Can the Government's Lifeline Pull Hong Kong's Property Market Back from the Brink?

Hong Kong, a global city renowned for its lofty skyscrapers and sky-high property prices, is in the grip of a property slump. From its dizzying zenith in May 2019, property prices have taken a 20% decline. In a bid to address the freefall, the government has pulled out a new card from its deck — the relaxation of mortgage lending restrictions. Can these new measures truly rescue Hong Kong's ailing property market?

The New Measures

In July, the Hong Kong Monetary Authority (HKMA) announced easing mortgage lending restrictions. The maximum mortgage ratio for self-occupied residential properties priced at HKD 15 million or below has been increased from 60% to 70%, a notable relaxation that underlines the government's commitment to stabilize the real estate sector.

Skepticism on the New Measures

The general consensus among multiple investment banks, including JPMorgan and Citigroup, is that the impact will be limited. The current down payment requirements do not appear to be the main reason behind declining transaction volumes. The larger issue, they argue, is the gloomy economic outlook held by potential buyers.

Goldman Sachs, by contrast, has adjusted their property price prediction for the year from a 10% drop to a 5% rise, arguing that easing LTV restrictions could stimulate the stagnant real estate market. Their prediction hinges on the belief that the loan-to-value ratio of borrowers will increase over the next 6 to 12 months, with annual growth of 4% predicted for 2024 to 2026.

A Steady or Slippery Future?

Three key negative factors have played a pivotal role in the market's decline. First, developers' eagerness to offload new developments at discounted prices has put downward pressure on the secondary market. Second, U.S. interest rate hikes have increased borrowing costs, discouraging transactions. Third, the ongoing wave of emigration from Hong Kong has increased supply in the secondary market.

However, Hong Kong's property market has its inherent strengths. The city's housing supply is severely inadequate, with a vacancy rate of just 4.4%. Despite economic uncertainties, the unemployment rate stands at a modest 3%. In addition, the U.S. interest rate hiking cycle is nearing its end. Many believe that while Hong Kong's property market may not see a significant surge in the immediate future, it's also unlikely to experience a more dramatic decline from current levels.