The Hong Kong property sector could be set for a further two years of annual house price declines, in a further blow to investors there.
The outlook for Hong Kong’s housing market has been downgraded by the latest Morgan Stanley forecast, with investors hoping for capital growth set to be disappointed by the current predictions for the sector.
The average Hong Kong property, according to Morgan Stanley, is expected to have lost 3% from its value over the course of 2023, which is a significant step down from the 8% increase originally forecast for the year. Last year, the market’s value fell by an average of 16%.
Figures for 2024 aren’t looking any more promising, with the bank predicting a 5-10% decline on house prices in the area, after it labelled its previous forecast “too optimistic”. While the bank once considered the housing market’s potential there “attractive”, it has now moved to “in-line” on its latest assessment.
Why has Hong Kong property dropped?
According to Morgan Stanley, stretched affordability in the region is a major driver behind vendors lowering their prices over recent years. There has also been a boost in land supply, while trouble in the equity market has also worsened investor sentiment in Hong Kong.
Hong Kong property remains some of the most expensive real estate in the world, even in spite of its recent continuous price falls. Research from 2022 shows the average home on the island sold for around HK$173,000 per square metre (around £18,114 per square metre).
While prices remain high, the government is going against calls to take measures to stop values falling further, arguing that properties remain unaffordable for many which is exacerbated by a general lack of supply.
Higher interest rates, which are also having an effect on the UK property market at the moment, are also playing a part in value falls on the Hong Kong property scene, according to Morgan Stanley, along with slower growth from China.
Meanwhile, Bloomberg Intelligence has calculated that the share of Hong Kong mortgages that exceed the property’s value are expected to reach their highest since 2005 if prices continue to fall as they are currently expected to do so. This will put a lot of property owners in a very difficult situation.
UK property investment remains popular
In light of the current situation in the Hong Kong property space, investors looking for a new location for their assets are increasingly drawn to the UK housing market, which has weathered the recent storms of the Covid pandemic and other external headwinds better than many had expected.
According to some statistics from Skipton International earlier this year, which is a specialist lender based in Guernsey, and Hamptons, a national estate agent, appetite has been high from property investors from Hong Kong and Singapore recently.
Research found that more than 400 sales of buy-to-let properties were made using specialist mortgages from Skipton in 2022 to Hong Kong buyers. Meanwhile, 200 property investors from Singapore also invested in buy-to-let homes last year using Skipton mortgages
Unsurprisingly last year, London was the favoured investment location among both Hong Kong and Singapore buyers. It is a world-renowned city for its property market, and is often viewed as a safe choice among buyers from abroad with its strong rental demand and excellent economic prospects.
The second most popular location for Hong Kong property investors in 2022 was the north west of England, where 106 property investors chose to take out buy-to-let mortgages. The likes of Manchester, Liverpool and the surrounding areas have some of the country’s strongest investment prospects at the moment.
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