Hong Kong mass residential capital values to decline 10% this year

Developers may be forced to offer deeper discounts to boost sales.

Hong Kong’s housing market was hit by a double whammy as interest rates rose and the economic outlook worsened. JLL data revealed that in 2022, mass residential capital values fell 11.6% up to November and have reached the lowest level since March 2018. 

“With the interest rate expected to stay elevated and without visible improvement in demand, piled-up projects could exert further pressure on home prices. We forecast that the mass residential capital values will drop about 10% in 2023,” the report said.

Here’s more from JLL:

Developers may have to offer deeper discounts to boost sales as mounting inventory will intensify competition. Due to the record low level of residential transaction volume, the number of unsold units of completed projects surged to 14,700 in September 2022, 36% higher than an average of 10,800 in the past three years. This figure is expected to surpass 16,000 in December 2022 due to the absence of market activities towards year-end. 

New launches will be crowded after the Chinese New Year. In 4Q22, developers mostly postponed primary project launches, and sales performances were weak among those launched. As of the end of November, the number of units pending presale consent approval reached 20,579, an increase of 29% y-o-y. Also, among the 20,554 units with presale consent approved in 2022, around 10,000 units were unsold. It may take 5.4 years for the market to digest the unsold units of completed projects and projects under construction, based on the average annual primary sales volume of 14,568 units over the past three years. 

Most potential home buyers have taken a wait-and-see attitude and are likely to remain hesitant about home purchases in the early stage of an economic recovery. While the gradual improvement of median household income and decrease in home prices indeed partly offset the effect of rising mortgage rates for potential home buyers, the affordability ratio (hypothetical monthly mortgage payment/monthly median income) still stood high at 68.6% in September, compared to 59.7% in January. Moreover, the lacklustre economy and a weak stock market continue to dampen the confidence and sentiment of potential home buyers. 

Will non-local demand support the home prices after the full-scale reopening? Despite an increase in residential demand from the expected inflow of talent, southbound capital flows will likely be limited, at least in the near term. As punitive measures on residential properties are in place, the demand-supply balance in the housing market is far from returning to normalcy.