Hong Kong’s home prices to fall in 2022

Editor's Comments: 

Editor Lawrence speaking in Shanghai, China

Bitcoin of the real estate market in dire straits.

I've been calling Hong Kong real estate the bitcoin of the real estate market for several years now.

Citing the fact that Hong Kong real estate is like bitcoin it doesn't make sense.

When I predicted bitcoin with would drop several years ago a few months later he dropped 60%.

 

In fact I have a short position on bitcoin right now.

If I could short the Hong Kong real estate market I would because people are leaving Hong Kong in droves not wanting to living live under communist regime.

For a while Chinese nationals purchased  properties there holding up the market but now with major companies in serious trouble it appears that even that market is soon to be gone.

Most important many more people are now predicting a downturn in Hong Kong real estate. 

If I had Hong Kong real estate I would sell it now at whatever price I could get and investe it in Bali where I should recover my losses in as early as 6 to 12 months while Bali is still selling at
desperate prices 20 to 50% off.

 

Business
Hong Kong’s home prices to fall in 2022 as stock market slump creates ‘negative wealth effect’, Morgan Stanley says, marking a halt in city’s decade-long real estate bull run


Morgan Stanley expects Hong Kong’s 2022 home prices to fall by 2 per cent, going against the market’s consensus of gains between 3 and 10 per cent
Sales volume of lived-in homes may contract by 15 per cent next year, in a drastic retreat from the 29 per cent surge in the first 11 months of this year, the bank said


Sandy Li 



Image of residential property advertisements displayed in the window of a real estate agency in Wan Chai on 31 May 2019. Photo: Felix Wong

The prices of Hong Kong’s lived-in homes may decline in 2022, reversing 13 years of gains, as a plunge in the stock market has created a “negative wealth effect” on investors and speculators, Morgan Stanley said.

Overall prices may fall by 2 per cent next year, the US bank’s equity analyst Praveen Choudhary wrote in a December 15 report, going against the market’s consensus for prices to gain by between 3 per cent and up to 10 per cent.

Sales volume of lived-in homes may contract by 15 per cent next year in the secondary market, in a drastic retreat from the 29 per cent surge in the first 11 months of this year, he said. Transactions of newly built homes may shrink by 5 per cent next year, compared with the 24-per cent growth so far this year.

The contrarian forecast was the result of the 18 per cent slump in the Hang Seng stock benchmark since July 1 – the world’s second-biggest loser this year – that “suggests a negative wealth effect which has historically resulted in a decline in property prices,” he wrote.

There are signs that home prices in Hong Kong, the world’s most expensive major urban centre to live in for the 10th straight year in 2019, may have reached a turning point. Second-hand home prices fell by 0.86 per cent in October from a peak in August, the biggest monthly decline in 14 months as the city’s commercial banks turned cautious on valuations.
As a result, property-related stocks may perform worse than even the Hang Seng Index (HSI) in 2022, Morgan Stanley said, downgrading its view on the sector to “cautious” from “attractive.”

Buyers lining up for The Aperture residential development by Hang Lung Properties, the first new residential project in the area in nearly four decades, on 11 December 2021. Photo: May Tse.

“The recent decline in the HSI generally should be followed by property sector underperformance due to a negative wealth effect, based on historical data,” he wrote. “We expect the HK property stock index to underperform the Hang Seng Index in 2022.”

Rising interest rates will also act as the brake on rising home prices, as Hong Kong’s monetary policy runs in lockstep with the US Federal Reserve, which has foreshadowed three rate increases of 25 basis points each in 2022, to be followed by three increases in 2023 and two in 2024.

Still, Hong Kong’s commercial banks are unlikely to raise their mortgage rates immediately after rising interest rates, said mReferral Mortgage Brokerage Services. The market also knows how to adjust to keep pace, as shown by the 16 per cent discounts on lived-in flats offered after Hong Kong’s banks raised their lending rates in September 2018 by 12.5 percentage points.

“Banks in Hong Kong may increase their prime rates in the second half of 2022 only if US inflation rises at a faster-than- expected pace,” said mReferral’s chief vice-president Eric Tso.

The One SilverSea residential complex (left) and Island Harbourview residential complex (right) in Hong Kong on May 6, 2020. Photo: Bloomberg


Contrary to Morgan Stanley’s forecast of doom, property analysts and consultants remain bullish.


Knight Frank has forecast a 3 per cent increase in home prices next year for Hong Kong, while JLL sees growth of up to 5 per cent, and Cushman and Wakefield projected prices to increase by between 5 and 10 per cent.

The positive outlook in 2022 is due to limited supply of homes, Hong Kong’s improving economy and the expectation that a reopening of the city’s border with mainland China would give transactions – and therefore prices – a leg up.

Underscoring the bullishness, Sun Hung Kai Properties (SHKP), the city’s largest developer by market value, released the first 206 units of The Yoko Hub residential project above the Yuen Long subway station at an average price of HK$19,889 per square foot, a record launch price for the neighbourhood.

“While supply remains limited, potential new regulations on that front are unknown and can only be negative,” Morgan Stanley said. “Extra demand could come from the HK/China border opening, but it only affects 10 per cent of the volume at the high-end.”

Sandy Li is the property editor. She covers property market which focus in listed property firms and government policy. During her career she has won several journalism prizes, including the Citi Journalistic Excellence Award in 2011. She was first runner-up for the same award in 2010.