Hong Kong’s high property density makes land scarce and intrinsically expensive, making it one of the most costly real estate markets in the world.
In 2020, Hong Kong held the title for the most expensive residential property market in the world with an average property price of a staggering $1.25m USD.
In comparison, Munich came in 2nd with an average of $1m USD, and New York came in 10th with an average of $646k, almost half of Hong Kong’s average.
Hong Kong even topped the list for average property price per sq. ft, leading the list with $1,987 USD per sq. ft, more than double Munich’s $821 USD per sq. ft.
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Despite their long-standing status as one of the world’s most expensive real estate markets for over a decade, Hong Kong’s property prices have been falling in recent years.
Home prices have declined for three consecutive years and are predicted to continue this trend in 2024.
There are several reasons to explain the downfall of Hong Kong’s property prices and why they are expected to fall even further.
One significant reason is the increasing supply of housing in Hong Kong. Over the next 3-4 years, an estimated 107,000 new units of private homes will be available.
This causes the price of houses to rise due to the basic economic principle of supply and demand. With more houses available this will lead to a decrease in house prices.
Additionally, about 140,000 Hong Kong residents left from 2020 to 2022 meaning that demand has decreased as well and further leading to the decrease of house prices.
High interest rates also play a crucial role. Having high interest rates means that there is an increased cost of borrowing and higher monthly mortgage payments for borrowers, pricing many potential buyers out of the market.
A decrease in demand causes sellers to lower their prices to attract buyers. The possibility of a trade war between the US and China has a negative impact towards Hong Kong’s business prospects and finance, leading to slower economic growth.
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This causes a weaker economy which usually leads to unemployment and less demand for houses.
Moreover, Hong Kong’s mortgage rates are higher than rental yields, making property investment less attractive.
The average mortgage rate stands at 3.9% compared to the rental yield of 2-2.5%. Joseph Tsang, the Chairman of JLL in Hong Kong, says that it will require a cut in the interest rates and economic improvement for the house prices to rebound.
UBS estimates that home prices will drop an additional 5% this year and property investors in Asia have been looking at other places such as Tokyo and Singapore as better alternatives than Hong Kong
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