Hong Kong home prices see biggest plunge of the year in July, hit 6-month low

Hong Kong’s lived-in home prices declined for a third straight month in July to a six-month low, reflecting the prevailing sentiment in the city’s property market amid an elevated interest-rate environment.

Prices fell 1.1 per cent month on month in July, the biggest drop this year, according to an index compiled by the Rating and Valuation Department. The widely watched gauge slipped to 343.4 from 347.3 in June, the lowest level since 346.8 in February.

The index had fallen 1.05 per cent in June.

“The residential market appears to be reeling with both volume and prices drifting down,” property consultancy Knight Frank said in its latest report. “In addition to high mortgage rates and unsold inventories, the economy remained uncertain in both Hong Kong and the Chinese mainland with the ongoing spread of contagion risk among Chinese developers.”

Transactions of lived-in homes were squeezed by the rising rates. In July, 2,515 second-hand units changed hands, the fewest since 2,512 units in November, according to data compiled by Midland Realty.

The Hong Kong Monetary Authority has been keeping rates high in tandem with the US Federal Reserve’s monetary tightening stance given the Hong Kong dollar’s peg to the US dollar. Banks in the city have raised their prime rates five times since last September, by a total of 0.875 percentage points, bringing them to a level last seen in February 2008.

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A higher prime rate translates into higher monthly mortgage payments, and is affecting some HK$1.8 trillion (US$229 billion) of outstanding home loans in Hong Kong. It has led many potential homebuyers to step back and adopt a wait-and-see attitude before committing to buying property.

The payment on a typical HK$5 million mortgage over 30 years has risen by 11.5 per cent, or HK$2,431 per month, to HK$23,511 after the five prime rate increases, according to calculations by mortgage broker mReferral.

The decline in second-hand prices was “larger than expected”, according to Derek Chan, the head of research at Ricacorp Properties.

Given the heavy discounts that developers have been extending to buyers of new homes, “eager second-hand homeowners” will “need to further reduce prices to complete any transaction”, he said.

Over the weekend, the likes of CK Asset’s Coast Line project and Villa Garda by Sino Land, K Wah International and China Merchants Land offered discounts of as much as 16 per cent for units that went on sale.

Chan said the overall decline in prices of second-hand homes in the third quarter is likely to reach 2.6 per cent, erasing the index’s gains of about 2.6 per cent so far this year. Thereafter, the index is likely to rise by 1 per cent by the end of the year.

“Under the current market headwinds, the sell-offs [in the secondary market] are set to endure amid weakening purchasing power,” Knight Frank said.

The market is sluggish as prospective buyers are watching from the sidelines whether the Fed will pause the rate hikes in September, the property consultancy added.

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