Hong Kong's 28-month home price uptrend collapses in August

The two-year streak was broken after residential property prices fell 0.1%.

Hong Kong’s high-flying residential property market shows more signs of cracking after home prices which were on a protracted 28-month-climb finally fell by 0.1% MoM in August in another sign of the property sector’s alarmingly new normal.

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Although the prices of smaller housing units under 430 sqft still edged up by 0.3% in August, the value of all larger units fell up to 1% on average, data from real estate consultant Knight Frank show.

The secondary market was hit harder by souring sentiment than the primary market with a number of sellers either cutting asking prices or retreating from the market completely. For instance, a 901-sq-ft unit at Imperial Kennedy in Kennedy Town was sold for $23.8m which makes a loss of $2.3m from the price of $26.1m when it was first purchased from the developer in 2013.

“Banks started lowering their valuations for major residential estates by 1-3%, indicating a dented sentiment in the secondary market,” added Knight Frank.

Also read: Property sales crash 28% in September

Negative equity has also reared its ugly head in Hong Kong as the value of flats in older buildings crashed by as much as 20% in the last few months pushing homeowners to grapple with the growing risk of coming underwater.

“More homeowners will fall into negative equity next year as flat prices may decline by 10 per cent,” Louis Chan, Asia-Pacific vice-chairman and chief executive for residential sales at Centaline Property told South China Morning Post in an earlier interview.

Sales have also taken a beating from the dismal market with new-home transactions in October falling to a 16-month-low at $11.2b. Mortgage applications also plunged by 56% as borrowers held back from entering the property market after banks hiked mortgage rates across the board, effectively ending the freewheeling low-interest rate environment that has lasted for a decade.

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The sudden downturn has not even exempted the luxury market with transactions in September plunging to its lowest point since 2005. Once the undisputed leader in luxury home price gains, Hong Kong has steadily fallen from the top spot with annual luxury property growth slowing to 5.5% in Q3 compared to Singapore’s 13%, according to an earlier report from Knight Frank.

The unfolding narrative of the local property market downward spiral is no longer a question when the correction will hit but how much. Analyst estimates range from a modest 0.2% over the next twelve months to a price decline of as much as 13% which could effectively wipe out all of the property gains recorded in 2018.

“Remember what happened in late 2015 -- prices dropped about 13 percent in only six months, and the trigger was the Fed’s rate hike,” Joyce Kwock, head of Hong Kong property research at Nomura International (HK) Ltd. told Bloomberg in an earlier interview. “The entirely same situation may repeat again.”