Hong Kong Property Market Review and Forecast

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As 2018 has drawn to a close, Hong Kong’s real estate industry is already making some big predictions about market trends in 2019.

The Hong Kong property market was strong throughout the first seven months of 2018. However, as concerns about rising interest rates and the economic impact of the Uschina trade tensions continued to grow, the uptrend slowed down and gradually declined in August—the end of a 28-month bull run and the beginning of a downward turn. The market continued to weaken as property sales plunged 58% year-on-year, from 7,158 last December to 3,038 this December, according to the Land Registry’s records. Overall, the Hong Kong property market was active in 2018. As of the end of December, there were 60,108 registered first- and second-hand sales of residential properties, of which 43,288 were second-hand properties, accounting for about HK$341.5 billion of the total transacted amount of HK$565.3 billion. The market started sliding downwards in the last quarter when landlords of second-hand properties began to slash prices. The long-awaited market correction finally came.

Expect a decline of 10 to 15% as uncertainty continues in 2019

The worsening international macro environment was possibly the key driver behind the downturn of the Hong Kong market. In the face of uncertain economic prospects in China and escalating trade tensions between the US and China, home buyers and investors alike are taking a more cautious approach. Heading into 2019, the real estate industry is predicted to be bearish and a relatively quiet first quarter, followed by a gradual fall of 10 to 15% in property prices is expected.

Data from the Land Registry indicated the total number of transactions including both residential units and commercial properties was 3,038 in December, falling below the predicted 5,000 for the second month in a row. Here, we boldly assume that if the number stays below 5,000 for six consecutive months, the market will be hitting its lowest point in the cycle.

Prices not going to plummet off the cliff, market predicts

Hong Kong is a volatile property market. It is normal for prices to go through periodic adjustments such as the current correction cycle, and it could continue for a long time. As we have covered recently, a decline of 5% to 15% is generally considered a technical correction, which we have seen three times in the last eight years. Interest rates, supply of residential properties and the new vacancy tax are essential factors affecting that trend. Again, we are only at the start of the cycle; the exact magnitude of the decline is unclear. Although the downward trend looks set to continue throughout 2019 and could see average prices drop as much as 15%, a decline beyond that level is unlikely.

No forecast guarantees 100% accuracy, especially given Hong Kong’s relatively volatile economic environment. Just be aware of the changing market conditions, know that different phases of a cycle present different opportunities, and be smart with where you put your money.

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