Hong Kong’s November home prices and rents diverge as cheaper loans drove tenants to buy

Hong Kong’s home prices and rents moved in opposite directions last month, as the city’s cheapest borrowing cost in two years attracted more home seekers to take the plunge, reducing the demand for rental properties.

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Prices of lived-in homes rose marginally for the second straight month in November, as the closely watched gauge edged upwards to 290.9 from 290.7 in October, according to the Rating and Valuation Department. Home prices fell 6.55 per cent in the first 11 months of the year, slumping 27 per cent from a record high in September 2021.

Rents dipped last month for the second time, dropping by 0.36 per cent to a five-month low of 193.1, after a 0.7 per cent drop in October. Rents have risen 3.8 per cent in the first 11 months of this year.

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“Residential prices have stabilised after declining for five consecutive months,” said Eddie Kwok, executive director for valuation and advisory services at CBRE Hong Kong, adding that a clearer outlook for home prices is likely to emerge after the Lunar New Year festivities next month.

A real estate agency in Fortress Hill reduced house prices on 29 July 2024. Photo: Eugene Lee alt=A real estate agency in Fortress Hill reduced house prices on 29 July 2024. Photo: Eugene Lee>

Last month, HSBC, Hang Seng Bank and Bank of China (Hong Kong) cut their prime lending rate for the second time this year to a two-year low of 5.375 per cent. Standard Chartered, Bank of East Asia and ICBC (Asia) also dropped their rate to 5.625 per cent, resulting in lighter mortgage rates for homebuyers.

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“Since the US Federal Reserve began its interest rate reduction cycle in September, the average monthly residential transaction volume for October and November reached 5,498, surpassing the average transaction volume recorded between 2017 and 2021,” said Kathy Lee, head of research at Colliers Hong Kong.

Cheaper mortgages spurred buyers to take the plunge. In November, 6,298 new and lived-in homes changed hands, surging by 34.1 per cent from the previous month, according to official data. From January to November, home sales rose 22.2 per cent to 48,996 units from a year earlier, suggesting a recovery in the property market.

With more than 100,000 new units either completed or under construction, it would take at least five years for the market to absorb all available flats based on an average of between 18,000 and 20,000 first-hand sales from 2017 to 2021, said Lee.

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“With the pace of future rate cuts expected to slow and the exact extent of reductions remaining uncertain, market analysis suggests that the Fed may implement two additional cuts in 2025, totalling 50 basis points,” she said. “As such, uncertainties persist.”

The outlook for the city’s residential property market could be clouded by “uncertainty”, prompting developers and homebuyers to “take a wait-and-see approach” as Donald Trump is poised to reoccupy the White House on January 20, said Kwok.

Donald Trump during an election campaign event at the Palm Beach Convention Center on November 6, 2024, in West Palm Beach, Florida. Photo: Getty Images/TNS alt=Donald Trump during an election campaign event at the Palm Beach Convention Center on November 6, 2024, in West Palm Beach, Florida. Photo: Getty Images/TNS>

Trump’s policies that could impact the economic recovery of mainland China and Hong Kong would be “more apparent in the second half of 2025,” Lee said.

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Home prices are likely to increase by no more than 0.5 per cent in December, said Derek Chan, head of research at Ricacorp Properties.

“It is estimated that property prices in the fourth quarter will rise by around 0.95 per cent to 1.5 per cent, while overall prices for the year are projected to decline by about 6 to 6.5 per cent,” Chan said. “Following the festive atmosphere at the end of January, a small spring uptick in transactions and prices is expected in the first quarter.”

As for the decline in the rental index, Chan attributes this to “seasonal softening in the rental market.”

“Rental prices will continue to fluctuate within a narrow range in December, maintaining a flat pattern,” he said. “The annual rental index is projected to rise by 3.82 per cent.”

Next year, Chan said rental demand is likely to remain strong, “supported by skilled professionals moving to Hong Kong.”

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2024. South China Morning Post Publishers Ltd. All rights reserved.