3/1/2017


Since May 2016, Hong Kong’s home prices have been rising rapidly. In November 2016, the government raised the stamp duty on residential purchases again to 15%, except for first time buyers, in an attempt to curb investment demands and tame the overheating property market. Due to this, and against a backdrop of accelerating Fed rate hikes in the imminent future, many now may expect housing prices in the territory to fall sharply. We believe, however, that the Fed rate hikes and the higher stamp duty will not have much influence on Hong Kong’s property market. There may be a small correction starting at the end of 2016, but prices will stabilize or even go up steadily eventually in 1H17.

Inelastic Demand

Market indices now shows the transaction volumes of new home sales have fallen 78% in the first month after the curbs while second-hand homes tumbled over 50%, in a much quieter market. However, there is no significant decline in prices, which continue to hit record highs in a number of transactions. We believe that, as there is still a large demand in homes and a shortage of supply, it is hard for prices to fall. In addition, there are just not enough incentives for owners to sell their properties at a cheaper price. Many of them simply suspend sales of their properties and decide to wait until the market improves.

Influence of Fed rate

The pace of Fed rate hikes remains one of the market’s biggest concerns. The first hike of 0.25% was in line with market expectation, but it may speed up in the near future. We believe the influence of Fed rate hike has already been reflected in the market and many property owners have adequate funding. Even though Hong Kong’s mortgage rates will follow the Federal Reserve rate, it will not cause much more burden on owners of mortgaged properties as a whole.

Conclusion

The recent curbs on the property market by the Hong Kong government and the coming Fed rate hikes should not have much actual impacts on housing prices as a whole, although it does affect sentiments. Buyers are becoming more prudent so transaction volumes should remain low before the Chinese New Year of 2017 and the market would be quieter. However, neither big slumps in home prices nor panic selling are going to be likely. As time goes by, in the beginning of 2017, prices may start edging up again.

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