Market continues to contract amid subdued long-term expectations
The results of the September 2019 RICS-Spacious Hong Kong Residential Market Survey show that downbeat conditions are expected to persist.
The results of the October 2019 RICS-Spacious Hong Kong Residential Market Survey indicate some signs of stabilisation in the market. The Confidence Index rose from -78 in September to -20 in October. Although a negative reading continues to indicate a deterioration in market confidence, the rate of deterioration has slowed considerably (in net balance terms).
This comes after the Hong Kong Mortgage Corporation loosened loan-to-value (LTV) ratio restrictions in October. Mortgages can now carry a LTV ratio of 80% on properties worth up to HK$10 million and 90% on properties worth up to HK$8 million. These LTV ratios were previously capped at HK$6 million and HK$4 million, respectively. Several respondents cited these measures as providing some shortterm relief for the market.
Survey participants did see demand stabilise during October. After reporting a decline in buyer demand for three consecutive months, respondents noted that buyer demand was little changed from September. The exception was demand from mainland Chinese buyers, which was said to have continued to decline.
Meanwhile, contributors noted that demand from investors continued to increase at a similar rate to what it has during the past several months (in net balance terms). Although data shows that aggregate demand from owner-occupiers as little changed in October, this is an improvement over the previous three months, where demand from owner-occupiers was said to have declined. Demand from owner-occupiers also increased in the New Territories, which is where the largest stock of homes that would qualify for the revised LTV ratios are likely to be located.
Prices are expected to contract over the next three months, though in net balance terms at a substantially slower rate than what was expected in September. Similarly, home prices are only expected to fall 1.6% over the next 12 months versus in September, when respondents expected prices to fall more than 5%.
Price expectations were more disperse than they have been in recent months. Respondents were split as to whether there prices would modestly increase or decrease over the next 12 months. However, slightly over half of respondents (53%) expect prices to decline to some degree over the next year. Survey participants reported a similar level of dispersion in prices over the past three months, with 16% of respondents saying that aggregate prices rose 0-2% over the past three months in their region.
Despite the improvement in conditions, survey contributors remained cautious on the longer term outlook for the market. Headline prices are only expected to increase just 2.9% a year for the next two to five years. This is little different to the 2.6% annual price increase respondents expected over this period in the September survey. This could indicate that respondents see the improvement in market conditions being transitory, as the easing of LTV ratio requirements allowed for the release of pent-up demand from potential homebuyers, but may not signal an outright revival in the housing market.
The Hong Kong Residential Market Survey is a leading sentiment indicator of conditions in the Hong Kong residential sales and lettings markets.
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Senior Economist, Asia Pacific
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.