Cathay Pacific job cuts will hit Hong Kong housing market

Cathay Pacific job cuts will hit Hong Kong housing market

Connie Leung, vice president of Hong Kong Dragon Airlines Flight Attendants Association (third left) wears a mask while speaking to reporters at the Cathay City, the headquarters of Cathay Pacific, in Hong Kong, on Wednesday. (Reuters photo)
Connie Leung, vice president of Hong Kong Dragon Airlines Flight Attendants Association (third left) wears a mask while speaking to reporters at the Cathay City, the headquarters of Cathay Pacific, in Hong Kong, on Wednesday. (Reuters photo)

The massive job cuts at Cathay Pacific, Hong Kong's flagship carrier, are likely to further drag down the city's flagging property market, with districts close to the airport potentially facing steep cuts in home prices and rents, according to analysts.

The embattled airline's announcement on Tuesday that 5,900 jobs would be axed, including cabin crew and pilots, will further increase the number of jobless residents in Hong Kong, which rose to a near 16-year high of 6.4% in the third quarter as the city reels from the impact of the coronavirus. The unemployment rate climbed 0.3 percentage points in the three months to September, bringing the total number of people out of work to 259,800.

According to research carried out by Knight Frank, there is a strong inverse correlation between unemployment and house prices in Hong Kong. A spike in the jobless rate typically leads to a fall in home prices one or two months later, said Martin Wong, associate director, research and consultancy, Greater China, at Knight Frank.

"By this logic, it is likely housing prices will fall in the fourth quarter. For home rentals, as there has been more supply available in the market, especially for mass residential, there will [also be] a drop in rents," he said.

The property consultancy forecasts that housing prices will fall by between 3% and 5%. Rents in locations such as Tung Chung and Tsing Yi, where a considerable number of Cathay employees reside, are seen declining by between 5% and 10%.

Hong Kong's official home price index has slipped 3.6% from 394.8 at its peak in July 2018 to August this year. Used residential property prices fell 1.1% in August, the most in six months.

While it may take time before the full impact of soaring unemployment in the city is felt by the housing market, anecdotes from property agents suggest the trend is under way.

"We have a case of a Dragon Air pilot who has lost his job and is now leaving Hong Kong as his wife doesn't work. In other cases we are seeing pilots stay as their spouses also work and they are looking to move and cut their rents by up 40% by taking smaller units or moving to different locations," said Victoria Allan, founder and managing director of Habitat Property.

At least one Cathay flight attendant has cut the asking price for her flat in Tung Chung. She dropped the price from HK$6.7 million (27 million baht) to HK$6.3 million on Wednesday after news about the latest round of cuts, according to Gary Chan, an agent at Centaline Property Agency.

She bought the property for HK$1.98 million in 2007. The adjusted asking price is 4% lower than prevailing market prices.

"The impact in the rental market in Tung Chung is more prominent as the aviation industry accounts for around 30% of the customers," said Nelvin Ng, a senior district sales manager at Midland Realty's Tung Chung branch.

"A reduction in the number of customers looking for flat rentals was observed in October compared to September. There were also individual cases where foreign aviation industry practitioners sold their flats in Hong Kong."

In previous periods when Hong Kong's jobless rate surged, particularly during the Asian financial crisis in the late 1990s, the Sars outbreak in 2003, and the global financial crisis that started in 2008, Knight Frank found that "mass residential prices were strongly negatively correlated to unemployment in all three periods."

"Moreover, this negative correlation remained consistent with a lag of one to two months, implying that property prices have a high chance of falling within one to two months of rapidly rising unemployment," the study added.

The current crisis the city is facing is much worse than the Sars outbreak, when unemployment rose to a record 8.5% in June 2003, according to Hannah Jeong, Hong Kong head of valuations and advisory at Colliers.

"Rents will be directly affected by the unemployment rate, because as more people lose their jobs or see a salary cut, their ability to afford rents will be affected," she said.

Rents are likely to fall 15% for the year, she said. In Tung Chung, rents have so far retreated by 10%, according to Colliers.

The Sars outbreak lasted only six months and was mostly limited to Asia, while the coronavirus has been ravaging the entire global economy for 10 months now.

"Our worry is not only about the declining prices at the moment, but that the recovery is slow," Jeong said.

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