While rising interest rates and a slower-than-expected recovery in China’s economy continue to dampen sentiment, Habitat expects the balance of 2023 to outperform the second half of 2022 as buyers look for value opportunities
Despite a short-lived bounce of 10% year-on-year for Hong Kong’s luxury secondary property market following the reopening of borders with Mainland China in the first quarter of the year, the sector is expected to soften over the remainder of 2023 and into the first half of 2024 as rising interest rates and other global issues continue to dampen sentiment. Nevertheless, transaction levels are expected to increase as buyers seek out value and vendors adjust pricing to meet the market, according to award-winning luxury property consultancy Habitat Property.
“The first half of 2023 has seen a sharp uptick in transactions compared to the second half of 2022 while revenue levels were similar. We had, however, expected a slightly more robust market and had anticipated prices to go up more than has materialised. We now expect the market to be soft and possibly fall 5%–10% in price this year as rising rates continue to have an impact, especially between HK$10–$80 million as this sector is reliant on financing. At the same time, we expect to see transaction levels increase as many buyers are looking for value opportunities while many vendors who have cash flow issues and need to exit the market are willing to be flexible on pricing,” says Victoria Allan, Founder and Managing Director of Habitat Property.
The ups and downs of post-pandemic recovery
While many vendors had anticipated Mainland buyers rushing across the border to purchase property at ridiculous prices, Victoria Allan says that 50% of Habitat Property’s buyers are Hong Kong Chinese, 25% Mainland Chinese and 25% expats with permanent residency (PR). Among the Mainland buyers, the majority have already been in Hong Kong for some time and most have PR. Those who do not have PR are often unable to come up with funds to go through with purchases, leading to expectations that the number of Mainland buyers will increase as more gain PR.
“We still have demand for unusual properties, such as waterfront homes with outdoor space, and very well renovated properties. But generally buyers are looking to buy where they see value,” says Victoria Allan. “Approximately 85% of the transactions we are seeing are trading below bank valuations. This is where there is a disconnect with vendors and it’s only as vendors adjust pricing expectations that we are seeing properties transact.”
Renewed focus on rising rates and long-term use set to drive the market
The second half of 2023 is likely to be a continuation of the first, with external forces exerting downward pressure on the Hong Kong property market. “Interest rates, which are expected to see at least another one to two increases by year end, as well as global inflation issues, poor performance of Chinese equities, and continued tensions between China and the US are dampening sentiment,” explains Victoria Allan. The recent collapse of CK Holdings’ sale of 21 Borrett Road to a Singaporean fund was indicative of sentiment that the market will soften in the near term.
Amidst this environment, the Hong Kong government may need to further review stamp duty and lending ratios to support the market and not price too many buyers out or create too many owners in negative equity situations.
The outlook is not entirely negative, according to Victoria Allan, who sees opportunities for a particular kind of buyer in 2023: “As long as you're looking to buy for long-term self-use then it’s an opportune time to buy, as we are seeing more flexibility on pricing than we have seen for some time – especially if the property is unique or hasn’t been on the market for some time. As China’s economy starts to recover over the next few years and more people achieve PR and are able to buy Hong Kong property, this will then put upward pressure on pricing.”
