Rising interest rates, a slowing economy and a depreciating renminbi are starting to cool Hong Kong’s residential property market, the world’s least affordable housing sector.
Property developers have been selling new residential homes below market value in a sign that demand is drying up, according to market data.
The average price for a new flat from Nan Fung Development at its LP6 project in Tseung Kwan O is HK$15,304 per square foot, which represents more than a 10 per cent discount on new units sold nearby, according to real estate information site Dataelements.
In July in the same district, flats developed by Wheelock were sold at an average of HK$18,700 per square foot.
Demand for residential property in Hong Kong is starting to wane, experts said, as a result of the ongoing trade war between China and the US, weakness in the renminbi and the slump in Chinese equities.
“The developer is hoping to attract buyers with lower pricing, while potential buyers have been in a ‘watch-and-see’ mode because of the trade war and stocks downfall,” said Sammy Po Siu-ming, chief executive of Midland Realty’s residential division.
Hong Kong’s residential property market has been the least affordable in the world for eight consecutive years, according to a survey by Demographia, the urban public policy group.
Residential prices have rocketed over the past decade, increasing 260 per cent since 2009, according to CLSA, the capital markets and investment group. Prices have jumped 14 per cent this year alone.
But increasing interest rates in the US, which are closely tracked by Hong Kong as a result of the territory’s dollar being pegged to the greenback, are beginning to bite. Banks in Hong Kong started to increase interest rates on new mortgages earlier this month.
Analysts warn that an increase in mortgage costs and pressure on borrowers could lead to a dip in home prices.
Nicole Wong, regional head of property research at CLSA, said she is expecting Hong Kong home prices to fall 15 per cent in the next 12 months.
The local residential property sector “is having its worst combination of fundamentals in 15 years” she added, with a slowing economy, rising rates, and a depreciating renminbi.
“Sentiment could deteriorate at any time as prices are unaffordable,” she added. “Affordability is highly stretched . . . evident from the fact buyers are increasingly turning to old public rental housing flats, where prices have gone up by 70 per cent to 90 per cent, reaching as much as HK$6m apiece.”
A discounting of prices by a big developer, an increase in banks’ interest rates, or an increase in housing supply “are all possible last straws on the back of the camel”, she said.