Hong Kong has one of the most expensive property prices in the world that in the recent data by Knight Frank, $1 million would only buy a measly 20 square metre property. Local residents and foreign investors are shelling out huge amounts of money for a small space in the city’s financial hub. With the recent Hong Kong protests escalating, how will it affect property prices in China’s Special Administrative Region?
Factors Causing a Drop in Hong Kong’s Property Values
Pro-democracy protests are pounding on shares of Hong Kong’s developers and causing its benchmark stock index to a bear market. Since April, as much as 446 billion Hong Kong dollars were lost from the city’s nine largest real estate firms.
The political turmoil that befell the city that developers are now appealing to the public to stop the protests. Hong Kong protests are severely affecting property prices. Developers’ stocks continue to plummet as uncertainty looms over the market. Depreciating property prices are not solely due to the protests though. During the first part of the year, the Hong Kong market has been experiencing a slump following unpredictable trade talks with China. A highly dollar dependent city, Hong Kong’s economy continues to struggle.
Additionally, property experts have already expected property prices to go down this year as high borrowing costs dampen buyer’s mood and new vacancy taxes forcing developers to sell their empty properties at a lower rate. Another contributing factor is the weakening yuan. This cuts the buying power of Mainland Chinese, Hong Kong’s biggest property buyers. Due to this, a number of developers postponed selling luxury home projects.
Protests Dampening Investor Confidence
The recent protests intensified the city’s internal troubles and caused more uncertainties. Investor confidence in Hong Kong remains low and this will ultimately affect the whole market, not just the property prices.
Right now, developers have a conservative outlook about Hong Kong’s market. Many have decided to pause and watch. In the last three months, new home sales dropped by as much as 60% compared with data from the 1Q and this is partly because of low project launches. Knight Frank also reported that Hong Kong’s sales volume for residential properties dropped by 21% in July compared with data during the same period last year. Property prices are expected to dip by an additional 5% in the second half of this year.
Buyers are also applying the same approach of wait-and-see. Many are waiting for homeowners to hang on to their properties before they go bankrupt and sell the property way below the mortgage they are paying.
However, analysts believe that the economic struggles Hong Kong faces now will cause a bug property plunge. Simply because there is not enough supply. The current economic situation is not enough to force home prices to become low enough because there is a real and strong demand for properties in Hong Kong and the supply is not enough to cover for it all.
Experts believe that, despite the poor economic outlook, the dampened investor confidence will not cause people to put their whole savings into a tiny flat in Hong Kong’s financial hub.