Outlook for residential property market in Hong Kong positive due to lack of supply

The current positive momentum in Hong Kong’s property market looks set to continue with the latest index showing that an expected rise in interest rates is not impacting optimism.

A supply and demand imbalance is supporting both rents and prices in the residential market, according to the latest Hong Kong market survey report from the Royal Institution of Chartered Surveyors (RICS).

Survey respondents in April reported tighter credit for the second consecutive month, however contributors’ outlook for prices and rents over next three and 12 months point to further gains

Indeed, they have reported robust price growth and the confidence index increased to 44 in April from 31 in March, as a rebound in short term price and sales expectations in New Territories and Kowloon offset a modest slowdown in positive momentum on Hong Kong Island.

Contributors also continued to report demand growing at a faster pace than supply and the report explains that this comes as GDP is growing at its fastest pace in seven years to 4.7% year on year in the first quarter of 2018 compared with 3.4% in the final quarter of 2017.

But the report points out that there are signs that this pickup in economic activity may be waning. The effects of credit controls on the mainland Chinese economy are expected to begin to show up in the official data, which will likely weigh on Hong Kong’s economy.

Survey respondents also indicated that the economic environment may be slightly more difficult moving forward. In net balance terms, contributors reported tighter credit conditions in April for the second consecutive month, an indication that Hong Kong banks’ are passing on higher wholesale funding costs on to borrowers.

Additionally, a majority of respondents see credit conditions continuing to tighten over the next quarter. However this does not appear to have significantly dented expectations for the housing market.

Overall, respondents continue to see home prices and sales volumes continuing to rise over the next quarter and year and headline price forecasts remain above the three month moving average.

The report also shows that conditions in the lettings market continue to point to further increases in rents, as growth in tenant demand outpaces that of the supply of new properties to let.

Contributors’ 12 month rent forecasts are near or above the three month moving average and in recent months, respondents have highlighted a lack of housing affordability as supporting rents, as continued home price inflation has pushed some households completely off of the property ladder.

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