The results of the May 2019 RICS-Spacious Hong Kong Residential Market Survey show that although prices and rents continued to increase over the first half of 2019, economic uncertainty is weighing on the outlook. The Confidence Index declined from +50 in April to a three-month low of +17 in May. However, this still indicates that market sentiment remains positive.
Respondents continued to report an increase in home prices in the May survey. A net balance of 68% of contributors said that prices have increased over the past three months, the strongest reading in 2019. Data indicates that a greater share of price increases were in the 0–5% range in May, whereas in April more had been reported in the 5–8% range. This seems to indicate that although market momentum remains positive, prices are showing some signs of moderation.
The outlook for prices, sales and rents have also all lost some momentum as contributors expect the pace of growth to slow over the next three months. Feedback from survey respondents suggests that concerns over the renewal in trade tensions between the United States and China are a catalyst for a more cautious outlook. Recall that the pullback seen at the end of 2018 was also prompted by concerns over protectionism.
A key difference between now and late 2018 is that the outlook for credit conditions is less negative. In October of 2018, a net balance of 48% of respondents said that they expected credit conditions to tighten over the next three months, whereas the May results indicate that respondents expect little change in credit conditions in the near-term. This may be why although respondents have revised down their forecasts for prices and rents over the next year, both are still expected to increase. Data shows that headline prices and rents are expected to increase 2.6% and 2.9% over the next year, respectively.
Spacious' user data for May showed a weakening in sale market enquiry rates. Enquiry rate, a proxy for buyer demand, deteriorated in the second half of the month, likely due to the increased threat of trade war escalation. The enquiry price signal increased during the month, a bullish indicator for pricing. However, listing prices moderated to neutral, signaling sellers may be less confident after strong price gains in March and April. In the rental market, enquiry rates increased but enquiry and listing price signals moderated.
James Fisher, COO and Head of Market Analytics, Spacious
Hong Kong's housing market had a euphoric beginning to 2019 as it absorbed pent-up demand but the renewed trade dispute between the United States and China has put the market on a more cautious footing, and recent political protests represent a downside risk. However, demand continues to outpace supply and the outlook for interest rates is benign, which should provide a cushion for the market. Barring a flare-up in foreign or domestic tensions, expectations for a "soft landing", a moderate expansion in prices and rents, during 2019 appear to be well-founded.
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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The last round of trade tensions had a negative impact on housing sentiment in Hong Kong; three months later, we saw market weakness and a decline in buyer and seller activity. Housing market sentiment offers us advanced warning of upcoming dangers in the housing market, so what impact are current trade negotiations having? On 24 June 2019, RICS Senior Economist Sean Ellison and Spacious COO and Head of Analytics James Fisher discussed this during an inaugural Hong Kong Residential Market Survey webinar.
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.