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21 OCT 2019

Market continues to contract amid subdued long-term expectations

Sean Ellison

Sean Ellison

Senior Economist, Asia Pacific

Sydney

RICS

The results of the September 2019 RICS-Spacious Hong Kong Residential Market Survey show that downbeat conditions are expected to persist. The Confidence Index remained acutely negative, falling to -78 in September. On Hong Kong Island the Confidence Index fell to -91 in September, the lowest reading since the inception of the survey in 2015 for any of Hong Kong's regions (Hong Kong Island, Kowloon, New Territories).

Survey respondents continued to report downbeat conditions in the sales markets. 79% said that prices have declined over the past three months (versus 67% in August). Demand remained soft, and declined for the third consecutive month in net balance terms, particularly from owner-occupiers and buyers from mainland China. In net balance terms, enquiries from mainland Chinese buyers declined at the quickest pace on record. Although instructions to sell have also declined, in net balance terms they have done so at a slower pace than demand. Transaction volumes were said to have contracted for a fourth consecutive month.

Against this backdrop, the short-term outlook for both prices and sales remain bleak, with both expected to remain negative for the next three months. Over the next year, prices and volumes are expected to fall 5.3% and 5.9% respectively, more pessimistic than the 4.6% and 5.3% fall contributors expected in the August survey. At least three-quarters of respondents expect some degree of contraction for prices and volumes over the next twelve months.

Longer-term expectations for prices also remain modest. Survey participants expect price growth to average 1.1% over the next five years. When taking into account the expected 5.3% contraction in prices over the next year, this implies that prices are expected to increase at an annualized rate of 2.6% thereafter. This growth rate would represent a substantial slowdown from the price growth observed over the past five years.

Tight credit conditions may have also contributed to downbeat sentiment. For the third consecutive month participants noted that access to credit deteriorated. Despite a more benign outlook for global interest rates, credit conditions are expected to continue to deteriorate over the next three and twelve months.

The rental market was similarly weak, according to survey participants. In net balance terms demand from renters fell, while landlord instructions to rent were little changed from August. More than half of respondents, 55%, reported a decline in rents over the past three months, up from 44% in August. Perhaps unsurprisingly, rents are expected to decline over the next three months as well as throughout the next year. Headline rents are expected to fall 2.9% over the next twelve months. Rents in Kowloon are expected to be particularly weak, falling 3.5% over the next year.

Given the weakness in Hong Kong's underlying economic momentum, the more subdued outlook for global growth, and heightened uncertainty over global trade and domestic politics, a recovery in the housing market does not appear to be imminent.

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Sean Ellison

Sean Ellison

Senior Economist, Asia Pacific

Sydney

RICS

Sean is responsible for the RICS Economics team’s research into the Asia-Pacific property sector, identifying market risks to the sector and analysing economic events and their effects on real estate.

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