5th September 2024 – (Hong Kong) The once-unassailable Hong Kong property market, long regarded as one of the world’s most unaffordable, is showing signs of vulnerability that have not been seen since the Asian Financial Crisis of the late 1990s. As we approach the end of 2024, industry insiders, investors, and potential homeowners are all asking the same question: Are we finally nearing the bottom of the market, and could 2025 be the year of the long-awaited rebound?
The Hong Kong property market has been on a downward trajectory since reaching its peak in September 2021, with prices plummeting by 24.2% as the global interest rate hike cycle began in mid-2022. This decline has been exacerbated by a perfect storm of factors, including the lingering effects of the COVID-19 pandemic, geopolitical tensions, and a shifting global economic landscape. However, recent developments in the banking sector and government policy suggest that the winds of change may be blowing through the corridors of Hong Kong’s property market.
One of the most significant indicators of potential market recovery is the recent aggressive mortgage policies being adopted by major banks in Hong Kong. In a move reminiscent of pre-crisis tactics, several leading financial institutions have reintroduced cashback offers for mortgage loans. Bank of China (Hong Kong) Limited led the charge, with Hang Seng Bank following suit by announcing a new cashback scheme targeting customers with mortgage insurance loans exceeding HK$4 million, offering rebates between 0.1% and 0.2%. Standard Chartered Bank has also joined the fray, reinstating cashback promotions for mortgage amounts above HK$6 million with similar rebate ranges.
This renewed competition in the mortgage market is a clear signal that banks are seeking to stimulate demand and increase their market share in anticipation of a potential upturn. The reintroduction of these aggressive lending practices suggests a growing confidence among financial institutions in the long-term prospects of Hong Kong’s property market.
HSBC, while not yet offering cashback schemes, has taken a different approach by relaunching its mortgage pre-approval service. This move is designed to streamline the home-buying process, allowing prospective buyers to secure mortgage approval before entering the market. Such initiatives are crucial in a market where timing and agility can make the difference between securing a property and missing out on opportunities.
The government’s decision to remove property curbs in February 2024 has also played a significant role in shaping market dynamics. This policy shift led to a surge in transaction volumes, particularly in the primary market, where developers offered substantial discounts to accelerate sales. In the first half of 2024, a total of 9,419 primary units were sold, nearly matching the entire sales volume for 2023. This pent-up demand, unleashed by the removal of restrictions, suggests that there is still significant appetite for property investment in Hong Kong, despite the recent downturn.
However, the secondary market has shown a more muted response, with 18,357 units transacted in the first half of 2024 – a 48% increase compared to the second half of 2023, but still lagging behind the primary market’s performance. This discrepancy highlights the ongoing challenges faced by existing homeowners and investors in a market that continues to favor new developments.
Looking ahead to the second half of 2024, analysts expect a slowdown in both primary and secondary market transactions. Estimates suggest a total of around 45,000-48,000 transactions for the year, representing a year-on-year increase of 5-10%. While this growth is modest, it indicates a stabilization of the market and could set the stage for a more robust recovery in 2025.
The pricing outlook for the remainder of 2024 remains cautious, with experts predicting a further decline of 5-10% in home prices by year-end. This continued downward pressure is attributed to several factors, including high interest rates, reduced government rate concessions, and the introduction of a progressive rating system that has increased holding costs for developers. These conditions have compelled developers to offer significant discounts, creating a ripple effect that has forced secondary market sellers to lower their prices to remain competitive.
Interestingly, the rental market has shown resilience amidst the broader property market downturn. Residential rents increased by 1.6% in the first half of 2024, following a 6.0% growth in 2023. This trend is expected to continue, driven by an influx of migrants under the Top Talent Pass Scheme, growing numbers of non-local university students, and married couples opting to rent rather than buy in the current market conditions.
As we look towards 2025, several key factors will determine whether the Hong Kong property market can stage a meaningful recovery. The most critical among these is the trajectory of global interest rates, particularly in the United States. With the US Federal Reserve signaling potential rate cuts in 2024, Hong Kong’s currency peg to the US dollar means that local interest rates are likely to follow suit. A reduction in borrowing costs could reignite demand for property, especially among buyers who have been waiting on the sidelines for more favorable conditions.
Moreover, the ongoing geopolitical situation, particularly the relationship between China and the West, will play a crucial role in shaping investor sentiment towards Hong Kong. Any easing of tensions or positive developments in this arena could boost confidence in Hong Kong’s long-term prospects as a global financial hub, potentially attracting more international investors and professionals to the city.
The success of Hong Kong’s efforts to position itself as a technology and innovation center within the Greater Bay Area could also have a significant impact on the property market. If these initiatives gain traction, they could create new demand for both residential and commercial properties, particularly in areas designated for technology development.
Another factor to consider is the potential for policy adjustments by the Hong Kong government. While the removal of property curbs in early 2024 was a significant step, further measures to support the market – such as adjustments to stamp duty or land supply policies – could be implemented if the downturn persists or deepens.
The role of mainland Chinese buyers in Hong Kong’s property market cannot be overlooked. Despite recent economic challenges in mainland China, wealthy individuals and companies continue to view Hong Kong property as a valuable investment. Any improvement in mainland China’s economic outlook or easing of capital controls could lead to increased demand from this crucial segment of buyers.
Industry veterans draw parallels between the current market conditions and the aftermath of the Asian Financial Crisis. For potential buyers and investors, the coming months will be crucial in determining whether to enter the market or continue waiting. Those with a long-term outlook may find current prices attractive, especially if they believe in Hong Kong’s enduring appeal as a global financial centre and gateway to China. For existing homeowners and investors, the path ahead may require patience and resilience. While further price declines are possible in the short term, the historical resilience of Hong Kong’s property market suggests that a recovery, when it comes, could be swift and substantial.
As we look towards 2025, the Hong Kong property market appears to be in the process of finding its bottom. While it’s impossible to predict with certainty when the market will turn, the combination of aggressive lending policies, potential interest rate cuts, and pent-up demand suggests that the seeds of recovery are being sown. Whether 2025 will mark the beginning of a new upward cycle remains to be seen, but for those willing to navigate the current uncertainties, it could present a unique opportunity to position themselves for the next phase of Hong Kong’s property market evolution.
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