Hong Kong property prices falling as Covid-19 and recession bite

HONG KONG, April 24 (China Daily/ANN) - Hong Kong's home prices are falling at an accelerated pace amid the novel coronavirus pandemic in the world’s least-affordable city to live in.

The private domestic unit price index of the Rating and Valuation Department slipped 2.1 percent to 370.7 in February this year — the lowest level in a year — while the gauge dived 6.6 percent from its record high seen in May 2019.

The volume of transactions in residential apartments hit 4,555 for a total consideration of HK$35.81 billion (US$4.62 billion) in March, posting increases of 3.2 percent and 1.4 percent respectively from the previous month. The figures, however, slipped 29.1 percent and 32.2 percent respectively on a yearly basis.

Buying sentiment had just begun to pick up as 2020 kicked off, when the coronavirus pandemic sent fresh shock waves through the market beginning in February.

“Home prices are on a downward trend in the face of a technical recession in Hong Kong. The jobless rate is expected to exceed 5 percent in the face of a worsening economic outlook locally and globally,” said Alva To, Cushman & Wakefield’s Greater China vice-president and Greater China head of consulting.

Although it’s widely believed the outbreak could be contained by the second half of this year, it’s unlikely the economy will see an immediate recovery. More shop and business closures are on the cards as the economic outlook remains muted, which does not bode well for the residential market in the mid-to-long term,” he said.

Hong Kong’s latest unemployment rate has climbed to 4.2 percent — the highest in nine years. The Hong Kong Monetary Authority (HKMA) warned that the labor market will continue to face more challenges, and more people are likely to lose their jobs given the sluggish economic outlook.

Hong Kong’s home prices in the past decade had been propelled by a combination of stringent government regulations on property development, low interest rates due to the city’s currency peg to the US dollar, and a severe shortage of land and housing.

Local residential property prices during the period had skyrocketed 2.43 times, while real incomes have virtually stagnated for years. The city’s residential property price index surged 5.3 percent in 2019, a sharp improvement from the previous year’s 1.9 percent growth, according to official statistics.

The current situation is different from the SARS outbreak in 2003, when the market bottomed out after a six-year downturn and policy support was in place.

This time around, the market had just entered a downturn.

“Despite the US Fed’s rate cut, growing concern about job security and salaries, combined with the negative wealth effect of the stock market rout, might have dented housing demand. We expect the housing price index to come down by 15 percent this year,” said OCBC Wing Hang Bank Economist Carie Li.

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