(Bloomberg) -- The yawning gap between Hong Kong’s homebuying and rental markets is likely to narrow as residential prices begin to recover.
Analysts including those at DBS Bank Ltd. expect interest-rate cuts to help revive home purchases. Bloomberg Intelligence sees prices rebounding from an eight-year low after the government eased mortgage borrowing rules.
While rents and prices tend to move in tandem in most housing markets, Hong Kong’s economic and demographic changes in recent years have led to a divergence. High borrowing costs, slow growth and poor returns from Chinese equities have prompted people to put off buying homes. Meanwhile, rents have climbed toward a record high due to an influx of foreign students and mainland nationals tapping Hong Kong’s various talent programs.
The buy-rent gap is now expected to narrow to a degree, as rate cuts by the US Federal Reserve help to reduce the spread between borrowing costs and rental yields, said DBS Bank’s economist Samuel Tse. That’s prompting some to turn to homebuying, Tse said, citing a jump in secondary market transactions in October.
However, there is still “some way to go” before the rental and housing markets converge, he said, adding that excess property inventory will put a lid on prices. Hong Kong has the biggest backlog of unsold homes in 20 years, spurring developers to price their new developments at major discounts.
Even if the price-rental gap “narrows slightly into the future,” it will still exist, said Moody’s Analytics assistant director-economist Heron Lim. There is less speculative buying in Hong Kong, including from mainland Chinese, he said. In the rental market, the outlook will depend on how much work and study migration the city absorbs.
“If Hong Kong remains a magnet for regional talent to come and study and work, while speculative buying gets controlled as Hong Kong authorities seem to desire, we do see the price-rental gap persisting,” said Lim.
©2024 Bloomberg L.P.