Mainland Chinese buyer interest increases ahead of Lunar New Year

Sean Ellison

Senior Economist, Asia-Pacific (RICS)

The RICS December Hong Kong Residential Market Survey showed that robust demand continued to support prices and volumes throughout Hong Kong. Meanwhile, there were some signs that demand from mainland Chinese buyers was increasing for the first time since May, while domestically the results show that banks have yet to pass on higher borrowing costs to clients.

Survey in brief:

  • Robust demand continues to support prices while volumes are expected to continue to rise.
  • Respondents report an increase in demand from buyers in mainland China, but warn of Lunar New Year lull.
  • Banks yet to pass on higher borrowing costs to customers, but contributors more wary of higher interest rates.

The Confidence Index, an amalgamated measure of short-term price and sales expectations, remained firmly in positive territory in December.

Respondents observations on headline past price growth and expectations for headline price growth over the next quarter indicate that home prices are likely to continue to expand year-on-year in the coming months. Volumes are also reported to have increased over the past three months and are expected to continue to do so over the next quarter.

Supply and demand

Supply and demand conditions remain supportive of prices for all three regions (New Territories, Kowloon, Hong Kong Island). Against this backdrop, price forecasts for all regions are above the three-month moving average. Contributors reported a modest increase in headline demand from buyers from mainland China, driven by buyer interest in properties in the New Territories and Hong Kong Island. It was the first time since May of 2017 that respondents reported a substantial increase in mainland demand. However, some respondents also commented that they expected demand to cool heading into the Lunar New Year in February.

The rental market remained robust in December. Supply-demand balance continued to be supportive of rents, while there are indications that rents are expected to maintain year-on-year growth in the coming months. However, some respondents noted that the lettings market tends to remain quiet until after the Lunar New Year.

Although HIBOR has continued to rise in December following a rate increase by the U.S. Federal Reserve, respondents continued to indicate that there has been little change in credit conditions. Note that survey responses for December were collected after the U.S. Central Bank raised interest rates on December 13. Some respondents have begun to caution that onces banks begin to pass on higher interest rates to customers, this could serve as a catalyst prompting a pullback in demand.

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