Strong demand and low interest rates cause Hong Kong home prices to surge

Analysts say that the property market’s recovery is driven by low-interest rates that make mortgage repayments achievable 

The current mortgage rate of 2.5 percent signifies that the repayment burden of homeowners is 70 percent lower than the one back in 1997. leungchopan/Shutterstock

According to South China Morning Post, Hong Kong home prices have peaked with Centa-City Leading Index (CCL) breaking the previous record set two years ago, as the coronavirus subsides and the economy recovers. 

The Centa-City Leading Index hit 191.34 in the first week of August, which is marginally higher than the high of 190.48 in June 2019 when the social unrest first broke out. 

Louis Chan, Asia-Pacific vice-chairman and chief executive of the residential division at Centaline, said, “Under the low interest-rate environment, it is easy for home prices to rise but not fall.”  

He said that the current mortgage rate of 2.5 percent signifies that the repayment burden of homeowners is 70 percent lower than the one back in 1997, the height of the property market boom.  

The containment of the pandemic has driven domestic consumption, boosting the economy and housing market.  

Even homeowners who are eager to up sticks and leave Hong Kong amid the political unrest generally have financial holding power and will not be easily persuaded to lower their prices under this favourable environment.  

Despite the 30 percent drop in property transactions via recent stock market volatility last month, Chan is optimistic about the real estate market’s outlook as borders are to reopen to mainland China later this year.  

Chan expects a 40 percent increase in transaction volume this year compared to 2020 and a further jump in house prices up to 10 percent.  

Martin Wong, director and head of research and consultancy for Greater China at Knight Frank, is similarly hopeful. 

“Hong Kong home prices surge mainly due to strong demand coupled with low-interest rates,” said Wong. “As monthly mortgage payments are lower than rents, it will encourage more people to buy than rent.” 

More: Hong Kong home prices remain flat in June after reaching two-year high

Knight Frank’s revised forecast for this year’s home price growth changed from five to eight percent.  

“[The CCL] is the first indicator to show Hong Kong used home prices at a historical high. The government’s Rating and Valuation data should reflect it in the third quarter,” he said. 

The Property Report editors wrote this article. For more information, email: [email protected].