure; and delaying the long-term Hong Kong banking system, finally starting to follow the US interest rate hike in September 2018, also has a negative impact on the property buyer’s psychology; the mainland’s de-leverage has intensified, causing the shadow bank to shrink sharply, making part of the dependence SMEs and individuals with shadow banking financing have been hit hard. As many people in this group are investors in the Hong Kong property market, the tightening of funds in the Mainland has also adversely affected the property market in Hong Kong. As the housing market is too large, it is an old problem. Not the main reason.

It is expected that the steady growth measures after the two sessions in the country will be introduced one after another.

According to the Chinese government’s stable economic arrangement, it is expected that there will be a large number of supportive economic policies after the two sessions in March, which will slow down the current downward trend of the economy and have a greater chance of entering a stable period of economic growth in the second half of the year. The stability of the mainland economy will undoubtedly improve the market’s wait-and-see attitude and re-launch property buyers into the market. According to the current economic slowdown and the Fed’s attitude, the United States is expected to have a chance to end this round of interest rate hikes in 2019. To alleviate the concerns of buyers in the property market on interest rates; the mainland’s monetary policy also turned to a looser degree from last year’s tightness in 2019, and the financial restrictions on mainland buyers were weakened, reducing the negative impact on the Hong Kong property market.

In summary, the two main pillars of the property market in Hong Kong are still intact and effective, and several factors contributing to this round of adjustment are expected to improve in different degrees in the second half of the year. Therefore, the overall property market in Hong Kong is likely to recover in the second half of this year.