Double whammy of coronavirus and protests is about to send Hong Kong's home prices plunging, say property analysts

By Lam Ka-sing kasing.lam@scmp.com / https://www.scmp.com/property/hong-kong-china/article/3048355/double-whammy-coronavirus-and-protests-about-send-hong?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | February 4, 2020 2:54 PM SGT
Hong Kong's famously expensive home prices fell in December and are likely to slide further in the coming months as authorities try to bring the Chinese coronavirus under control, said property analysts.
The official price index for used homes dipped 1.7 per cent to 378.5 in December, according to the Rating and Valuation Department. The world's most expensive housing market had already been under pressure from months of violent anti-government protests and the effects of China's trade conflict with the US.
It was the biggest fall since September's 1.8 per cent drop, and a reversal of November's short-lived gain of 1.9 per cent after Chief Executive Carrie Lam relaxed mortgage restrictions and stimulated the market. The gauge still managed a gain of 5.3 per cent last year.
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"In November, the social movement suddenly escalated, with fights at both Chinese University and Polytechnic University. So turnover got stagnant. Homeowners had to slash prices when offloading stock," said Derek Chan, head of research at Ricacorp Properties, referring to when police and frontline protests clashed at a number of the city's universities. "The impact was obvious and drastic. So December's home price took a U-turn for a drop again."
Transactions tend to be reflected in the official price gauge two to three weeks later because of the time they take to be registered in official records.
House prices are likely to see a bigger drop of 3 to 5 per cent in the three months to March because of the coronavirus, which has made turnover shrink again, said Chan. The extent and duration of the fall will depend on how the epidemic develops.
The "unforeseen event" has made Chan, who had earlier predicted a recovery after Lunar New Year, pessimistic in the short term.
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"Only when the epidemic dissipates and people are not so worried will there be higher turnover," he said. "If it gets more widespread and lasts a long time, it will affect the economy."
The number of homes changing hands may plummet by 25 to 35 per cent in the next couple of months while prices will fall between 5 and 10 per cent this year, according to Thomas Lam, executive director at Knight Frank.
"The impact of the epidemic has not been reflected in the price index yet. Even though the social movement has become calmer recently, economic data show Hong Kong is in recession. Coupled with the epidemic, there is a double whammy," said Lam.
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"Economic performance and purchasing power will continue to deteriorate. Industries suffering a major impact, such as retail, catering and hotels, may see waves of closures and lay-offs."
Developers will rein in their project launches in the next couple of months as they wait to see if the epidemic stabilises or ends, said Lam.
"Afterwards, they are likely to only sell small-to-medium sized homes worth less than HK$10 million (US$1.29 million) each," added Lam. "Sales and pricing of luxury homes will be under very high pressure this year.
He said so-called nano flats " tiny flats often no larger than a parking space " will come under the greatest pressure.
As long as the epidemic lasts, prices of homes in the New Territories, in places such as Tuen Mun, Yuen Long and Tin Shui Wai, may start to slip again after benefiting from the new mortgage policy, Lam added.
Meanwhile, later on Friday, the Hong Kong Monetary Authority said the number of residential mortgage loans approved in December fell 5.4 per cent month on month to HK$26.6 billion. The number of mortgage applications also decreased by 16.7 per cent to 7,836.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
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