Hong Kong property stares into the abyss

CK Asset Holdings

25/10/2023 02:03

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Thomas Shum
       HONG KONG, Oct 24 (Reuters Breakingviews) - Hong Kong’s
stuttering property market is a symptom of the Asian financial
hub’s broader malaise. Secondary home prices, a favourite topic
of conversation locally, have dropped 19% from a
peak in August 2021, the biggest slump since the 2008 global
financial crisis.    
    Despite the downturn, Hong Kong remains the world’s most
unaffordable housing market. At HK$8.1 million ($1.03 million),
the price of a 600-square feet flat in Shatin - the city’s most
populous district - stood at almost 19 times the median annual
income in the third quarter of 2022, down from 23.2 times a year
ago, according to the 2023 Demographia International Housing
Affordability report.  
    Even though prices are coming down, potential homebuyers are
not yet tempted to shop. Higher interest rates and concerns
about the city’s economic outlook are to blame: Hong Kong’s
monetary policy moves in tandem with the U.S. Federal Reserve, a
consequence of the local currency’s 40-year-old peg to the
greenback. In its battle with inflation, the Fed has hiked
interest rates to their highest levels since 2001.    
    That has prompted lenders like HSBC  HSBA.L   0005.HK 
to raise mortgage rates by 50 basis points, pushing rates on new
loans to 4.1% from 3.6% in September and hitting homebuyer
sentiment. Just over half of real-estate projects completed in
the first half of 2023 were sold by end June, below a five-year
average of 78% and the lowest since 2019, according to JLL. At
20,483, the number of vacant new properties in the third quarter
was the highest in two decades. With inventory
levels overflowing, a price war seems imminent. In August, CK
Asset  1113.HK , controlled by tycoon Li Ka Shing’s
family, offered heavy discounts on new units at its mass
residential Coastline project, one of the first major developers
to do so.   
    To revive the property market, Chief Executive John
Lee, Hong Kong’s top official, may announce on Oct. 25 cuts to
onerous property taxes introduced more than a decade ago to cool
a roaring-hot housing market. Residents buying a second home are
subject to a tax equivalent to 15% of the property value.
Non-residents must pay a 15% stamp duty on top of that.    
    However, this may not move the needle by much. Wealthy
Chinese buyers are being hit by the country’s economic
headwinds. Those who can still afford to shop around
are shifting focus to Singapore and Dubai. Also, supporting
richer second-time buyers through lower levies may anger Hong
Kong residents still struggling to get on the property ladder.
Cutting stamp duties, which make up about 20% of annual
government revenue, would also hurt the city’s finances.   
    Tinkering at the edges won’t solve the core issue: Hong
Kong’s international image has taken a beating following the
2019 protests and the government's heavy-handed efforts to
contain Covid-19. For a true rebound, the Asian
hub needs to restore business confidence, not an easy task while
Chinese property developers are defaulting and global
geopolitics remain volatile. Until Hong Kong fully recovers its
standing, the property sector will suffer.  
    Follow @t__shum on Twitter
    
    CONTEXT NEWS
    The Centa-City Index, a gauge of secondary market home
prices in Hong Kong, stood at 155, down 19%
since August 2021, when prices rose to a record high. It’s the
steepest decline since the 2008 global financial crisis.    
    The sell-through rate of completed residential projects in
the first half of 2023 was at 55%, the lowest level since June
2019, according to a report by global real estate firm JLL
published on Aug. 22.

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Graphic: Hong Kong property prices are sinking    https://tmsnrt.rs/3tQi4nK
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 (Editing by Lisa Jucca and Katrina Hamlin)
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