Hong Kong’s housing to benefit from reopening and rate stabilisation

We expect Hong Kong’s housing prices to stabilise in 2023, following a 15% peak-to-trough decline. This will be driven by a combination of mainland China’s border reopening lifting Hong Kong’s economic outlook, mortgage rates stabilising from Q2 onwards, and the relaxation of stamp duty measures for non-local homebuyers. Local sentiment has improved, which is a potential precursor for a bottoming out of housing prices.

What you will learn:

• Housing investment should return once the US Federal Reserve ends its rate hiking cycle, thereby easing pressures on local banks to raise their prime lending rates further. The city’s recovery is also benefitting from the border reopening progress. Moreover, rental yields are higher than bank deposit rates.
• The government has announced it will refund stamp duties on the first home purchased by eligible candidates after they become permanent residents. This creates an incentive, particularly for mainland people residing in Hong Kong, to buy or invest in residential properties. Along with the reopening of borders and government measures to lure more talent, an inflow of skilled persons and high-income earners from the mainland could bolster housing demand.
• Downside risk stems from a higher-than-expected US terminal rate, which could result in a deeper housing market downturn. In this scenario, our proprietary Global Economic Model suggests private consumption and investment could drop 0.3ppts and 3ppts, respectively, relative to our baseline. GDP growth would be 0.8ppts lower than our baseline forecast of 1.4%.