While Hong Kong’s housing is far more affordable these days, buyers should still prepare for more rate hikes – just in case

According to the latest statistics from Midland Research, 28,820 residential transactions were found in the secondary market this year (as of 14 September), for a consideration of HK$216.66 billion, or an average of HK$7.52 million, down about 6.9% from last year’s average of about HK$8.08 million and hitting a six-year low since 2017.

Average consideration of secondary residential market (2017 to 2023)

Second-hand units’ average fall is related to the easing in property prices. This year, the RVD residential Index started well by rising from January to April but then began falling. It was last at 343.4 points, dropping for two consecutive months, down 3.05% from the year’s high in April, and hitting a new low since mid-February this year.

In addition, the proportion of secondary luxury transactions is also down, which would also weigh on overall market value. As of 14 September, the secondary market had 28,820 transactions, of which 844 were more than HK$20 million. The ratio further decreased from about 3.1% last year and hit a seven-year low off 2016.

Transactions over HK$20 million in secondary residential market (2016 to 2023)

Home prices in Hong Kong continue to fall. Some buyers believe that the high interest rates and developers continually launching primary units at a discount will weigh on second-hand prices, and transaction volume will shrink over the next few months.

After CK Asset’s project, The Coast Line I & II, launched in Yau Tong last month, sold 98.5%, a project jointly developed by Road King Properties and Shenzhen Investment, Mori in So Kwun Wat, launched its first batch of 140 units on 14 September. Their price list indicates a maximum discount of 18%. The lowest-priced home is HK$3.125 million, and the lowest unit price per square foot is HK$9,168.

The price per square foot for Mori’s first pre-sold batch is the most modest in at least the past eight years, offering flats from 291 to 700 sq. ft., ranging from studios to three bedrooms. The price list is from HK$3.81 million to HK$10.048 million, and new buyers can enjoy up to 18% discount. The units’ discounted prices range from HK$3.125 million to HK$8.24 million, and the unit rate is HK$9,168 to HK$12,336 per sq. ft.

Right now, potential home buyers can get the best prices in the primary and secondary markets, especially since prices eased in the secondary market last month.

According to HKET’s 9 September edition, eight transactions were under market value. I compared them to past transactions within the same block and similar size over the last three years. They have depreciated by about 14.8% to 33.7%. 

The mid-floor D unit in Tower 5, The Palazzo, offers three bedrooms (689 sq. ft.) with an asking price of HK$10.78 million. The final deal was struck at HK$9.8 million. The home’s previous lowest price had been HK$9.88 million in May 2017. The latest selling price is nearly 15% lower than a similar transaction of HK$11.5 million in June 2022.

The single transaction from one of the benchmark Top 10 estates – Kingswood Villas in Tin Shui Wai, fell below HK$4 million. This two-bedroom is a Flat E on a low floor of Block 5 in Locwood Court. It has a saleable area of 448 sq. ft. with garden views and sold at the end of August for HK$3.98 million, a cumulative decrease of 20.1% from the similar deal price of HK$4.98 million in August 2020.

Last week, HSBC and Bank of China announced that the ceiling cap rate for new mortgage applications increased by 0.5% before the US Federal Bank interest-rate discussion on 21 September. The interbank interest rates HIBOR capped interest rate will be adjusted from P-2.25% to P-1.75%,  and the actual interest rate will rise from 3.625% to 4.125%. The effective dates are today for existing flats and 30 September for incomplete homes. At the same time, the cash rebate has been adjusted from as high as 3% to approximately 1.75% to 2%, depending on loan size.

The cap rate’s upward adjustment is primarily due to the pressure caused by increased bank funding costs. First, the HIBOR reflects bank funding costs and has gradually increased since 2022. The one-month Hong Kong dollar interest rate related to real estate mortgages has been above 4% for five consecutive months since May this year and has even breached the 5% mark. The interest rate has continued to be higher than the market mortgage interest rate of 3.625%, which reflects that banks’ pressure on mortgage interest rates has increased, making it difficult for them to make reasonable profits.

The big banks have successively raised the mortgage cap rates, believing the Fed will likely raise rates again. If the interest rate gap between Hong Kong and the United States continues to expand, local banks will still be pressured to raise interest rates. However, the interest rate lock limit may not be adjusted in the short term, but the prime rate (P) can be adjusted separately. Therefore, prospective home buyers should set aside more funds to cope with the risk of rising interest rates.

Local banks’ interest rate hike is also affected by seasonal factors – banks usually temporally “pack up” in the fourth quarter, meaning they have already met, or are close to meeting, their full-year target. When banks deploy next year’s targets, they will consider optimising mortgage rates and provide high cash rebates for new mortgage applications.

Since there is not much time to apply for the old mortgage plan, some buyers have chosen a new flat ready for completion, and those who need to re-financing or cash out their properties should apply to remortgage as soon as possible. Try to get approval for the more favourable interest rate before this adjustment wave.