Hong Kong's property prices to fall by up to 20 per cent as the city's jobless ranks swell amid Covid-19 pandemic

Martin Choi and Lam Ka-sing martin.choi@scmp.com
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April 13, 2020 10:05 AM SGT
The Covid-19 pandemic, which has pushed Hong Kong's unemployment rate to a nine-year high, will put further pressure on housing prices in the city after they took a hit from the social unrest last year, according to market observers.
"As recession in Hong Kong deepens, higher unemployment will likely erode housing demand as some prospective buyers retreat, while more owners may choose to sell, tilting the market dynamics to favour buyers more," said Nelson Wong, head of research at JLL in Greater China.
"We continue to expect home prices to fall by 10 to 15 per cent in 2020. The downside risks appear higher, given uncertainties about the duration of the outbreak," he added.
More than 134,000 people have lost their jobs, pushing the city's unemployment rate to 3.7 per cent in February, the highest level since 2011, according to the Census and Statistics Department. The city's jobless rate has increased for five consecutive months.
The retail, accommodation and food services sectors were hit the hardest, with the jobless rate rising to 6.1 per cent from 3.4 per cent a year earlier, as a result of the social unrest in the second half of last year and the ongoing Covid-19 outbreak.
"The unemployment rate has led to greater job insecurity in a lot of people in Hong Kong, and this would have a very big impact on their desire to buy property," said Alva To, vice-president and head of consulting for Greater China at Cushman & Wakefield. "In the short term, there will be mounting downward pressure on the city's housing market."
He expects home prices to drop by as much as 20 per cent in the first half of the year as he expects a lot of "uncertainty and negative effect" even after the pandemic ends.
"Even before the outbreak, home prices were already seeing a downward trend as a result of the social unrest in the city. The coronavirus is a very strong catalyst" which has sped up the drop in home prices, To said.
During the Asian financial crisis, Hong Kong home prices fell 50 per cent as unemployment climbed from 2.1 per cent to 5.2 per cent from the third quarter of 1997 until a year later, according to data from JLL.
Between 2000 and 2003, housing prices dropped 30 per cent, when the unemployment rate increased from 4.4 per cent in the fourth quarter of 2000 to 8.5 per cent in the second quarter of 2003.
Meanwhile, the decline in rents continues to gather pace amid the pandemic. In March, the average rent fell 2.3 per cent month on month to HK$33.9 (US$4.37) per sq ft, according to data from Centaline Property Agency.
"There is no sign of stabilisation," said Wong Leung-sing, senior associate director of research at Centaline. "Rent adjustment will continue until the middle of this year."
Wong added rents have fallen for eight consecutive months, totalling 10.6 per cent up to March, of which 4.2 per cent was in the last two months.
Separately, the average transaction prices for lived-in flats fell to HK$8.08 million in the first quarter this year, 16.5 per cent lower from a peak of HK$9.68 million in the second quarter of 2019, according to Land Registry data compiled by Ricacorp Properties.
Homeowners have been quick to offload units at steep losses. A 2,047 sq ft villa at The Beverly Hills in Tai Po sold for HK$20 million this week compared to the original purchase price of HK$28.5 million 10 years ago, according to Century 21. Some 70 per cent of the 130 listings at the estate are being offered at a loss, the property broker added.
Owners of high-end properties too are willing to show flexibility, said Victoria Allan, founder and managing director of Habitat Property.
Carmel Hill House No 21 in Stanley was recently sold for HK$60 million, much lower than the asking price of HK$73.8 million and bank's valuation of HK$80 million, she said.
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