20 November 2015 - Recently, there has been a lot of speculation regarding the future of Hong Kong’s property market as it heads into the 12th year of its current cycle. Entities like Morgan Stanley and the CLSA have respectively forecasted 5% and 17% price drops in the coming year, and this generally negative outlook is one that is shared amongst many large players in the Hong Kong property market. In addition to speculation, the South China Morning Post has reported that property sales in Hong Kong have been falling in both price and volume into a 19-month low .
Three main reasons are cited for the speculated fall in prices. Firstly, there has been discussion by the US Federal Reserve about raising the interest rate. As Hong Kong’s currency is pegged to the United States’, an increase in interest rates can potentially lead to an increase in Hong Kong’s mortgage interest rates, slowing down the rate of investment.
Additionally, Hong Kong has been experiencing an economic slowdown due to a recently decreasing number of mainland Chinese tourists and the amount they spend on luxury goods for numerous reasons including: the crackdown on corruption, Hong Kong’s strong currency in comparison to China’s weakened economy, and tourists preferring to shop at destinations like Britain and Japan over Hong Kong.
Finally, the market supply is expected to increase as there has been discussion from Leung Chun-ying and ex-Chief Executive Tung Chee-hwa regarding the possible conversion of ecological land and reserves into housing areas, further affecting the demand for property.
However, this generally negative view is not the consensus. Victor Lui Ting, the deputy managing director of Sun Hung Kai Properties, Hong Kong’s largest developer, has told SCMP that he expects property prices in Hong Kong to remain stable next year as he is confident that interest rates will not undergo a large increase. In addition, even amongst those who agree that a price correction is on the horizon, there is dissent regarding how far the prices will fall. OKAY.com CEO Joshua Miller believes that a mild price correction is due in the market, citing years of pent-up demand because of the rise in prices, rather than a drastic one that entities like the CLSA has claimed. Therefore, even if prices do fall, the large amounts of pent-up demand will ensure that price declines will be modest.