After a tumultuous 2019 and global economic risks rising, will 2020 be a turning point for the housing market or is a downturn around the corner?
After a tumultuous 2019 and global economic risks rising, will 2020 be a turning point for the housing market or is a downturn around the corner?
In early 2019, international public policy consultancy Demographia released its annual Demographia International Housing Affordability Survey, in which Hong Kong topped the list as the world's most expensive housing market for the 9th consecutive year. The survey concluded that an average Hong Kong family with a yearly income of HK$343,000 (the city's median household income) would have to save up for 21 years without spending a dime to be able to afford an average priced (HKD7.17 million) home. As Hong Kong's home prices grew steadily despite social turmoil in the past year, it is well on track to remain the most unaffordable city in the world for the 10th consecutive year. However, 2020 may have a different story in store for the city's housing market. Looking back on 2019, the Centa-city Leading Index peaked at 190.48 in late June, before taking a dip. At the time, the protests hadn't been going on for long and cannot be blamed as the sole reason for the downtrend. In fact, the housing market, which had been largely driven by the nano flat boom up to that moment, was already reaching a point of stagnation. As a result, the shift in the overall market sentiment further highlighted the public's dissatisfaction towards the government's housing policies. The authorities responded to the widespread discontentment by introducing several new housing measures in hopes to ease the crisis, including largescale reclamation plans to increase land supply. The government proposed several projects that aimed to repurpose a number of plots from the land reserve for subsidised housing, build more transitional housing and reclaim farmlands and brownfields under the Lands Resumption Ordinance. In addition, the Lantau Tomorrow Vision project is said to bring close to 260,000 new homes upon completion, of which over 160,000 will be public housing units.
However, these ambitious, long-term land reclamation and resumption plans doesn't lend much of a helping hand with the current and severe housing shortage. Add in consistently low interest rates and strong housing demand and it seems only logical that Hong Kong's housing market will continue its growing trend in 2020. Surprisingly then, market pessimism is gaining momentum, with some people even bracing themselves for a major housing market downturn, citing the economic uncertainties faced by Hong Kong and the world as the key issues. A recent Morgan Stanley report notes that despite new efforts and policies carried out in the past few months by the government, which have boosted secondary market sales, the push doesn't prove to be enough to completely offset the negative effects brought on by a combination of internal and external factors. The report predicts that home prices in the first quarter of 2020 will see an approximate 10% decline compared to peak numbers from June 2019, and office leasing prices will probably also experience a 10% drop. This is largely due to the overall Hong Kong economy, which is expected to remain weak. Likewise, Swiss bank UBS foresees a 5% downward adjustment for the Hong Kong housing market this year. Interestingly, while foreign investors are seeing a bleak picture, local industry insiders have a very different view. For one, Hong Kong Property Services chief executive Richard Lee disagrees with the hypothesis that the housing market will take a complete swan dive this year, saying that the market is likely to experience slight fluctuations due to social unrest. “The Us-china trade war doesn't have a big direct impact on Hong Kong's housing market. I believe that there's still strong buying power in the market, it's just waiting for the right moment,” he opines, adding that 2020 will continue to see a lot of buying activity in the HK$10 million and below sector.
Sharing the same optimism is Century 21 Hong Kong's chief executive, Luke Ng, who believes that home prices will bounce back after an initial drop this year, given the huge amounts of bank deposits. Meanwhile, developers seem to think that the next three years will be a challenging time for the housing market. A representative of a major developer, who asked to remain anonymous, admits that although the group doesn't currently need to deal with much financial stress, it is nevertheless preparing itself for worse days to come; he explains that the company has been adjusting its land costs and management as a way to protect itself against the downward economic pressure in the next two to three years, and being rather conservative with its land acquisitions in the past six months. “Currently, we don't see many high-quality sites available, and acquiring and rebuilding old structures tend to take an awfully long time, so it's not necessarily a better option than buying vacant land,” he adds. “Therefore, we will be focusing on selling existing properties in the next couple of years, and saving our money for truly good investment opportunities. Hopefully that will get us through this rough patch!” Everything happens for a reason—it is a natural market pattern that a rapid boom will be followed by a sudden plunge, but the “when” is something that none of us can accurately predict. At the moment, the rising global economic risks, the Us-china trade conflicts, the city's growing unemployment rate and China's continued economic slowdown are creating a complex environment of uncertainty for Hong Kong's housing market. So no matter if you're thinking of buying or selling this year, make sure to consider your options and risks sensibly.
Everything happens for a reason—it is a natural market pattern that a rapid boom will be followed by a sudden plunge, but the “when” is something that none of us can accurately predict.