'Hong Kong, with the World's Highest Housing Prices, Forecasted to See a 30% Drop in Housing Prices Next Year'

Impact of US Interest Rate Hikes and China's Zero-COVID Policy
Real Estate Transaction Volume Down 50% Year-on-Year

[Image source=Reuters Yonhap News]

[Asia Economy Beijing=Special Correspondent Kim Hyunjung] Housing prices in Hong Kong, known as the "most expensive city for housing in the world," are forecasted to plunge by up to 30% by the end of next year.

According to the South China Morning Post (SCMP) on the 6th, Goldman Sachs predicted that Hong Kong's housing prices will fall by 15% each in this year and next year compared to the end of 2021, and remain unchanged in 2024. Previously, Goldman Sachs had forecasted a 20% drop in Hong Kong housing prices by 2024, indicating that the decline is expected to be even greater.

In its report, the bank mentioned the interbank lending rate, LIBOR, stating, "This change in outlook is due to LIBOR rising faster than expected, which has led to higher mortgage rates," and added, "This will continue to pressure the economy, and unless macro policies become more accommodative, investors will stay away from the market." The local LIBOR rate is currently above 2.5%, the highest level in two and a half years. This forecast was made following an announcement by authorities that housing prices fell 2.3% in August, marking the lowest level in three and a half years.

The Hong Kong Monetary Authority, in line with the U.S. Federal Reserve (Fed), raised the base interest rate five times this year to 3.5%, the highest in 14 years. Commercial banks such as HSBC and Bank of China (Hong Kong) raised their prime rates to the highest level in four years. According to SCMP, authorities have requested banks to lower the threshold for mortgage loan interest rate stress tests.

Goldman Sachs mentioned that the sharp rise in LIBOR and the recent prime rate hike on September 22 have caused housing prices to fall by about 8% so far. The report explained, "With the Fed expected to raise rates by an additional 1.5 percentage points by the first quarter of next year, the downside risk to the real estate market is increasing," adding, "This could mean continued price declines and low transaction volumes."

Other factors cited by Goldman Sachs include a reduction in supply due to farmland expansion and an increase in public housing supply. Additionally, the central government's zero-COVID policy has largely closed city borders with mainland China, and increased immigration has led to the largest decrease in the number of households in Hong Kong in 25 years. The report explained, "These supply and demand dynamics may not be directly threatening to housing prices themselves, but combined with rising interest rates and stagnant household incomes, they are intensifying the pressure."

Actual transaction volumes have also significantly decreased, prolonging the market downturn. According to data from the Hong Kong Land Registry, the total number of real estate transactions, including residential, commercial, and industrial properties, in September fell 7.7% from the previous month and 34.7% year-on-year, reaching 4,835 transactions, the lowest in six months. Transaction value recorded HKD 34.8 billion (approximately KRW 6.2348 trillion), the lowest in 32 months, representing a 62% drop compared to August and a 48% plunge compared to September 2021.

According to forecasts by Centaline Property Agency, real estate transaction volume this year is expected to hit a record low of 65,000 transactions. This is the lowest level since statistics began in 1996, with the previous record low being 70,503 transactions in 2013.