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The future of Hong Kong's property market unstable

Unlucky Dip

29.09.19

The recent protests and political unrest have led analysists to believe the future of the Hong Kong property market could be in trouble, predicting that prices will have dipped by 5% or more by the end of this year. However, Georg Chmiel, Executive Chairman of Juwai.com, believes things are less serious than they seem.

Mr. Chmiel states, "First, a bit of context. 2018 was a boom year for Hong Kong's residential real estate market. The city once again earned the title of "world's most overvalued housing market." That is because average prices are so high relative to average income.

Moving forward, to 2019, the market is taking a hit from the trade war and protests. Therefore enquires have fallen, prices have stopped increasing and the number of Chinese buyers looking for property has decreased by 20%.

"Transactions in the secondary market are down sharply, especially for luxury homes. At least two wealthy buyers have had second thoughts to such a degree that they forfeited the large deposits they had already paid. One buyer gave up a deposit of $600,000 (AU$892,000) to get out of a purchase. Another forfeited $255,000 (AU$379,000). Mr. Chmiel comments.

Additionally, Hong Kong residential property prices decreased for the first time in 2019. Although they only fell 0.8% month on month in June, according to data from Knight Frank. Many analysists doubt that property prices will drop that far. The most negative forecast is for prices to fall by 10%, although most analysts believe the price drop will be softer.

"Indeed, the consensus is for the current market slowdown to be short-term. I won't speculate here on the politics of a solution to Hong Kong's crisis, but like many, I am confident a solution will be found. Once the crisis is past, the market will begin to recover. Mr. Chimiel believes. "There is a precedent for this forecast. The market quickly rebounded after the 2014 protests in Hong Kong.

Putting the protests and political unrest to one side, there is another reason why the market is likely to recover quickly – there is a major shortage of housing in Hong Kong. Consequently, this is the cause of the city’s notorious unaffordability. The deficit will total about 38,000 units over the next six years by one estimate, citing a potential halt to future price decreases.

There is also a suggestion that the Hong Kong government will make more land available for public housing over the next year, which would result in less construction of new market units, which could help support prices.

In summary, it seems the protests and economic slowdown will hold demand down over the next year and cut prices in the range of about 5%. In the luxury market, prices should remain relatively stable in an environment of low activity.

Over the long-term, the ultimate risk is for Hong Kong to lose its position as a critical hub for international finance, according to Patrick Wong at Bloomberg Intelligence. Juwaicom, believe this will not happen. Mr.Chmiel comments “As I have written in other articles, no other city in China or Asia has the combination of factors that make Hong Kong special."

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