PRICES in the world's most expensive housing market are set to fall the lowest since 2017 as surging borrowing costs deter buyers.
Bloomberg Intelligence (BI) predicts the secondary market will log the milestone next quarter. Mortgage rates may jump to the highest since 2008, in tandem with US rate hikes, BI analysts Patrick Wong and Francis Chan wrote in a note on Friday (Sep 16).
An exodus of residents and a weakened economy are also making sentiment in Hong Kong's housing market the worst in years. But it's the rise in interest rates that has most changed the dynamic between buyers and sellers, according to property agents.
"We have seen at least 20 per cent of potential buyers decide to rent a place for now because the burden of taking a mortgage is bigger," said Casey Ho, chief senior sales manager at Midland Realty working in the Sha Tin district. "So they can wait it out."
Ho said he used to have apartments sold in 1 or 2 months; now they can sit for as long as a year without an offer. Some sellers are having to slash prices by at least 10 per cent to strike a deal, he added.
The city's used-home values have fallen 6.9 per cent this year, a Centaline Property index shows, and many analysts expect prices to continue declining over the next few years. Goldman Sachs Group said in March that home prices in Hong Kong will drop 20 per cent by 2025.
Despite the gloomy outlook, the property market is unlikely to face a crash like the 1 it experienced in 1997, the year of Hong Kong's handover to China, according to people in the industry. Like in the 1990s, when residents concerned about their future left in droves, the city is experiencing a shrinking population as a result of political upheavals and Covid restrictions.
While borrowing costs are rising, they still remain much lower than 1997, when mortgage rates stood between 9 per cent and 12 per cent versus the current 2.5 per cent, said Eric Tso, chief vice president at mortgage consultant mReferral Mortgage Brokerage Services. Tso expects adjustments with home prices but a rout like in the late 1990s is unlikely.
In addition, home owners are more able to withstand higher rates following stress tests that were introduced in the 2010s.
The market will improve once buyers get accustomed to higher borrowing costs, according to Joe Wu, a property agent with Centaline Property Agency.
"There is too much purchasing power being accumulated in the market. Those who want to emigrate have done so already," said Wu. "I think the market will get better in a few months' time." BLOOMBERG