Hong Kong’s luxury home market, which has been dealt a triple whammy of lower economic activity in mainland China, elevated global interest rates and higher mortgage costs, is poised for disappointment at this week’s policy speech by the city’s chief executive.
“The government is expected to relax the cooling measures in the short term,” said Norry Lee, senior director of projects strategy and consultancy department at JLL Hong Kong. “However a partial or even full reduction in stamp duties is unlikely to bolster the luxury prices, but it will cushion the price fall and promote market activities.”
Despite sellers reducing their asking prices, the luxury housing market has yet to witness an influx of buyers. The transaction volume for residential properties valued at or above HK$20 million (US$2.56 million) has plummeted by 52 per cent in the third quarter. In the first nine months of 2023, the capital value of luxury properties fell by 0.3 per cent year-to-date, which erased all the gains made in the first half of 2023.
The difficult global economic environment and a discouraging outlook are set to pressure luxury home prices further, regardless of whether cooling measures are reversed at the upcoming policy address, said Cathie Chung, senior director of research at JLL Hong Kong.
She said the weakening mainland’s economy, an interest rate hiking cycle that may be extended and higher mortgage rates will continue to exacerbate the luxury market.
Luxury home in landslide-hit Redhill Peninsula sells for half its 2017 price
Luxury home in landslide-hit Redhill Peninsula sells for half its 2017 price
Given current market conditions, the liquidity risk of luxury properties could become a major concern for non-local, high-net-worth individuals and hinder their relocation to the city, JLL said in its report.
“The government has been striving to attract family offices and investors back to Hong Kong, and this reduction [of stamp duties] could provide some direct incentives,” Chung said. “The government could also potentially benefit from increased stamp duty revenues and higher land premium from residential sites for luxury developments as the transaction volume of luxury properties improves.”
The luxury market has been flooded with new flats in recent months, with unsold inventory levels in completed projects at the highest level since 2007. This could put pressure on property values at a time when the investment environment continues to deteriorate.
“We anticipate a decline in luxury home prices of up to 5 per cent in 2023 and another 5 per cent in 2024 due to elevated interest rates, geopolitical uncertainties, and sizeable unsold stocks,” according to JLL.
The city’s home prices declined in September, after registering a 7 per cent increase in April, according to Raymond Cheng, managing director, head of China and HK property at CGS-CIMB Securities.
“We think the most impactful relaxation could be the waiver of the 26 per cent tax prepayment for non-locals, who we believe will have more incentives to buy residential property in Hong Kong once exempted.” he said.
Cheng estimated that there are more than 200,000 potential buyers in Hong Kong’s property market, most of whom are from mainland China, and even if 10 to 15 per cent of them end up buying, it would translate into total demand for 20,000 to 30,000 units, equivalent to about two years of new home sales units in Hong Kong.
“We retain our constructive view on the Hong Kong property market, as we think the supportive measures, if realised, should be able to stabilise the property market in Hong Kong,” Cheng added.