Hong Kong’s lived-in home prices will drop 5 per cent in 2022 as people, capital head for the exit, UBS says

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UBS predicts a 5 per cent drop in Hong Kong’s lived-in home prices, becoming the second investment bank to forecast a decrease in the world’s most expensive property market after Morgan Stanley.

A mass emigration wave, the slowdown in mainland China’s economic growth, an exit of capital because of tightened mainland regulations and an imminent interest rate rise in the United States will all contribute to the drop, said John Lam, head of the China and Hong Kong property team at UBS Research.

“We hold a prudent view on the prospects for Hong Kong’s property market,” Lam said in a speech as the 22nd annual UBS Greater China Conference kicked off in Hong Kong on Monday. “The lived-in home prices will drop 5 per cent this year.”

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Hong Kong is suffering an alarming population drop – nearly 90,000 citizens left in the year to August 2021, according to the latest data from the Census and Statistics Department.

Many left in the wake of the national security law imposed by Beijing, fearing mainland China’s tightening grip was eroding some of the city’s freedoms.

The exodus has had an impact on the market, as some owners lower their prices in their rush to leave.

A 469 square-foot, two-bedroom flat in Tuen Mun was sold for HK$5.18 million (US$660,000) recently, after the owner decided to emigrate and cut the original asking price of HK$5.7 million by 9 per cent, according to a Many Wells Property regional director.

Another flat spanning 388 sq ft at St Barths in Ma On Shan, changed hands for HK$7.3 million earlier this month, after it was bought for HK$7.55 million in 2018, said a Centaline Property regional sales manager.

However, a survey conducted by UBS Evidence Lab in November polling 1,000 Hongkongers found a marked improvement in the city’s household finances and an increasing willingness to invest or spend. That reversed the trend identified by the survey a year earlier.

“New Hongkongers,” or residents who have acquired permanent residency in the city, account for 12 per cent of second-hand home apartment sales, said Lam.

“Although this number is expected to rise even further, [this alone] can’t offset the aforementioned negative factors.”

Analysts are divided on the prospects for 2022, given the stock market slump of recent months.

JPMorgan Chase said home prices in Hong Kong are likely to increase 5 to 10 per cent, extending a multi-year rally as the city’s economic rebound brightens the employment market and offsets the dampening effect of emigration.

Morgan Stanley last month predicted a 2 per cent drop in lived-in home prices that will halt a 13-year bull run, due partly to the stock market losses. Centaline Property Agency, the city’s biggest network of sales agents, sees a 10 per cent gain.

Hong Kong’s lived-in home prices fell to a seven-month low in November after peaking in August, according to an index published by the Rating and Valuation Department.

Lam was more optimistic about the retail property market, especially shops selling mainly to local people and therefore unaffected by the huge drop in tourism. Retail rents will rise 6 per cent, Lam predicted, though sales will remain under pressure.

“Border reopening remains key to the recovery of the sector,” said Lam.

Over the past two years, the Covid-19 pandemic has steered consumers’ demand more towards mainland China. More luxury brands have opened new flagship stores in Shenzhen and Guangzhou.

Moreover, shoppers have flocked to the Hainan duty-free trade zone as the pandemic limits travel abroad and Hong Kong’s stringent quarantine controls make it difficult for mainlanders to visit the city. Duty-free sales in Hainan surged to 50.49 billion yuan (US$7.9 billion) in 2021, growing 83 per cent from a year earlier.

“Even if the border reopens, shoppers won’t necessarily come to Hong Kong as before,” said Lam. “Retail sales won’t return to the high level of 2018. Maybe 10 per cent lower.”

Office space is the most undervalued property asset, Lam said. He estimates that overall rents will increase at most 3 per cent in 2022.

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