Hong Kong’s moves to lift its battered property sector may have brought some respite for homeowners. But, as Zhang Tianyuan reports, analysts are split over what future trends will be, citing the city’s ability to maintain its financial strengths and a shifting demographic makeup.

Amodest uptick in residential home prices, driven by the special administrative region government’s move to give Hong Kong’s battered property market a new lease of life, seems to have allowed owners who had bought their homes in the past few years to breathe a sigh of relief.

Many of them have seen the value of their apartments plummet by about 20 percent since 2021 as the COVID-19 outbreak approached its height, leaving many who have sunk their life savings into the world’s most expensive housing market in a quandary — bundled with negative equity.

According to the Hong Kong Monetary Authority — the city’s de facto central bank — the estimated number of residential mortgage loans in negative equity surpassed 30,000 by the end of March, a more than threefold surge since September. The aggregate value of these loans climbed to HK$165.3 billion ($21.16 billion) from HK$59 billion during the same period.

The question is whether mainland property owners with extra money are willing to buy houses in Hong Kong. We have found they are indeed eager to invest here because of the market’s transparency, ease of selling and a fair pricing system that reflects current conditions.

Shih Wing-ching, founder of Centaline Property Agency

However, there are always two sides of the same coin — deep-pocketed buyers with funds are now able to take the plunge and climb the property ladder given the more affordable prices.

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Analysts say the SAR’s strengths and pluses in financial services and educational resources have given the beleaguered market a lift, drawing global professionals and talent seeking long-term residence and employment in the city.

“I have seen the value of my apartment slump 10 percent since I bought it in late 2019,” says a homeowner surnamed Zhang, who purchased a 760-square-foot (70.6 square meters) second-hand flat at Lohas Park in Tseung Kwan O, the New Territories, at below market prices.

The 35-year-old says he isn’t hurting. “Since the depreciation hasn’t been realized in cash, the impact is not too severe.”

According to real-estate services provider Centaline Property, apartments at Lohas Park are going for HK$13,113 per square foot at present — down 26 percent from their October 2021 peak.

Hong Kong’s once sky-high home prices, which have generated staggering household wealth over the years, now have investors and homeowners alike worried. The price slump has had a far-reaching impact not only on homeowners but also on the city’s economic growth. Land sales in the past three decades have made hefty contributions to the SAR government’s coffers, taking up roughly one-fifth of its total revenue before falling to only 7 percent in the first half of last year. Reserves generated from land sales and other property transactions have been a key source of funding for residents’ social welfare benefits, such as transport and healthcare subsidies.

With the city facing a significant shift in its demographic makeup amid a rapidly graying population and a growing number of mobile residents hesitating about buying a home, the housing market has to deal with new challenges. Many are pondering over the future direction of the property sector.

The SAR government’s decision in February to scrap all extra taxes on homebuyers, coupled with developers’ discount incentives for new projects, has buoyed buying sentiment. Zhang bought his second apartment for rental at The Coast Line II in Yau Tong in August after billionaire Li Ka-shing’s flagship developer, CK Asset Holdings, sold the first batch of units at the complex at much lower prices than the city has seen in the past seven years.

Data from the Rating and Valuation Department showed private home prices rose for the second consecutive month in April, increasing 0.3 percent from March.

Tepid prospects

However, multiple financial institutions are not optimistic, warning it would be hard seeing the growth momentum last until the end of 2024 because of high borrowing costs and a glut of new homes. Citibank says it expects Hong Kong’s housing prices to drop 10 percent this year, as local banks might not immediately follow suit and pass on an anticipated US Federal Reserve interest-rate cut in the second half of the year. UBS Group maintained its previous forecast of a 5 percent fall in home prices in 2024.

“Most developers have held up newly completed projects because of the relatively weak market sentiment (last year). After the extra stamp duties were shelved earlier this year, builders have been actively putting up units for sale,” says Rosanna Tang, executive director and head of research at Cushman & Wakefield.

The supply of new homes in Hong Kong reached a record high for the second consecutive quarter in late March, according to the Housing Bureau. Supplies are expected to reach 112,000 units in the next three to four years — a quarter-on-quarter rise of 3,000 units — from the projected supply of 109,000 units at the end of December.

Meanwhile, Hong Kong is grappling with a rapidly aging population. The Census and Statistics Department estimates that the proportion of residents aged 65 and above will reach 36 percent of the city’s population by 2046.

From 2019 to 2023, the number of residents living in Hong Kong for one to three months within a year had risen by 119,000, while the number of residents staying for three to six months had plunged by 136,400, according to the Census and Statistics Department.

Hong Kong’s various talent attraction programs aimed at easing the labor crunch since the pandemic had attracted 120,000 people to work and live in the city as of April, mostly from the Chinese mainland who have been granted two-year visas.

