Goldman Sachs says Hong Kong home prices will rebound in 2025 after hitting bottom this year, raises office market concerns

Goldman Sachs says Hong Kong home prices will rebound in 2025 after hitting bottom this year, raises office market concerns

Goldman Sachs says Hong Kong home prices will rebound in 2025 after hitting bottom this year, raises office market concerns

Hong Kong’s residential property market is poised for a rebound in 2025 with an anticipated 5 per cent increase in home prices after reaching a low point this year, Goldman Sachs said.

The US investment bank said the sector will see a gradual recovery in the latter part of this year, when the US Federal Reserve begins to cut rates and Hong Kong mortgage rates are lowered from the second quarter of 2024 onwards.

For now, the market continues to show weakness, with a slower pace of transactions, as well as weak upgrader and investment demand. Overall, home prices this year will fall another 5 per cent before hitting the bottom, Goldman said in a report released on Friday.

Hong Kong’s home prices, which reported a decline for eight consecutive months through December, have fallen about 23 per cent from August 2021, it said.

Goldman said this softness is still manageable and its view is relatively positive compared with some other forecasts.

“Home prices have continued to fall for 26 consecutive weeks, as indicated by the firm’s price index,” Buggle Lau Ka-fai, chief strategist at Midland Realty, said in a report released on Monday. This highlights the prevailing cautious market sentiment, he added.

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The Midland Property Price Index, a weekly index calculated as a weighted average based on transactions from 143 well-known small and medium-sized private housing estates in Hong Kong, had decreased by 0.38 per cent as of February 12, reaching 134.91, Lau said.

Citigroup, for instance, has forecast that Hong Kong home prices will drop another 10 per cent in 2024, with a looming supply glut and high interest rates continuing to suppress investment sentiment. It said home prices might bottom out in 2025, depending on interest rate trends and China’s macro environment.

US ratings agency S&P said in a November report that home prices in Hong Kong would drop by 5 to 10 per cent this year and expected home sales in the primary market to be rangebound between 11,000 and 13,000 units. In comparison, the sales volume annually during the 2017 to 2021 period was 15,000 to 21,000 units.

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The decline in home prices has doubled the number of people in negative equity – where property values slump below their mortgage balances – to 25,163 cases valued at HK$131.3 billion (US$16.78 billion) at the end of December, compared with 11,123 cases worth HK$59.3 billion three months earlier. Some homeowners were recently forced to sell at huge losses amid the slowdown and stock market slump.

Goldman also raised concerns about Hong Kong’s office market and forecast that the sector would continue to “face headwinds of slow take-up and rising supply”.

The Hong Kong office price index fell 11 per cent year on year by the end of October 2023, and rents have been weak since the Covid-19 pandemic outbreak, having dropped 14 per cent from a peak recorded in June 2019, Goldman said.

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Overall vacancies in the office market rose to an all-time high of 16.4 per cent, growing by 1.1 percentage points over the 12 months to the end of 2023, according to property consultant CBRE. This vacancy overhang led to a 2.3 per cent quarter-on-quarter fall in rents in the fourth quarter of 2023, bringing the full-year decline to 6 per cent, CBRE said.

For 2024, CBRE expects Hong Kong’s financial markets to recover and support a mild growth in office demand. Companies, however, will remain largely cost-sensitive.

High vacancies will ensure landlords remain competitive and leasing will continue to favour tenants. CBRE forecasts that rents in Central are expected to come down by another 5 to 10 per cent this year.

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