The results of the January 2019 RICS-Spacious Hong Kong Residential Market Survey indicate some signs of stabilisation in the market. Respondents reported that prices continued to decline, though at a slower pace than in previous months.
Similarly, the decline in sales were also said to have declined at a slower pace than in recent months, and after rents declined for consecutive months they were reported to have been little changed in January.
The shift in prices and rents came amid more balance in supply and demand. Headline buyer demand was flat in January after declining for five consecutive months. This was largely driven by demand from owner-occupiers, as buyer demand from investors and buyers from Mainland China were said to have declined, albeit at a slower pace than seen in the final months of 2018. Meanwhile, the supply of properties available to sell continued to tighten modestly. Tenant demand was said to have increased marginally during January. Survey participants also noted little change in landlords instructions to rent.
Against this backdrop, short-term expectations for prices, rents, and sales volumes were all less negative than in recent months. However, all are still expected to decline in the short term.
Expectations for prices and rents also improved over the longer term. Respondents expect headline prices to decline just 1.9% over the next twelve months, significantly above the three-month moving average of a 7% decline. Similarly, headline rents are expected to see little change over the next year, though they are still expected to decline in Kowloon.
This change in sentiment comes amid an improvement in background economic conditions. During the survey period, expectations for an escalation in tariffs between the United States and China moderated substantially. Any escalation was seen as a significant downside risk to the Hong Kong economy. Although the outlook for the current trade negotions remains unclear, the probability of further tariffs appears to have declined.
Hong Kong has also benefited from a more subdued credit environment. Signals from the United States central bank suggest that the current cyclical increase in interest rates may be on hold for the near term. Given the linkages in the US-Hong Kong interest rates via Hong Kong's fixed exchange rate, this should mean that Hong Kong banks can withhold from raising exchange rates in the near term. Contributors have noted less of a deterioration in credit conditions in January.