According to JLL's newly released Hong Kong Year-end Property Market Review and Forecast, the longest bull market in Hong Kong's property market history has come to an end in the second half of 2019 due to the local social unrest with Mainland China, and related economic uncertainties surrounding it.
Capital values of mass and luxury residential slipped in the second half of 2019, on the back of weakening market sentiment. Mass residential showed more resilience on prices, supported by strong pent-up demand and relaxation in mortgage rules.
Luxury residential market was largely backed by PRC capital over the past five to ten years. However, PRC buyers turned inactive this year due to the tightened capital outflow policy and the US-China trade war. Capital values of luxury residential dropped 4.7% since July, reversing the growth achieved in the first half of this year.
The unemployment rate started to rise and reached 3.1% during August to October 2019. Given a strong reverse relationship between unemployment and housing prices from historical trends, the rising unemployment rate will weigh on the housing market.
Hong Kong has experienced three property crashes since 1997. Property prices plunged 50% in a year due to the Asian financial crisis and dropped a further of 43% during the dot.com bubble and SARS outbreak period, with the last downfall of 24% taking place in 2008 during the global financial crisis.
Joseph Tsang, Chairman and Head of Capital Markets at JLL in Hong Kong commented, "Capital values of mass residential dropped 2.5% in the second half of the year due to the local political situation. We believe the market sentiment will remain tied to social tensions in 2020. The economic slowdown in Mainland China and Hong Kong will dampen housing demand, particularly in the luxury residential market that relies on PRC demand. Capital values of luxury residential will drop about 20% in 2020. Developers will face increasing pressure in pricing in order to offload stock due to the introduction of the vacancy tax and the increase in housing supply. Prices of mass residential are expected to drop 10-15% next year."