Hong Kong's property prices are poised to decline by 10 per cent through March 2020, as the economy shrinks this year, according to a forecast by Morgan Stanley, the first bank to predict a contraction as protests across the city extend into their 12th week.
The "key drags" on the economy include "continued trade tension, disruption to economic activity due to unrest, as well as a potentially higher Hibor, which are likely to lead to broad-based slowdown in consumption, investment and trade in the second half of the year," Morgan Stanley's economist Jenny Zheng said in a report.
Morgan Stanley joins a chorus of banks, including DBS and Bank of America-Merrill Lynch, that are now predicting home prices in the world's most expensive property market to decline fromtheir June peak through to the first quarter of next year. In the worst of three scenarios outlined by DBS, prices could plunge by between 20per cent and 30 per cent next year.
Hong Kong's property bull run, which had just regained its pace in the first half after a five-month correction, began to stumble again in June, after an estimated 1 million people marched on the streets on June 9 against an unpopular extradition bill, unleashing waves of rallies, work strikes, sit-ins and public unrest. Over the past fortnight, protesters have clashed with police and forced Hong Kong's airport to halt hundreds of flights over two days.
"We see no increase in residential prices for 2020 for now," said Karl Choi, Greater China property analyst at Bank of America-Merrill Lynch, who also expects cheaper office and commercial rents amid declining retail sales. "Previously we were looking for a 5 per cent increase in prices this year. Now our new forecast calls for a 2 per cent drop (overall) this year, down 10 per cent from the peak in June."
The slowdown is already being felt, as shrinking transactions force some panicking owners to sell their homes for a loss. A flat measuring 848 sq ft at Harbour Heights in North Point, the scene of violent clashes between protesters and local residents on August 5, recently sold for HK$14.88 million (US$1.9 million), a discount of 21 per cent to banks' valuation, according to Centaline Property Agency, one of the city's largest property agents.
"The owner asked for HK$18 million in June," said Gary Lam, regional sales director at Centaline. "He was finally willing to slash prices by HK$3.12 million when he noticed poor sentiment in the housing market, with the risk of falling home prices."
The Centa-City Leading Index of lived-in homes eased 1.2 per cent from the end of June through the week that ended on August 11, according to Centaline. About 6,000 homes, car parks and offices are likely to change hands this month, down 42 per cent from the May peak of 10,353, said the property agent.
"Price declines come after volume decline," said Praveen Choudhary, Morgan Stanley's equity analyst. "Primary and secondary volumes are (at) record lows lately. Primary launches are delayed."
The downward spiral of home prices and equity prices hinge on when the current public disquiet gripping Hong Kong ends, DBS said.
In one scenario, where violent conflicts continue to escalate without an end in sight, investment sentiments will be affected, causing Hong Kong's economy to contract by between 3.8 per cent and5.9 per cent, while the benchmark Hang Seng Index plunges by more than a third to as low as 16,800 from Tuesday's close of 26,231.54, the Singapore bank said.
In the event that social order is restored with the rallies dissipating by the time China marks the nation's 70th anniversary on October 1, home prices would be poised for a 5 per cent increase this year, said the bank's equity strategist Dennis Lam. If protests persist through the final quarter of 2019, then home prices will drop 15 per cent in 2020, Lam said.
Property developers are leading declines in the Hong Kong stock market on Tuesday, with the Hang Seng Properties Index dropping by as much as 1 per cent.
Sun Hung Kai Properties, Hong Kong's largest developer by capitalisation, fell as much as 2.7 per cent to an intraday low of HK$116. Wharf Real Estate Investment Company, which owns the Times Square and Harbour City shopping centres, fell as much as 2.6 per cent to an intraday low of HK$46.25.
Henderson Land Development, one of the city's most active residential property developers, fell as much as 1.7 per cent to HK$38.70.
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