Goldman Sachs expects Hong Kong home prices to fall 20% by end-2025

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Goldman Sachs expects Hong Kong home prices to fall 20% by end-2025

Mar 31, 2022

Hong Kong

(REUTERS) GOLDMAN Sachs said Hong Kong residential property prices could drop as much as 20 per cent through 2025, hurt by a drag on household income and homebuyer demand caused by the latest wave of the Covid-19 outbreak and a rise in interbank rates.

The investment bank lowered the price forecasts for 2022 to 2025 to a drop of 5 per cent each year, from previous forecasts of flat for both years. For 2023 and 2024, it maintained its prediction of a 5 per cent drop.

Hong Kong, ranked by survey company Demographia as the world's most unaffordable housing market for the 12th consecutive year, posted a 2.9 per cent decline in home prices so far this year, with prices dropping at a faster pace in February to their lowest since January 2021.

Home prices more than doubled over the last decade and reached an all-time high in September. They were largely resilient during the mass protests that convulsed the city in 2019 and through the pandemic over the last 2 years, supported by robust demand and lower interest rates.

Goldman Sachs said in a report dated on Monday (Mar 28) it expected Hibor, on which most mortgages in Hong Kong are based, to rise around 270 basis points (bps) through 2024, sending mortgage rates higher to around 3.8 per cent from a low of around 1.46 per cent in the fourth quarter of 2021, and property prices could decline as a result.

"Every 25 bps rate hike would need a 5 per cent rise in income or 5 per cent decline to property price to maintain affordability at the pre-rate hike state," it said in the report.

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Goldman Sachs forecasts 20 per cent decline in Hong Kong homes prices between 2022 and 2025, as borrowing costs, unemployment rise

- US bank lowers forecast to 5 per cent decline in each year between 2022 and 2025
- Forecast comes as Rating and Valuation Department data shows prices of lived-in homes in February fell the most in more than three years

Cheryl Arcibal

29 Mar, 2022

The prices of Hong Kong homes are likely to fall by a fifth over a four-year period, as borrowing costs increase and demand slumps because of rising unemployment, Goldman Sachs said.

Goldman lowered its forecast from flat prices this year, followed by 5 per cent declines in 2023 and 2024 and a return to flat again in 2025, with a 5 per cent decline in each year between 2022 and 2025.

“This cumulative 20 per cent price fall from year end 2021 levels would be enough to compensate for the 230 to 240 basis points higher borrowing costs, as it restores affordability along with an expected pickup in household income of 10 to 15 per cent by then,” the bank said in a report published on Monday.

The American investment bank’s forecast came as Rating and Valuation Department data revealed on Tuesday that the prices of lived-in homes had in February fallen the most in more than three years.

Hong Kong’s economy most likely contracted in the first quarter of this year, Financial Secretary Paul Chan Mo-po said, as the jobless rate for the three-month period ending in February rose to 4.5 per cent, the highest level in nearly five months. The retail and catering industries were hit particularly hard by the city’s strictest social distancing curbs since the pandemic began two years ago.

Given current dynamics for mortgages, including 55 per cent of loan-to-value ratio and about 27 year tenor, every 25 basis point rate hike would need a 5 per cent increase in income or a 5 per cent decline in property prices to maintain affordability at pre-rate hike levels, the bank said. “We forecast just under 4 per cent peak mortgage rates by 2024, up from about 1.5 per cent currently,” the report said.

The decline in the Hong Kong’s lived-in home prices last month came as owners continued to sell properties at deep discounts and even at a loss amid the city’s struggle to contain a fifth wave of the Coronavirus pandemic.

The Rating and Valuation Department price index for lived-in homes dropped 4 per cent from a peak of 398.1 in September last year, according to the latest data. On a monthly basis, home prices slipped 2.1 per cent to 382.1 from January’s 390.2.

“This is the largest fall in a single month since December 2018,” said Derek Chan, head of research at Ricacorp Properties.

In recent weeks, sellers have been disposing of homes in Hong Kong at lower prices. In the upscale neighbourhood of Mid-Levels, mainland Chinese homeowners have reduced prices by between 10 and 20 per cent, according to property agency Midland Realty.

An example of this was Sun Hongbing, the younger brother of Sun Hongbin, the chairman of mainland Chinese developer Sunac China Holdings, who sold three luxury flats at The Morgan and Arezzo in West Mid-Levels at a loss of about HK$126 million (US$16.10 million) this year, according to the Ming Pao newspaper.

Sun sold a 2,343 sq ft flat with a 460 sq ft rooftop at The Morgan for HK$138 million, 27 per cent lower than the HK$189 million paid for it in October 2018. The overall loss added up to HK$109 million, the biggest loss since the coronavirus outbreak two years ago, if the 30 per cent stamp duty was taken into account, the newspaper report said.

The creditors of another Chinese tycoon from Zhejiang province put two foreclosed duplex flats and two parking spaces at the Marinella in Wong Chuk Hang for sale at HK$283 million, according to online news portal HK01 on Monday.

“Hong Kong home prices could tumble by 10 per cent this year,” said Albert Wong, an honorary consultant at AA Horses Mortgage Brokerage Services. He said it would be the first full-year fall since a 15 per cent drop in 2008.

If the pandemic is brought under control soon, however, then prices and transaction volumes were likely to pick up in the coming months, said Martin Wong, director of research and consultancy for Greater China at property consultancy Knight Frank.

https://www.scmp.com/business/article/3172284/goldman-sachs-forecasts-20-cent-decline-hong-kong-homes-prices-between