New home owners should be aware of property price corrections

Hong Kong’s property market has started a downward trend from September this year. According to new data from the Rating and Valuation Department, the private residences sales index has been recorded at 388.8 points in September, while the index in August was at 394.5 points—a month-on-month drop of 1.44%. This decline can be considered a sizeable one, and various experts have been predicting that property prices will not rise again.

The fact that local banks have followed the US Fed rate hikes with the Hong Kong government unveiling its Lantau Tomorrow Vision project, interest rates increasing, and the prospect of land reclamation, will bring about a great deal of supply. This compounding of factors seems to be the cause of the current property price drop. Even so, we are in the midst of one of Hong Kong’s lowest periods for transactions, and there are two reasons for this phenomenon. Firstly, the government has received 220,000 applications for the new HOS flats, clearly indicating that the home owning sentiment is still persistent. November will see the results of the ‘housing lottery’ announced, whereupon 4,400 units will be sold—but what happens to the remaining applicants who were unsuccessful? There will be a portion with spending power who will return to the second-hand market, but whether sellers will as easily lower prices at that time is another story. Secondly, there are currently 60% of home owners who have paid off their mortgages. They know the market is experiencing corrections but are not willing to lower their prices, choosing instead to simply not sell, further contributing to shrinking transactions.

The ones truly feeling the burn are home owners who have in recent years bought first-hand nano flats at a high premium. Those who have bought into Kowloon Development’s Upper East project three years ago would only have earned 8% on paper. If the market falls even further, it is possible they could even lose money. It’s more difficult to pay for a flat using high interest rate plans that developers offer; whether or not to sell quickly at a lowered price, or continue paying off the mortgage, is ultimately something that needs to be thoroughly thought about.