Pent-up demand, expectations of slower interest rate rises and optimism Beijing and Washington will soon hammer out a trade deal, have combined to boost sales after prices drifted lower from mid-2018. Total transaction volumes jumped 120% in January to 4,355 sales from 1,963 in December, showed data from realtor Centaline.
The cooldown, which slowed a decade-long bull run where price surged more than 200%, had raised concerns that a sustained drop would hurt financially-strapped homeowners at a time of rising interest rates and economic uncertainties.
But a rebound in prices means potential buyers will have only a narrow window to get a piece of the city’s sky-high real estate, reigniting the challenges policymakers face in easing public discontent over rising costs and asset bubble risks.
Citi, among the most upbeat, sees prices rebounding from March. The brokerage forecasts prices could rise as much as 30% in the next two years, with 2019 alone seeing a 5% rise.
“There may be black swan events but it shouldn’t change the long-term up-cycle…our market is in a serious shortage,” stated Ken Yeung, Citi’s head of Hong Kong property research.
Yeung estimated total housing supply at 38,000 units on average per year until the end of 2021, falling short of a demand of 53,000 units per year.
“Property rebounds have been strong every time in the past because corrections are against the fundamentals,” he added. “When a series of negative news happens, many people with real demand, for example the newlyweds, defer their purchases, creating pent-up demand. These demands don’t vanish, they accumulate.”
Hong Kong’s private home prices fell for the fifth consecutive month in December, down 2.4% from November, official data showed. But prices still climbed 1.6% for the whole of 2018.
If shares of local real-estate developers are a precursor of property trends, the Hang Seng’s property sub index has surged around 28% since October, returning to levels seen in June before Sino-US trade tensions intensified and sparked a market rout.
CLSA also expects the property market to rebound by up to 15% from April to the year-end, as capital looks for investment opportunities and pent-up demand from mainland Chinese who are gaining their Hong Kong residency is unleashed this year.
Developers launching new units at attractive prices, some at 20% discount to the secondary market, in the last two months have also been a catalyst to the recovery in transactions.
Geoffrey Lo, general manager of developer Nan Fung Development, said sales in January were better than expected as activity is usually thin before the Lunar New Year. He added the company could launch more sales this year, depending on market conditions.
But not everyone is as sanguine that prices are bottoming.
Justin Chiu, an executive director of CK Asset Holdings, a major developer, said he still expected home prices to fall 10% this year due to uncertainties from trade tensions and as more homeowners confront negative equity – when a home loan exceeds the market value of the property.
Hong Kong saw its first negative equity cases in two years in the last quarter of 2018, official showed said last month.
But Citi’s Yeung brushed off the impact of negative equity on the property market. The number of cases was still very low and the average loan-to-value ratio, the ratio of a loan to asset, was 46% in the last two years, an indication most homebuyers were strong enough to withstand a price correction.