Archive for category: Misc

Hong Kong luxury residential prices fell 7.7% y-o-y in 2019

A recent market report by Morgan Stanley, published on June 20, has highlighted multiple factors that suggest a bottoming out of Hong Kong’s residential property market. The market has been buoyed by the removal of stamp duties and limited supply, along with cheap valuations and low gearing. As a result, regional investors are likely to turn to opportunities in the Hong Kong property market instead of real estate in Singapore, according to the analysis.

Since its peak in August 2021, Hong Kong property prices have fallen by 30%. In comparison, residential prices in the city-state have only dropped by 2% in the first five months of this year, with a relatively flat trend over the last three months. Morgan Stanley predicts that property prices in Hong Kong will see a 2% increase in the second half of 2025.

The head of Hong Kong real estate research at Morgan Stanley, Praveen Choudhary, believes that the bottoming out of the Hong Kong residential market will continue due to limited supply in the pipeline, the removal of stamp duties, attractive valuations, and a low gearing environment. Additionally, a recent decline in the Hong Kong inter-bank offered rate (Hibor) has led to lower effective mortgage rates, resulting in an increase in homebuyer demand and investment demand. The strengthening stock market has also contributed to a positive sentiment in the real estate market.

The Hibor, which is the benchmark rate used by major banks for pricing residential mortgage loans, has been on a downward trend, leading to a steep fall in the effective mortgage rate to about 2%. This has benefited buyers with a lower effective mortgage rate and eased financial pressure on developers, according to Morgan Stanley.

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The strong and sustained demand from mainland China buyers, as well as the full removal of additional stamp duties in February 2024, have helped to stabilize home prices in Hong Kong. Choudhary also adds that the inflow of migrants from the mainland is expected to further boost overall demand in the coming months. In April this year, mainland buyers purchased around 1,200 residential units, higher than the monthly average of 800 units in the first quarter of 2025. For the first four months of this year, mainland buyers acquired 3,782 units, a 7.6% decrease from the previous year, and accounted for 21% of the total sales volume.

Choudhary believes that the buying power of mainland China is supporting the residential market, with certain investment demand arising from relatively higher rental yields in Hong Kong compared to Tier-1 cities in China. The full removal of additional stamp duties in February 2024 has also contributed to the rising demand from non-locals.

The Hong Kong government’s efforts in attracting talent are expected to support the city’s housing market. In the first quarter of 2025, close to 27,000 visa applications were approved, representing a 20% increase from the previous year. This continuous influx of population is expected to induce housing demand through property purchases or rentals, potentially resulting in a demand for at least 2,700 units, which accounts for 16% of the full-year primary volume in 2024, as per Choudhary.

Morgan Stanley foresees the latest performance of the residential market to mark the beginning of a long cycle in Hong Kong’s residential market. As the city is structurally undersupplied in terms of property, and housing affordability has returned to levels last seen in 2011, Choudhary sees several reasons to be optimistic about an upcoming upcycle that could last for four to five years.

However, several persistent headwinds could slow down the overall performance of the residential market. The high unsold inventory, which stood at about 22,654 units by the end of the first quarter of 2025, and rising unemployment levels, currently at 3.5%, could dampen overall sentiment. In terms of unsold units, the residential market has recorded more than 20,000 unsold units for the seventh consecutive quarter. Property agency Centaline expects the unsold inventory to surpass 23,000 units by the end of the second quarter of 2025 due to a decline in sales and a slower pace of project launches by developers.

In terms of unemployment, the figure has seen an increase of 0.1% month-on-month for two consecutive months, creeping up to 3.4% in May. Choudhary believes that there is a downside risk for home prices if the unemployment rate continues to rise in the weakening macroeconomic environment.

Looking ahead, although home prices in Hong Kong have fallen by 1.5% year-to-date, they have held up relatively well compared to expectations given the current market conditions. Morgan Stanley predicts a 2% decline in the first half of 2025, followed by a 2% increase in the second half, with no change to their overall forecast of flat year-on-year home prices.

From 2012 to 2018, the growth in Hong Kong’s home prices outpaced Singapore’s. However, while private residential prices in Singapore have continued to climb by 50% over the past six years, prices in Hong Kong have declined by 30% over the same period. Choudhary suggests that Hong Kong property prices appear relatively more attractive compared to Singapore due to the existing price gap and the removal of all additional stamp duties on purchases. Moreover, the unprecedented low Hibor rate environment in Hong Kong is expected to cause the effective mortgage rate to drop below 2%, while Singapore’s mortgage rates range between 2% to 2.3%.