Hong Kong home prices to erode another 10% in 2024 as impact of expected interest-rate cuts will take time: Citigroup

Hong Kong’s home prices will drop another 10 per cent in 2024 as a looming supply glut and high interest rates continue to suppress investment sentiment even though the local stock market may rebound by midyear, according to Citigroup.

The US Federal Reserve will start cutting interest rates in July and reduce them by 0.25 per cent at each subsequent meeting, for a total cut of 1 per cent this year, the investment bank forecast on Tuesday.

“It will take time for interest-rate cuts to impact the Hong Kong economy,” said Ka Liu, head of investment strategy and portfolio advisory at Citibank Hong Kong. “We remain conservative on the residential market outlook, as mortgage rates will stand high, exerting repayment burden on potential buyers.”

Meanwhile, the supply of new flats will be high, with Citigroup expecting an average of 20,000 units to be completed in the coming two years, compared with sales of 10,000 units in 2022 and 9,000 units in the first nine months of 2023, Liu said.

Home prices may bottom out in 2025, depending on interest-rate trends and China’s macro environment, he said.

Given the excessive supply of new flats, developers will curtail future private housing supply, which will contract by 44 per cent in the 2026 to 2028 period, compared with 2023 to 2025, JLL said in a report on Tuesday.

“The sustained decrease in homebuyer interest, compounded by the developers’ financing pressure under high interest rates, has had a tangible effect on property development,” said Cathie Chung, senior director of research at JLL in Hong Kong.

More demand-side supportive measures will be necessary to bring the housing supply mechanism back on track, Chung said.

The number of mortgages for completed units dropped by 27.4 per cent month on month to 3,496 in December, marking the sixth consecutive month of decline and a new monthly low since records began in 2001, according to data released by local mortgage broker mReferral on Tuesday.

Hong Kong home prices slump to lowest in 7 years as outlook remains bleak

Mortgage approvals for properties under construction dropped almost 50 per cent to 80 in December – an eight-month low – from 150 in November.

For 2023, the number of loans for completed units dropped 11 per cent to 73,906 from 83,421 in 2022, also setting a record low since records began, mReferral said.

Hong Kong’s economy did not fully recover in 2023, as high interest rates hindered developers’ launches of new properties and transactions in the secondary market also remained weak, said Eric Tso Tak-ming, chief vice-president at mReferral.

The number of loans may stabilise as interest rates are expected to start falling in the second half of the year, coupled with a gradual recovery of the economy that will boost buyer confidence, he said.

Citigroup remains neutral on allocation in the mainland China and Hong Kong stock markets, as investment sentiment remains cautious.

Half of seafront homes at Hong Kong estate using public land without lease

“If the market’s confidence in mainland China’s supportive economic policies, especially the recovery in the property market, returns, we do not rule out the possibility of the Hang Seng Index reaching 23,000 in the middle of the year,” Liu said. “However, there are many uncertainties affecting the stock market, and we need to wait for clearer information on policy momentum.”

He added that if the macroeconomic environment continues to improve and geopolitical tensions ease, overseas capital may shift back to China from places such as the United States and India.