(Bloomberg) -- Hong Kong’s home sales uptick is expected to struggle with momentum due to the city’s weak economic outlook and elevated interest rates.
The number of new home transactions in the seven days after Chief Executive John Lee’s policy address rose 20% compared with the same period earlier, according to data from broker Midland Realty. This comes amid several major launches, such as Sun Hung Kai Properties Ltd.’s new project in Kai Tak. Prices of second-hand transactions rose 0.5% in the week of the policy address, according to Centaline data.
But property agents are skeptical on whether this growth will last. Despite the short-term improvement, Hong Kong faces challenges head, with high borrowing costs and poor economic sentiment are deterring more people from buying.
“The residential market is greatly affected by interest rates and economic circulation,” said Cushman & Wakefield Plc head of research Rosanna Tang. “Coupled with the cautious lending attitude of banks, the stimulus effect on the residential and non-residential investment markets in the short term is limited.”
Even after a rate cut in September, Hong Kong’s one-month interbank rate remains relatively high at about 4.2%. Almost all of Hong Kong’s new mortgages are tied to a floating rate.
Hong Kong has also been weighed down by sluggish consumption, China’s slowing economy and geopolitical concerns. The city faces a “highly challenging” environment for growth in the near term, UBS Group AG economists said in a note after the policy address.
The measures are not strong enough to reverse the downward trend in housing prices, said Joseph Tsang, the Hong Kong chairman of Jones Lang LaSalle Inc. The future of Hong Kong home prices will largely depend on the effectiveness of mainland China’s economic stimulus efforts, he said.
Stimulus Boost
With the city’s prices hovering at eight-year lows, the Hong Kong government eased its mortgage rules in October to allow homebuyers to fork out lower downpayments. The loan-to-value ratio for all residential properties will be set at 70%.
The change will mainly affect the required downpayment for homes valued above HK$35 million ($4.5 million), which previously had a ratio of 60%. The LTV ratio for company-held properties will also rise to 70%.
During the weekend immediately following the policy address, Sun Hung Kai sold all apartments at a development in Kai Tak, with prices set at multi-year lows compared with other homes in the district.
Eric Tso, chief vice-president of mReferral Mortgage Brokerage Services, said his company has received about 10% more inquiries in the five days after the policy address compared with the same period before. Interest typically revolves around secondary and higher-value properties, he said.
“Lower interest rates and the policy address can help the market to achieve some stabilization,” Tso said, but added that the market outlook still depends on the economy and interest rates.
In the luxury property market, the government announced that residential property transactions of no less than HK$50 million can be counted toward the New Capital Investment Entrant Scheme, where the wealthy can invest at least HK$30 million to gain residency. The amount of real estate investment that can be counted toward the total capital investment is capped at HK$10 million.
Habitat Property, a broker focused on high-end properties, has seen “increased interest” since the Federal Reserve reduced rates, said its founder Victoria Allan. “We’ll see prices start to rise mid next year as more inventory starts to be taken up,” she said.
©2024 Bloomberg L.P.