By Joanne Chiu
Hong Kong's formidable property market is straining, as protest pressures add to those created by an escalating U.S.-China trade spat and slowing global growth.
In the past two months, shares in big real-estate companies have dropped and a marquee land sale in a much-hyped redevelopment area has fallen through. Home values have edged lower, and some analysts now expect prices, after marching upward for many years, to be flat for 2019.
Trade tensions and signs of slowing growth weigh on commercial-property prices in other world cities as well. But property plays an outsize role in the Hong Kong economy, and real estate is one of the most important sectors in the local stock market.
The market value of the city's big four developers-- CK Asset Holdings Ltd., Henderson Land Development Co. Ltd., New World Development Co Ltd., and Sun Hung Kai Properties Ltd.--fell more than US$16 billion in the one-month period ended Aug. 26. Because the major developers are also landlords, with investment portfolios that span shopping malls, hotels and office buildings, they are exposed in more than one way to a downturn in Hong Kong.
The city has been hit by a "perfect storm" of trade tensions and spiraling protester-police clashes, Wharf Real Estate Investment Co. Chairman Stephen Ng told media earlier this month. He said sales at the company's two flagship malls, Times Square and Harbour City, had suffered.
In the commercial-property market, second-quarter sales were down 6.2% from the quarter before, to HK$21.1 billion, excluding land sales, according to real-estate services firm CBRE.
Citing social unrest and economic instability, Chinese developer Goldin Financial Holdings Ltd. in June walked away from a US$1.4 billion purchase of commercial land on the site of the old airport.
The impact on the residential sector has been smaller. At the city's top 10 private housing estates, homeowners sold 19 apartments in the first four weekends of August, four more than in the same period a year earlier, Centaline Property Agency data shows. The company said sales picked up during the most recent weekend, aided by anticipation of persistently low interest rates and after some homeowners reduced prices.
The realtor's Centa-City Leading index, a gauge of used home prices, has fallen by 1.1% in seven weeks, after hitting a record high in late June.
Still, Louis Chan Wing-kit, Centaline's Asia-Pacific vice chairman, said many prospective buyers had canceled viewing tours, as protests disrupted transport and dented investor sentiment. Weekends are prime time for both viewings and the biggest protests.
Danny Lo, a 48-year-old Hong Konger who has moved to Canada, said he put his apartment in Kowloon's Hung Hom district on the market at the end of June, and has watched interest diminish as the protests escalated. By mid-July, he said, demand was dead, with no more viewings and only a couple of phone inquiries. He said he is considering dropping the price for the roughly 1,100 square-foot apartment from the initial HK$17 million.
The protests, sparked by a bill before the city's legislature that would have let China extradite suspects from Hong Kong and prosecute them on the mainland, have been fed by economic grievances, including concerns about inequality and the cost of living.
Home prices are part of that. Hong Kong has long been the world's least-affordable residential market, research firm Demographia says, and last year the average apartment price, at HK$7.17 million, was more than 20 times median annual household income. The smallest apartments, dubbed "mosquito-sized units," can measure just 180 square feet.
Prices have more than quintupled since 2003, when an outbreak of severe acute respiratory syndrome rattled the city and its economy. The rally was boosted by low interest rates, limited supply and hefty demand from mainland Chinese buyers as China's economy boomed. In recent years, however, mainland demand has waned as China's economy slowed, Beijing imposed capital controls and Hong Kong sought to cool the market by increasing stamp duties on property sales.
Nonetheless, analysts don't expect too severe a pullback. Supply remains tight, and a currency peg to the U.S. dollar means local interest rates track those in the U.S., which helps keep mortgage costs down.
Mr. Chan at Centaline, and Will Chu, property analyst at CGS-CIMB Securities, both said they expect home prices to fall in the second half, bringing price growth for the whole year to about zero.
Steven Russolillo contributed to this article.
Write to Joanne Chiu at firstname.lastname@example.org
(END) Dow Jones Newswires
August 27, 2019 05:44 ET (09:44 GMT)Copyright (c) 2019 Dow Jones & Company, Inc.