When will Hong Kong property prices recover? Not any time soon
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When will Hong Kong property prices recover? Not any time soon

A general view shows residential buildings in Hong Kong on July 8, 2023. (Photo: AFP)
A general view shows residential buildings in Hong Kong on July 8, 2023. (Photo: AFP)

The extended weakness in Hong Kong's residential property market has been an unusual and unpleasant experience for many of us. Property turnover fell 40% last year with buyers waiting for price falls and sellers unwilling to sell at these prices.

It does not seem right for Hong Kong property to go sideways or downwards - even during the global financial crisis, property prices fell only 22%. Prices rose more than fivefold from the dark days of the severe acute respiratory syndrome crisis in 2003, according to the Centa-City Index, but fell nearly 16% last year.

We have had a "dead cat bounce" since then but, as the Post reports, owners are currently unable to sell unless they cut their price by more than 10%. This is not good news for the more than 50% of us who own a home. It is better news for beleaguered home-seekers, even if housing affordability in the city remains the worst of the major economies, according to EY.

Hong Kong is a property-obsessed city. This supports the big mortgage businesses and the fat-cat property developers that dominate the city's economy and stock-market sectors - which are bedfellows, even if less volatile and sticky real estate prices lag behind share prices.

The Hang Seng Index peaked in January 2018 at 33,154 but now languishes some 40% below that level. In a city founded on commerce, such pressure on both shares and property makes investment sentiment gloomy in a place aspiring to be happy.

Recent Chinese manufacturing data shows a contraction in activity, and the service sector is sluggish. Export declines reflect the general global slowdown and are not helped by the 6% fall in the renminbi against the United States dollar in the past year.

There is little confidence in investing in risk assets. This is reflected in Hong Kong's latest economic growth of 1.5% - something that would make even Europe feel poor.

A general view of Two International Finance Centre (IFC), HSBC headquarters and Bank of China in Hong Kong, China, on July 13, 2021. (Photo: Reuters)

What will it take for your property price to recover? Investors cannot be economists who look backwards through a rear-view mirror. Investors must look forward into the future, through a glass that is misty and dark.

Investment analysts cannot predict, but they can forecast by looking at the past for patterns and clues that indicate the probabilities of a future event. The current analysis is not all doom and gloom.

The US has consistently stimulated its economy with low interest rates and by increasing money supply. This has led to an extended bull market, with the S&P; 500 index rising by a whopping 28% since October. Some might say the economy has been overstimulated and this will lead to a bigger future crash, but there is still life in this cycle.

Even the holdout Japanese authorities are starting to ease policy in the face of domestic discontent. It is already apparent from public statements that this trend of government support for weakening economies is likely to be followed by the Chinese authorities.

Such a move to boost the flagging post-pandemic economy would excite economic growth, as well as the domestic stock and property markets. This will occur independently of any moves in markets in the rest of the world because of credit rating changes or to de-risk or decouple from China.

Concerted action from the Chinese authorities to support the private sector has been announced with a focus on new industries such as the electric vehicle supply chain, where China leads the world. Measures are in place to stimulate consumption and private real estate.

Talk of government support in the past few weeks initially lifted the Shanghai CSI 300 index by about 5% and the Hang Seng Index by 10%, even though the authorities are discouraging talk of major stimulus. Hong Kong already acts like an option on China's economy; it rises more if China rises and falls faster if China declines.

Any positive moves such as easing interest rates in the Chinese economy will boost the city, even though Hong Kong dollar rates follow those rising in the US. The impact of a recovering Chinese economy will far outweigh the few percentage points on rates in cash-rich Hong Kong.

Tourism and consumer spending have already jumped 20% in the year to June. This city is to China what Monaco is to France - it has many attractions for businesses and businesspeople precisely because its alternative legal, fiscal and financial jurisdiction make it a powerful gateway between East and West.

Investors need to have confidence that the weakness of the Chinese stock market implies a phase of recovery. The game never ends; in investment, what goes down eventually comes up. It is too early to hope that China will return to previous growth levels, but the current position makes the economy more defensive in the event of a meltdown in Europe or the US.

The trickle of talent and assets from the mainland into Hong Kong is likely to make property an attractive investment. Hong Kong property will also price in inflation that is not reflected in consumer-based official statistics.

However, do not expect property turnover to improve just yet. Smart purchasers might want to buy soon, before prices rise, but smart sellers will be holding off to wait for the same.

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