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In a concerning development for Hong Kong's property market, second-hand home prices have experienced a decline due to a combination of factors. The market is currently grappling with an oversupply of properties and the looming prospect of interest rate hikes. Industry experts predict further price drops, with property consultancy Knight Frank estimating potential declines of up to 5% for the entire year. The decline in May's pre-owned home price index reflects the impact of interest rate increases, causing industry observers to anticipate another drop in June.
Hong Kong's second-hand home prices experienced a notable decline in May, marking the first decrease since December. The dip in prices can be attributed to an oversupply of properties in the market, compounded by newly constructed flats entering the scene. With looming interest rate hikes, industry experts predict further declines in the coming months. Last year, the property market suffered a 15 percent drop due to the pandemic's impact and a weak economy.
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Knight Frank's Greater China head of research and consultancy, Martin Wong, expressed the expectation of another 0.5 to 1 percent drop in the home price index for June. Wong pointed out that the market lacks positive factors to support price growth, as factors such as high interest rates, limited buying power, and an accumulation of new inventory hinder further price increases. The prospect of rising mortgage rates in the second half of the year also poses a challenge for prospective buyers, with the interest rate factor expected to persist until early next year, according to Wong.
In May, the widely observed pre-owned home price index recorded a month-on-month decline of 0.7 percent, reaching 351, the lowest level since February and the first decrease since December. On an annual basis, the index experienced a significant drop of 8.9 percent. Bloomberg Intelligence reported that Hong Kong's private home market could witness an influx of new supply until 2025. The think tank, Our Hong Kong Foundation, projected an average completion of approximately 20,200 private residential units per year from 2023 to 2025, with the peak expected in 2025 at around 20,900 units.
Centaline Property Agency, which monitors transactions in 117 major estates, reported that more sellers of lived-in homes experienced losses in the first five months of this year. Over 65 percent of house deals made between 2018 and 2022 resulted in losses, a 10.9 percentage point increase compared to the second half of last year. Centaline attributes this trend to homeowners capitalizing on the price recovery earlier this year following a 15 percent slump in 2020.
In conclusion, Hong Kong's second-hand home prices experienced their first decline since December due to an oversupply of properties and the anticipation of rising interest rates. Industry experts predict further declines, while factors such as high interest rates, limited buying power, and an accumulation of new inventory hinder price growth. The market faces challenges in the form of rising mortgage rates and an influx of new supply until 2025.
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