南方財經: 凱基: 香港住宅市場潛力(只限英文版)

Hong Kong residential market has experienced one of its longest declines except for during the Asian Financial Crisis, during which prices deflated by 70% over a period of six years. The current downtrend in residential prices began three years ago, with a total decline of 27%.

There is a marked difference between the decline during the AFC and the current downturn. The decline during the AFC was caused by the popping interest rate to defend the HK dollar pegged exchange rate, which led to a significant deleveraging of the sector. The current downturn is caused by a combination of population outflow, declining economic confidence, and rising mortgage rates.

It is easy to follow the trend and believe the current decline will continue. However, we notice some positive developments in the sector that have largely been ignored by the market.

1. Positive momentum in residential rentals. Despite the decline in residential prices over the last three years, residential rents have increased anywhere between high single digits to 24%. With a combination of declined prices and increased rents, the residential yield has increased to over 3% for small-medium size units. We expect residential yield will soon be over the mortgage rate with one or two rate cuts in the US and the continued strength in the rental market. This should start to attract long-term investment demand back to the residential market.


2. Improvement in sentiment. Sentiment is the leading indicator of housing demand as people don’t want to lose money, but everyone wants to make money. This is best captured in the recovery in transaction volume in both the primary and secondary markets last year. Once buyer confidence resumes, it will start to reflect the fundamentals of the sector.


3. Improved affordability. The affordability ratio (monthly mortgage payment as percentage of monthly median household income) of Hong Kong residential has improved from a recent high of 60% in 2021 to 40% currently, driven by the decline in residential prices and the growth in median household income. The ability to service mortgages is much stronger.


4. Low leverage among the homeowners. Hong Kong has about 1.3m private residential units, of which about 66% (858k units) are without mortgages. If we take the aggregated mortgages versus the aggregated value of all private residential units, the aggregated LTV of the banking sector is only at 22%. This leaves ample room for providing financing to the residential market.


5. Positive demographics. Hong Kong’s population dropped by about 170,000 from 2019-2022. However, the population now has gone over the previous high level in 2019 partly, thanks to the talent import scheme launched by the Hong Kong government. It is interesting to note that while the total population has returned to its previously high level, Hong Kong’s labor pool has not yet completely recovered, and that led to the undisrupted rising trend of the median household income. This is positive for both potential buying power and the sustainability of the rental increases.


6.  Ample liquidity in Hong Kong. The monetary base in Hong Kong has increased from HK$500 billion in 2008 to HK$1.8 trillion now. Despite all the market talks about funds moving out of Hong Kong, the data shows that fund flows are still very sticky. This is not “hot money” but wealth created through the super-low interest rate environment during the QE period.


7. Limited future supply. The Hong Kong government has pledged that 70% of the land supply will go to the building of public housing and 30% to the private residential sector. According to government forecasts, the supply for the private sector over the next 10 years will be about 132,000 units, i.e. averaging 13,200 units per year. The primary units sold in 2024 were 15-16,000 units, in a not-so-good year. Given the poor market sentiment over the last three years, developers have been very cautious in land acquisitions. As a result, the significant drop in land supply over the last two years is likely to impact supply 3-4 years down the road.

In the short term, the upside of the residential market could be capped by the digestion of the inventory accumulated by the developers over the last few years. Once the inventory is normalized, we believe the outlook of the residential market is not as bleak as the market portrays.

2025年3月10日