Hong Kong home prices to slump till 2024: Morgan Stanley

MORGAN Stanley abandoned its “too optimistic” call for Hong Kong residential property values to rebound this year, now seeing the market suffering two additional annual declines.

The Wall Street bank now expects home prices in the Asian financial hub to fall 3 per cent in 2023, in contrast with a previous forecast for an increase of 8 per cent, analysts Praveen Choudhary and Jeffrey Mak wrote in a research note on Wednesday (Oct 11). That follows a 16 per cent tumble in 2022, according to the bank.

In addition, Morgan Stanley sees another 5 per cent to 10 per cent drop in average selling prices for 2024. It blamed stretched affordability, an increase in land supply, negative rental carry – where costs exceed income – and a weakening in sentiment against a backdrop of an equity market heading for a fourth straight annual decline.

If prices keep falling next year, Bloomberg Intelligence has calculated that the share of Hong Kong mortgage loans that exceed the property’s value are likely to reach their highest since 2005.

Rising interest rates have already been weighing on the city’s home market, with used-property values falling 18 per cent from their peak in 2021, according to data from Centaline Property Agency.

Price targets

Morgan Stanley’s view on Hong Kong real estate has shifted to “in-line” from “attractive” as the sector is caught between higher interest rates from the US and slower growth from China. The bank cut its price targets for local property developers by 19 per cent on average.

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The US bank downgraded Wharf Holdings to underweight from overweight on “a challenging operating outlook across its major business segments”. It prefers CK Asset Holdings, Sun Hung Kai Properties and Sino Land. BLOOMBERG