SURGING HOME SALES FACE HEADWINDS
Likely delay in US rate cut could spoil party as buyers may hesitate to enter market, analysts say
Dwindling hopes for an interest rate cut this year could put a damper on surging Hong Kong home sales, according to analysts.
As of Tuesday, 5,109 new homes have been sold in the city this year, roughly half of the fullyear total in both 2022 and 2023, according to data compiled by Midland Realty.
As developers rush to put new projects on sale at discounted prices to take advantage of the sudden rebound in buying sentiment, property agents have raised their sales forecasts for this year. Midland, for example, now expects 18,000 new homes to be sold this year, up from a previous estimate of 14,000.
However, high interest rates could spoil the party, analysts said, after a speech on Tuesday by US Federal Reserve chairman Jerome Powell tempered hopes of an imminent cut. Economists now expect any rate reduction to be delayed until at least September and possibly next year.
Should the rate cut not materialise at all this year, people might hesitate to buy homes, Midland chief strategist Buggle Lau Ka-fai said.
“On the demand side, buyers may hesitate, while developers are still likely to price their projects well below the prices of second-hand units if they want to keep their transaction volumes high,” he said.
Still, a lack of rate cuts could trim the top off potential sales, according to Raymond Cheng, managing director of CGS International Securities.
“If we see declining interest rates, we forecast a 40 per cent annual increase in new home sales to 15,000 to 16,000 this year,” he said.
“But without rate cuts, we are likely to see about a 30 per cent increase in new home transactions to 14,000 to 15,000 units.”
Cathie Chung, senior director of research at JLL, expects the impact of a delay in rate cuts will be limited.
“Rate cuts have been widely factored in by buyers in the first few months of the year. However, the consensus was for rates to be cut only moderately by 50 to 75 basis points this year anyway, hence any delay is expected to mainly affect market sentiment,” Chung said.
Nevertheless, Hannah Jeong, head of valuation and advisory services at Colliers, believes the current attractive pricing will still lure potential buyers to the market.
“Despite the high interest rates, end-user homebuyers can take advantage of the lower price levels,” she said.
“Meanwhile, investors can now cover their mortgage payments with rental income, as the residential leasing market has improved by 8 per cent year on year. Additionally, the influx of newcomers to the city is creating a new group of potential buyers, further stimulating demand.”
Keen to clear an estimated 20,000 unsold units, developers have been pricing new project launches at multi-year lows.
On Wednesday, Great Eagle Holdings priced the first batch of 115 units of its new residential project in Ho Man Tin, Onmantin, at an average price of HK$19,988 per square foot after discounts.
That was the lowest level in the neighbourhood since Kerry Properties launched its Mantin Heights development at HK$19,000 per square foot in 2016, agents said.