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Hong Kong has ranked as the world’s priciest housing market for years. Apartments seemed a bulletproof investment for the wealthy. But the knock-on effects of US monetary policy and Chinese wealth are upending that assumption.
The average residential property price in Hong Kong was more than $1.2mn before the pandemic. Most apartments in the city are small. Some “shoebox homes” are less than 300 sq ft.
Prices were sustained by rich mainland Chinese buyers. Before the pandemic, they accounted for almost all home purchases by non-locals, which stood at about a tenth of the total.
Droves of tourists have returned to Hong Kong districts such as Central. But the real estate market has yet to return to life. Home prices have fallen 16 per cent from peak to trough since last year.
CK Asset Holdings, Hong Kong’s second-largest developer, is marketing its latest residential project at the lowest comparable prices recorded in seven years. The company’s net income fell by a fifth in the first half. Shares have slipped 14 per cent, but still trade at more than 8 times forward earnings, in line with pre-pandemic levels.
The slump in the property market in mainland China is partly responsible. Wealthy people there feel less wealthy and will not pay as much for second homes in Hong Kong.
Locals are in no position to pick up the slack. Rising interest rates are making mortgages unaffordable. The Hong Kong Monetary Authority raised the city’s interest rate to its highest level in 16 years last week. It has little choice to track the moves of the Federal Reserve because of the peg between the HK dollar and the greenback. HSBC has increased its best lending rate by 12.5 basis points to 5.875 per cent.
Hong Kong developers, with their healthy balance sheets, do not share the risks of their mainland counterparts. But a rising delinquency rate on residential mortgage loans suggests there is more weakness to come. Investors should brace for further declines in the prices of homes and property sector shares.
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