On a recent Saturday, more than 100 salespeople crowded the floors of a luxury shopping mall in Hong Kong, yelling at shoppers to check out deals at one of the city’s newest residential projects.
Henderson Land Development Co. and Henderson Land Development Co. built One Innovale-Bellevue. Its first batch of apartments was priced 9% less than the nearby used homes in the New Territories, which are about 25 miles from the central financial district. But the response hasn’t been great since it came out last month: as of the first week of October, only about a third had been sold.
For some, it’s even worse. At the end of its first day on the market, a 139-unit development hadn’t sold a single unit, which is unusual in a city where projects are often bought up in hours when the market is strong. According to sales records, another project with a lot of advertising only sold two units all day.
Sam Wong, a real estate agent, said, “We are fighting for fewer customers because of worries about interest rates.” “Everyone is trying to be as cheap as possible.”
Hong Kong’s Property:
The falling demand shows that a city at the forefront of a global real estate downturn is getting ready for a bigger drop in the next few months as interest rates go up. Higher borrowing costs are hurting an economy that is already struggling because of things like people leaving, restrictions on COVID, and political turmoil caused by Beijing’s tightening control. Goldman Sachs Group Inc. thinks that home prices will drop by 30% by 2023 compared to where they were last year, while Jefferies Group LLC thinks that prices will go down even more after an 8% drop this year. The secondary market is about to hit its lowest point in five years.
Hong Kong has a $368 billion economy, and real estate has stayed at the center of it. This is mostly because of high prices, which are caused by the limited amount of land in the territory. Seven of the 10 richest people who were born and raised in the city made their money through real estate. Homeownership is a big sign of success in Hong Kong, where people have thought it was a safe bet for the past 20 years. A falling market could hurt this sense of well-being, which could make people less likely to spend.
Hong Kong says that growth risks will increase if bank rates go up.
The Hong Kong Monetary Authority has raised benchmark interest rates five times this year. Their most recent data shows that the number of mortgage loans approved in July dropped 22.1% from June and 3.9% from July to August. Those financing transactions on the secondary market fell by 30.3% in July and another 11.1% in August.
Market Is Tumbling as Unsold Homes Pile Up
Hawkish signs from the US Federal Reserve mean that interest rates are likely to go up even more in Hong Kong. Since the Hong Kong dollar is tied to the US dollar, the HKMA moves in lockstep with the Fed. Banks in the city, like HSBC Holdings Plc and Standard Chartered Plc, raised their main lending rates for the first time since 2018 last month. They also raised the maximum mortgage prices for Hibor-linked loans, which are used by 97% of Hong Kong’s home buyers.
Hong Kong’s economy may shrink this year, as the city has already lowered its annual economic forecast twice and Financial Secretary Paul Chan has warned of a double-budgeted fiscal deficit.
Aries Kin-Ming Wong, who teaches economics at Hong Kong Baptist University, said, “A higher interest rate usually slows down the economy. This is especially true in Hong Kong, where demand is already low because of the pandemic and control measures. ” “It could have an even bigger effect on the housing market since the recent wave of people leaving has already pushed prices down.”
- HSBC and StanChart are the first banks since 2018 to raise the prime rate.
- Hong Kong homes are about to become the most expensive in 24 years.
- The cost of a mortgage in Hong Kong is going up by 97% on floating rates.
- The hottest housing markets in the world are about to crash:
The city’s problems have gotten worse because there are fewer people working there and fewer people from the mainland want to buy there. Tight COVID quarantine rules, which were in place until recently, have led to a brain drain, and official numbers show that the population has dropped by a record amount.
Beijing’s tightening grip has also made Hong Kong less attractive to wealthy mainlanders who want to protect their wealth. Instead, they are looking at places like California, Singapore, and Australia.
The rich Chinese are the biggest buyers of high-end condos in Singapore.
Even though prices are going down, they are still too high for most people to afford. In fact, because money is getting tighter, apartments in the city are on track to become the hardest to buy in 24 years.
In Kai Tak, a new middle-class neighborhood, a 250-square-foot studio, which is smaller than a typical parking lot, sells for more than $500,000. With that much money, you can buy a place in New York near Soho.
Greg Cheung, who is 37 and has been looking to buy a home in Hong Kong for a few years, said, “Everyone can feel that the market is getting worse. Interest rates keep going up, and the local economy isn’t doing so well. “I don’t want to buy as much now.”
Cheung also said that the prices of homes don’t make sense right now unless they drop between 15% and 30% from their all-time high.
Because so many people in Hong Kong work in the financial industry, the city is also more likely to be affected by layoffs on Wall Street. Giants like Goldman Sachs and UBS Group AG have started to cut jobs in the area. This is partly because a slowdown in China has made it harder to make deals.
Jason Hau, who works for Centaline Property Agency Ltd., said, “Sellers have to lower their prices several times before buyers agree to a deal, and many of them have given up.” “Even during the 2008 financial crisis, it wasn’t as bad.”
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