Home prices down in Hong Kong, UK amid rising cost of living

A combination of factors – especially buying power, high interest rates and weaker growth – have a serious effect on housing market with the prices of Hong Kong’s residential properties plunged to a near five-year low.

Meanwhile, the changes are starker in the UK where the rate of decrease in the prices is highest since 2008 global financial crisis.

In Hong Kong, one of the world’s most expensive cities to live in, a confluence of factors is responsible for this trend, which include: weaker growth predictions, Mainland China’s Covid policies, Hong Kong’s immigration crisis (mass exodus of expat workers) and snowballing interest rates.

That’s why Hong Kong’s home price index for October fell 2.4 percent to 352.4 compared to the previous month, marking the lowest level for the gauge since November 2017.

According to a Natixis report, the city’s property prices could plummet 25 percent from its previous peak in late 2021 before it starts to recover.

The slump is expected to deepen by 12 percent in 2023 and subsequently by just 2 percent in 2024, analysts led by Alicia Garcia Herrero said.

Hong Kong recently hiked benchmark interest rates to 4.28 percent, pushing up borrowing costs to the highest since March 2008.

Experts say weak economic environment both in Hong Kong and globally, and rapidly rising borrowing costs are the most important contributors to the decline in property prices. But the magnitude has been somewhat deeper than expected primarily due to the escalated geopolitical risks [from the Ukraine war] and the sharp interest rate hike trajectory.

Hong Kong’s growing population plays a decisive role in its home demand. “While there is pressure from the deteriorating fertility rate and the rapidly aging population, the collapse of immigration and the heated emigration wave have added fuel to the fire,” Natixis said.

The residents have left the city in droves since 2021, driven in part by strict Covid measures implemented in 2020 which was only recently relaxed in October. In his inaugural speech as chief executive of Hong Kong, John Lee pledged to draw talent from around the world.

While the property market downturn will likely extend, the pace of decline may slow in the next two years, according to Natixis.

The French investment bank said there will be limited declines in 2024 if there are no further economic and policy adjustment to shore up sentiment.

However, the analysts say that a lift in China’s Covid restrictions could restore investor confidence. Further easing of stamp duties for non-permanent residents and for permanent residents intending to buy a second property could also help bolster the property market, they said.

UK market

In the UK, house prices fell by 2.3 percent in November, the largest monthly drop on its index since the beginning of the financial crash in 2008.

According to Halifax, the fall is the third in a row, and means the average house price last month was £285,579, down from £292,406 in October.

Meanwhile, the annual rate of house price growth slowed to 4.7 percent, down from 8.2 percent in October, the lender said.

Kim Kinnaird, the director at Halifax Mortgages, said the market may be going through a period of “normalisation” and house price changes next year would depend on factors such as the rising cost of living and how the economy performed.

“Some potential home moves have been paused as homebuyers feel increased pressure on affordability and industry data continues to suggest that many buyers and sellers are taking stock while the market continues to stabilise.”

Mark Harris, the chief executive of the mortgage broker SPF Private Clients, said: “Annual house price growth continues to slow, as activity softens and the market gradually returns to something closer to what we were used to pre-pandemic.

“Mortgage rates continue to float gently downwards but the psychological 5% barrier has been broken for both two- and five-year fixes.

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