Hong Kong home prices unlikely to fall to Sars levels during coronavirus outbreak, analysts say

By Martin Choi martin.choi@scmp.com / https://www.scmp.com/business/article/3050082/hong-kong-home-prices-unlikely-fall-sars-levels-during-coronavirus?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | February 18, 2020 2:39 PM SGT
Hong Kong home prices are unlikely to fall during the current coronavirus crisis to levels seen during the severe acute respiratory syndrome (Sars) outbreak in 2003, analysts said.
The two health scares have occurred at different points in the city's housing cycle. "Sars and the coronavirus outbreak have occurred at completely different points of the housing cycle," said Phillip Zhong, senior equity analyst for Hong Kong and China real estate at Morningstar Investment Management.
"In the 2000s, the market was already fairly depressed coming off the Asian financial crisis, so Sars extended the decline by one year or so. When Sars came along, the bulk of the fall in prices had already occurred," he added.
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Home prices fell by more than 8 per cent in the first seven months of the Sars crisis, before rebounding for the rest of the year, according to a price index for used homes compiled by the city's Rating and Valuation Department. The index slumped by 62.5 per cent between a peak in October 1997 and the end of 2002.
This index reached an all-time high of 396.9 in May last year, before falling 4.6 per cent in December. "The coronavirus is clearly different. It occurred at a very high point of the current housing cycle," Zhong said.
"The impact of the coronavirus on Hong Kong's home prices will be less than that of Sars back in 2003," said Vincent Cheung, managing director of Vincorn Consulting and Appraisal. "People in Hong Kong nowadays have also learned their lesson from the Sars outbreak, and have taken much greater safety precautions than they did during the Sars outbreak," he added.
Cheung forecast a decline of 3 per cent to 5 per cent in home prices in the first half of this year, but said they might recover and even post a 2 per cent gain by year end.
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While the coronavirus outbreak will not lead to a drop in home prices similar to Sars, "it may bring a 10 per cent to 20 per cent drop if the epidemic isn't over by June this year," said Charles Chan, managing director of Savills Valuation and Professional Services.
Hong Kong has experienced three property crashes since 1997. Property prices plunged by 50 per cent in a year due to the Asian financial crisis, and then dropped 43 per cent during the Dot.com crash and Sars outbreak period. The last decline, of 24 per cent, took place in 2008, during the global financial crisis, JLL said.
"The typical seasonal sales recovery post-Lunar New Year in Hong Kong will likely be pushed back as developers opt to avoid launching new projects during this period. Primary sales will stay at low levels, while the secondary market will also be slow as prospective buyers take a wait-and-see approach," Nelson Wong, head of research at JLL in Greater China and Hong Kong, said.
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Meanwhile, a 517 sq ft flat in Diamond Hill's Galaxia housing estate recently sold for HK$8.3 million (US$1.06 million), 15 per cent below its initial selling price of HK$9.8 million, according to Alan Ma, a senior sales manager at Midland Realty.
The city's banks said they would provide financial relief to homeowners, allowing them to pay interest only for six to 12 months. The Real Estate Developers Association of Hong Kong said on Tuesday that its members were exploring ways of relieving the pressure on tenants in the retail and food and beverage sectors on a case-by-case basis, by offering rental concessions among other measures.
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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