Residential prices and rents forecast to fall in Hong Kong over 2019

Residential property prices and rents continued to fall across Hong Kong in December, with the market recording the reporting the fastest decline in prices since March 2016.

Demand remained soft with headline buyer demand reported to have declined for the fifth consecutive month, according to the Hong Kong residential market survey from the Royal Institution of Chartered Surveyors (RICS).

The drop in buyer demand was particularly soft amongst investors and buyers from mainland China and demand from owner occupiers also declined, although at a more modest pace in net balance terms.

Meanwhile, the supply of properties for sale continued to contract at a slower pace than buyer demand. For the third consecutive month, respondents reported a modest decline in new instructions to sell.

The gap between supply and demand is spread across all three of Hong Kong’s regions and sales declined for a fifth consecutive month, especially in Kowloon and on Hong Kong Island.

Against this backdrop, overall prices and sales volumes are predicted to continue falling over the next three months, particularly on Hong Kong Island, where almost all contributors expect prices to contract over the next three months.

The pullback in prices and volumes is forecast to persist over the next 12 months, with respondents suggesting that prices will fall 7.6% in 2019. A breakdown of the figures suggests they will fall by 9.4% in Kowloon, by 8.5% on Hong Kong Island and by 6.2% in the New Territories.

A similar dynamic is visible in the rental market with the survey report saying that the change in the supply of rental properties is relatively balanced with change in tenant demand to rent.

Rents are expected to decline over the next three months and 12 months, particularly in Kowloon where respondents are expecting a 3.5% pullback over the year.

‘Although the outlook for interest rates is slightly more benign, respondents continue to report tighter credit conditions. This also indicates that credit conditions are expected to remain tight over the next three months,’ the report concludes.