Home prices drop to lowest in six years

Aiden He

Hong Kong private home prices slumped to their lowest in more than 6 1/2 years in October amid high-interest rates and are projected to drop further in the coming months even after the implementation of the "less spicy measures."

Prices plunged by 2.2 percent in October from a month earlier to a new low since March 2017, according to data from the Rating and Valuation Department. That was the sixth consecutive decline, though the contraction was smaller than the 2.4 percent drop in September.

The costs of residential properties have tumbled by 4 percent in the first 10 months of this year and 18.4 percent since the start of last year.

Prices of small and medium-sized flats also slipped by 2.2 percent - down for six straight months.

The value of flats under 40 square meters fell 2.2 percent month-on-month in October as well, while those for homes between 40 and 69.9 sq m slid 2.1 percent. Homes sized from 70 to 99.9 sq m also saw their prices drop by 2.3 percent.

Values of flats above 100 sq m shrank at a slower pace of 1.9 percent and were 4.8 percent lower from last year.

Although the government cut stamp duty rates for certain types of home purchases in late October, the effect on the overall market was limited, said Derek Chan, head of research at Ricacorp Properties.

He expects the prices to drop at a slower pace at 1.8 percent this month and at up to 1.5 percent next month.

The SAR has halved the stamp duties for nonlocals and non-first-time homebuyers and shortened the period sellers needed to pay tax from offloading properties. It also allows eligible incoming talent to defer payment of the revised stamp duties totaling 15 percent for their first home.

Chan sees a 7 percent decrease in housing value in 2023 or a nearly 22 percent slump from the peak seen in September 2021. This means that owners who borrowed mortgages worth 80 percent of their home value back then might fall into the category of negative equity, he warned, urging the government to remove all the property cooling measures to revive market confidence.

The number of residential mortgages in negative equity - where the loan is bigger than the value of the home - jumped by 233 percent to 11,123 as of the end of September, official data showed.

Mortgage rates have risen from about 1.5 percent at the start of 2022 to the current 4.125 percent. With higher rates, the speed at which the principal is repaid will be slower, meaning it would take a longer time for mortgagees with a high loan-to-value ratio to get out of the negative equity territory, said Centaline Mortgage managing director Ivy Wong Mei-fung.

The mortgage-linked one-month Hong Kong interbank offered rate rose 6 basis points to 5.59 percent yesterday, a fresh new high since October 2007 and its eighth consecutive rise.

Analysts warn that local lenders may have to raise the prime rate again this year to ease funding pressure if the interbank borrowing costs remain high.

A further increase in the rate on top of a 0.875 percentage-point hike over the past year or so would likely put more pressure on the already listless property market.

However, the rental index rose by 0.3 percent in October to the highest in nearly four years, official data revealed. It has jumped more than 6 percent in the first 10 months of the year.