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Hong Kong property prices have begun a descent that could last up to five years, based on past experience, as interest rates start to climb. Photo provided to China Daily

In recent months, there has been no shortage of ominous signs that all isn’t well with Hong Kong’s property market.

One of the city’s largest property agents reported a complete drying up of business in weeks. Others were busily downsizing by closing down underperforming outlets and trimming staff to save costs amid lean times.

Landlords of apartments in some of the most popular housing estates, such as Tai Koo Shing and Mei Foo, have been slashing prices by 10 to 20 percent to unload their holdings. Sluggish sales of new flats in various housing projects have forced developers to cut prices and offer easy credit to woo the shrinking crowd of potential homebuyers.

A combination of factors has been attributed to souring what had been once a red hot market, and breaking the spell that had fueled the great property rush by thousands of families in the belief that property prices would never fall. They were wrong.

Official surveys have shown that home prices in both the primary and secondary markets began to fall in August — the first month-on-month decline in 27 months. Based on continuous sluggish sales, average property prices are expected to dip further in the following months, setting in motion the property market down cycle that could last up to five years, as past experience shows.

That’s not necessarily a bad thing. Having gone straight up for more than two years, property prices are widely considered to be long overdue for a correction. Some economists even call that a healthy adjustment that can help ease the social tension caused by skyrocketing prices in the past.

But, there’s no guarantee the price correction in an overheated market will be a gradual process allowing lenders and borrowers time to adjust. Such worries have been magnified by the uncertain economic outlook created by the ongoing trade war between Hong Kong’s two largest markets — the United States and Chinese mainland.

Rising interest rates pose another threat to the health of the property market. Fortunately, for Hong Kong, the rate increases in the US are expected to be mild and gradual, giving the city’s monetary officials and banks sufficient leeway to take action without unsettling confidence in the local property market.

The one wild card is the outflow of overseas capital from Hong Kong for better returns from investments in the US. So far, though, net capital outflow has remained “manageable” without the need to drastically raise interest rates to defend the Hong Kong dollar.


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