“The question is whether mainland property owners with extra money are willing to buy houses in Hong Kong,” says Shih Wing-ching, who founded Centaline Property Agency — one of Hong Kong’s largest property agencies. “We have found they are indeed eager to invest here because of the market’s transparency, ease of selling and a fair pricing system that reflects current conditions.”

“Hong Kong’s move to dump all extra stamp duties has helped to revive the real situation of investment preferences among mainland buyers. Once investment preferences in the local housing market are fully reflected upon, it would offset the negative effects of a shrinking population, partly due to the low birth rate and the middle-class exodus during the pandemic,” he says. Since the scrapping of the property cooling measures, mainland buyers have accounted for 50 percent of the transaction value in Hong Kong’s primary market for luxury apartment sales.

On the other hand, the central government’s decision to lift property purchase curbs in over 20 mainland cities in May, including Zhongshan, Zhuhai and Foshan, is not expected to trigger a homebuying spree by Hong Kong residents in the Guangdong-Hong Kong-Macao Greater Bay Area, analysts say. As a result, the impact on Hong Kong’s housing prices is likely to be restricted.

Market dynamics

However, some analysts believe the Northern Metropolis initiative, in which Hong Kong plans to develop a 30,000-hectare area near the mainland border, providing housing and jobs, could narrow the property price gap between the SAR and the mainland, while others insist that Hong Kong’s property value remains intact as long as it keeps its status as an international financial hub.

Tang says she expects the housing price gap in some parts of the northern New Territories, particularly in the central area of the Northern Metropolis, and that of the mainland to narrow although this is unlikely to happen any time soon. “The price gap could narrow slightly in the long term, but it would, ultimately, depend on market forces and the pace of regional integration.”

UBS analyst Mark Leung says some Hong Kong retirees or low-income people may consider relocating to the mainland cities of the GBA if cross-border transportation continues to improve, as the cost of living in Hong Kong remains relatively high. Still, few are thinking of buying mainland properties as an investment. “Many elderly people prefer to have Hong Kong’s free medical services, especially for major surgeries. They may not necessarily sell their Hong Kong properties, and may opt to return to Hong Kong when necessary,” says Leung.  

“Hong Kong’s rental yields are around 2.3 percent but, in mainland cities like Guangzhou or Shenzhen, they are less than 2 percent, making them less attractive from an investment perspective,” Leung says. “Besides, concerns about home oversupply and the risk of renminbi depreciation have dampened expectations of capital appreciation.”

Leung remains upbeat about the value of Hong Kong properties, viewing it as an asset denominated in Hong Kong dollars and pegged to the US dollar, and characterized by low taxes and high liquidity. “If high-income people continue to come to Hong Kong, it could differentiate the city’s property prices from those on the mainland.”

The Hong Kong dollar’s peg to the greenback has allowed it to trade within a band of 7.75 to 7.85 since 1983.

He Qianru, chief officer of the National Research Center at Midland Realty, notes that Hong Kong people buying residential properties in the GBA focus on Zhongshan, Zhuhai and Foshan due to their lower prices, cultural familiarity and a shared language — Cantonese. “In Zhongshan, numerous housing options are available below 10,000 yuan ($1,380) per square meter. Hong Kong people acquire these properties primarily as secondary homes, for holiday accommodation or retirement.”

To help boost the local economy, Hong Kong is making headway in innovation and technology after the government’s revenues slumped from the real-estate sector, once the linchpin of the city’s economic growth. The SAR government’s deficit ballooned to HK$101.6 billion in the last fiscal year.

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Sung Yun-wing, associate director of the Economic Research Centre and the Hong Kong Institute of Asia-Pacific Studies at the Chinese University of Hong Kong, says he is not optimistic about the SAR’s current economic situation, partly because of challenges it is facing in fully developing the technology sector that the government has been trying to rely on to generate substantial revenue.

He notes that a major obstacle in achieving technological success is the short-term mentality of most local businesses that seek instant success and quick profits but are reluctant to make long-term investments that technology and innovation demand. “Engaging in high-tech requires taking risks and embracing entrepreneurship. If there are a lot of young people, it would be a great advantage,” says Sung, noting that the Top Talent Pass Scheme, which attracts talent from the mainland, will help to foster Hong Kong’s startup environment.

“As many professionals from the mainland move to Hong Kong, driven by considerations for their children’s education, Hong Kong should ramp up efforts to develop high-quality primary and secondary schools, particularly in the planned Northern Metropolis,” he says.

Promising job prospects and an advanced education infrastructure are crucial elements in persuading mainland people to buy property in Hong Kong, Sung added.

Contact the writer at tianyuanzhang@chinadailyhk.com