Hong Kong's increase in home sales is anticipated to face challenges in maintaining momentum due to the city's sluggish economic outlook and high interest rates.
According to data from broker Midland Realty, the number of new home transactions in the week following Chief Executive John Lee’s policy address rose by 20% compared to the same period last year, Bloomberg reports.
This uptick coincides with several major property launches, including a new project by Sun Hung Kai Properties Ltd. in Kai Tak. Additionally, prices for second-hand transactions increased by 0.5% during the week of the policy address, according to data from Centaline.
However, property agents are doubtful about the sustainability of this growth. Despite the recent short-term improvement, Hong Kong is confronted with significant challenges, as high borrowing costs and weak economic sentiment are discouraging more potential buyers from entering the market.
“The residential market is greatly affected by interest rates and economic circulation,” according to Cushman & Wakefield Plc head of research Rosanna Tang. “Coupled with the cautious lending attitude of banks, the stimulus effect on the residential and non-residential investment markets in the short term is limited.”
Despite a rate cut in September, Hong Kong's one-month interbank rate remains relatively elevated at around 4.2%. Nearly all new mortgages in the city are linked to a variable rate.
In addition, Hong Kong is grappling with weak consumer spending, a slowing Chinese economy, and geopolitical tensions. UBS Group AG economists noted in a report following the policy address that the city confronts a "highly challenging" growth environment in the near term.
The measures are insufficient to halt the decline in housing prices, according to Joseph Tsang, Hong Kong chairman of Jones Lang LaSalle Inc. He noted that the future of Hong Kong's home prices will largely hinge on the success of economic stimulus efforts in mainland China.
With housing prices lingering at eight-year lows, the Hong Kong government adjusted its mortgage regulations in October to enable homebuyers to make smaller downpayments. The loan-to-value (LTV) ratio for all residential properties is now set at 70%.
This change primarily impacts downpayment requirements for homes valued above HK$35 million, which previously had an LTV ratio of 60%. Additionally, the LTV ratio for properties held by companies will also increase to 70%.