Rate cut and soaring stocks could benefit housing market

HONG KONG, 8 October 2024 – The recent rate cut and the recent soaring stocks are positive news for Hong Kong’s property market. However, the economy remained weak and developers continue to offer units at conservative prices. With 109,000 available housing units and potential supply in the primary market, pressure on secondary prices will persist, according to JLL's latest Residential Market Monitor released today.

Bruce Pang, Head of Research at JLL in Greater China, said: “Successive rounds of government policy relaxations on residential mortgage and stamp duties—though collectively more effective in improving affordability than this single 25 bps reduction of mortgage rates—have yet to bring a sustainable recovery of buyer confidence. Even with the rate cut, it is unlikely to trigger a pronounced reversal of the prevailing downward trend. The property market is primarily driven by Hong Kong’s overall economic conditions.”

The primary transaction volume in the first eight months of 2024 has already exceeded the total for the full year of 2023. Cash-rich buyers, who are less sensitive to the interest rate, have already entered the market. Thus, a repeat of this elevated level of market activity appears unlikely. In the week immediately following the recent rate cut, the primary market recorded 94 transactions, representing just 10.2% of the 918 transactions seen in the first week after the relaxation of cooling measures.

Cathie Chung, Senior Director of Research at JLL in Hong Kong, remain bearish for the rest of the year and believe the residential market are currently facing the following challenges:

• Decelerating income growth: Median household income growth averaged 2.1% y-o-y in the first seven months of 2024, a significant slowdown compared to the 5.3% growth recorded during the same period in 2023.

• Deteriorating business confidence: The Purchasing Managers' Index (PMI) remained below 50 for the fourth consecutive month as of August, indicating a prolonged contraction in business sentiment.

• Weakening government financial position: The government reported a fiscal deficit of HKD 135.4 billion for the first four months of the current financial year.

Meanwhile, developers are continuing to offer units at conservative price levels. After the rate cut, SHKP launched the first batch of 182 units for 'Cullinan Sky (Phase 1)' at an average price of HKD 19,668 per sq ft, marking a seven-year low for new developments outside the runway area in Kai Tak. This price is also 6.7% lower than the HKD 21,088 per sq ft average of HENLEY PARK, a nearby project by Henderson Land launched in June 2023.

Norry Lee, Senior Director of Projects Strategy and Consultancy Department at JLL in Hong Kong, said: "With 109,000 available housing units and potential supply in the primary market, demand will continue to shift to the primary market and weigh on the secondary prices. While the recent stock market rally driven by policy stimulus in mainland China may generate a positive wealth effect on the property market, we believe that restoring homebuying sentiment and achieving a sustained recovery will take time. This will largely depend on broader economic revitalisation and the city's capacity to reignite business growth,”