Politics to play bigger role in moving Hong Kong property prices: DBS

By Timothy Tay

/ EdgeProp Singapore |

May 26, 2020 7:25 PM SGT

SINGAPORE (EDGEPROP) - A report on Hong Kong’s property market by DBS Group Research points out that a mix of political and supply-side economic factors will determine future property price movements in the city, rather than just economic forces.

Luxury residential property is heavily influenced by the supply of Chinese capital that enters the market. DBS research shows that liquidity from China has been the prime driver of property prices in Hong Kong and could easily ramp up asset prices in the Special Administrative Region (SAR).

DBS notes that the prices of large units fell in tandem with renminbi depreciation that occurred between 2015 and 2016. After that, prices resumed an upward trend as capital controls were gradually relaxed from 2017.

According to DBS, social instability from June 2019 precipitated a decline in prices of larger-sized units, and this was deepened by the negative effects of the current Covid-19 pandemic. “The imminent enactment of the National Security Law in Beijing to cover HKSAR will exert more selling pressure on the luxury segment. Meanwhile, the global pandemic of Covid-19 has created a ‘positive home bias’ situation for Hong Kong people in the foreseeable future,” the research team says.

EDGEPROP SINGAPORE - Cumulative change of property price and income

Other factors such as household income have been growing at a slower pace compared to property prices. Household income has grown by 48.6% over the past decade and residential rents have climbed by 85.3%. Meanwhile, home prices have surged 209.1%.

DBS also notes that interest rates have been staying at such ultra-low levels that further declines in rates will not be able to fan demand any further. Thus, the resilience of medium-sized apartment units hinges heavily on the employment stability of the financial services sector. Professionals in the finance, insurance, and real estate sectors are the prime consumer groups which render the firmest support to Hong Kong’s property prices, says DBS.