Home prices likely to stay low as trade war expands

The much-anticipated Trump-Xi dinner finally took place during the G20 summit, and both leaders came out of the meeting declaring a 90-day trade truce and their commitment to working towards a trade agreement. For a moment, I thought that Hongkongers would now turn their attention back to the housing market, seizing the opportunity to make home purchases while secondary market prices are relatively low.

Due to the de-escalation of the US-China trade war and the large number of failed Home Ownership Scheme applicants who have returned to the private market, sales numbers in the past week did in fact go up slightly. However, before anyone could celebrate, the market was dealt another major blow. Meng Wanzhou, the daughter of Huawei's founder and the company’s current CFO, was detained on December 1 by Canadian authorities during a layover in Vancouver, facing possible extradition as requested by US prosecutors. While details of the case remain largely unclear, the incident has certainly made the future of US-China trade relations even more unpredictable. In the meantime, both Hong Kong and the US stocks took a plunge immediately following Meng’s arrest, so naturally, the property market will be next. At this point, the only way to reenergise our housing market and boost buyer confidence is for the market to undergo some fundamental price readjustments.

As it turns out, a large new housing estate in East Kowloon is doing just that. It’s said the development’s per-square-foot price is set lower than secondary homes in the same area, and that the developer is offering high loan-to-value ratio mortgages to cater to buyers who can’t afford a hefty down payment. All these gestures clearly show that the developer wants to grab the attention of all potential buyers in the city and is gunning for a quick sellout. Although the first round of sales only offers around 200 units—not enough to assess the market reception with—if they do sell out as planned, the developer will very likely release more units at higher prices soon. However, figuring out the appropriate price increase will be a tough balancing act. Given that the US-China trade tensions have expanded into tech and the current political environment looks bleak, an overly aggressive price hike will inevitably turn buyers off; on the other hand, by not raising the prices, it can cause prospective buyers to doubt the appreciation potential of the property. With so many factors and variables to take into account, it will take even the most experienced property sales team to achieve optimal results.

I expect the conflict between the US and China, which is spreading beyond trade and has no apparent pattern to make sense of, will greatly intensify the uncertainties and risks in Hong Kong’s future economic trajectory and subsequently force investors to choose more conservative strategies. Therefore, it’s unlikely for Hong Kong’s housing prices to bounce back in the short term.