Table of Contents
As one of the cities with the highest housing prices in the world, Hong Kong’s property market trends have long been a concern for the social and economic community. However, since 2022, Hong Kong residential property prices have continued to fall due to multiple factors such as the international situation, rising interest rates, immigration and the weak local economy. According to data from the Rating and Valuation Department, house prices fell by a total of about 7% in 2023, with the decline in some areas exceeding 15%. This adjustment not only impacts the overall economy, but also directly affects the financial status, psychological state and social mobility of hundreds of thousands of owners. This article will combine official data with expert reports to explore in depth the multi-dimensional impacts of the property market downturn on property owners.
1. Financial shock: asset shrinkage and rising risk of negative assets
1.1 Real estate depreciation leads to evaporation of net assets
For most Hong Kong property owners, real estate is the core component of family wealth. According to the Hong Kong Monetary Authority (HKMA) 2023 report, residential properties account for as much as 68% of total household assets. In theory, every 10% drop in house prices will lead to a decrease in household net assets of approximately 6.8%. Based on the overall property price drop of 7% in 2023, owners will lose an average of about HK$500,000 in asset value. The research department of Centaline Property pointed out that some owners who purchased houses during the peak of the property market in 2018-2019 have suffered a book loss of 20%. If transaction costs are included, the actual losses will be more significant.
1.2 The surge in negative equity cases threatens financial stability
When the value of the property falls below the outstanding mortgage amount, the owner is in a "Negative Equity"state. Data from the HKMA showed that the number of negative-equity residential mortgages soared to 11,123 in the fourth quarter of 2023, reaching a new high since the SARS outbreak in 2003, with a total amount of HK$59.3 billion involved. This means that mortgage loans exceeding 1% may face the risk of default. Tang Hei-wai, professor of economics at the University of Hong Kong, warned that if housing prices fall another 10%, the number of negative assets may exceed 30,000, and the stability of the banking system will be tested.
1.3 Payment pressure and risk of default increase
Since the U.S. Federal Reserve launched aggressive interest rate hikes in 2022, Hong Kong's prime rate (P prime rate) has risen by a total of 3%, resulting in an increase in monthly mortgage payments of approximately 20%. Research by JLL shows that the current mortgage burden ratio (i.e. the proportion of mortgage payments to income) has reached 75%, far exceeding the international warning line of 50%. A 2023 survey by the Hong Kong Society for Community Organization found that 12% of the interviewed owners had defaulted on their mortgage payments, and 4% of them were facing the threat of bank repossession. The Economist Intelligence Unit (EIU) predicts that if interest rates remain high, mortgage defaults could increase by 30% in 2024.
2. Psychological and social aspects: Family pressure and consumption decline
2.1 The emergence of a mental health crisis
The drop in house prices is not just a numbers game, it also directly impacts the psychological state of homeowners. A 2023 study by the Mental Health Association of Hong Kong showed that 35% of the owners surveyed experienced anxiety symptoms due to the depreciation of their property, and 15% reached the criteria for clinical depression. Cases show that some couples’ marriages broke down because of disputes over whether to “cut losses and sell their homes”, while teenagers were forced to give up their plans to study abroad due to shrinking family assets. Chen Guoben, a sociology professor at City University, pointed out that the collapse of real estate as a "symbol of middle-class status" is triggering a widespread identity crisis.
2.2 Consumption contraction drags down economic recovery
In order to maintain cash flow, property owners generally cut non-essential expenses. Data from the Hong Kong Retail Management Association shows that luxury goods sales fell by 18% year-on-year in 2023, and the vacancy rate in high-end business districts such as Central rose to 12%. At the same time, a survey by the Hong Kong Census and Statistics Department found that 62% owners postponed their renovation plans, causing the unemployment rate in the construction industry to rise to 5.8%. UBS analysts believe that the shrinking consumption caused by this "wealth effect" may reduce Hong Kong's GDP growth rate by 0.5 percentage points.
2.3 Deterioration of social mobility
The property market adjustment could have created opportunities for young families to buy homes, but the reality has instead exacerbated class stratification. A study by the Hong Kong Institute of Asia-Pacific Studies of the Chinese University of Hong Kong found that among existing owners, only 23% were willing to sell at a lower price, while most chose to hold on to their properties and wait and see, resulting in a 42% decline in market transaction volume. On the other hand, banks have tightened mortgage approvals, with the average down payment ratio for first-time homebuyers rising from 30% to 40%, in effect shutting out more young people. The director of the Hong Kong Council of Social Service, Wong Kin-wai, criticized that the property market deadlock is turning Hong Kong into a "society of confrontation between the haves and the have-nots."
III. Policy Response and Market Adjustment
3.1 The government’s rescue measures have limited effectiveness
In order to stabilize the property market, the Hong Kong government announced at the end of 2023 that it would relax stamp duty (BSD), reducing the property tax rate for foreigners from 30% to 15%, and allowing local residents to "exempt first and then tax". However, a Colliers International report pointed out that within three months of the implementation of the policy, the transaction volume only increased slightly by 8%, failing to reverse the downward trend. Financial Secretary Paul Chan admitted that high interest rates and uncertain economic prospects have weakened the effect of policy stimulus.
3.2 Developers innovate sales strategies
In order to speed up inventory reduction, developers have launched unprecedented preferential plans. Sun Hung Kai Properties' Tuen Mun project, to be launched in early 2024, offers a 120% mortgage (i.e. buyers can use excess loans to pay taxes and fees), while Cheung Kong Group allows buyers to "live first and pay later." Despite this, Knight Frank Research pointed out that the new property sales rate in 2023 will only be 51%, a significant drop from 82% in 2021, indicating that market confidence has not yet recovered.
3.3 Differentiation of owners’ self-help strategies
Faced with adversity, owners' coping strategies are polarized. A survey by Midland Realty showed that 45% owners chose to rent out their properties to subsidize mortgage payments, resulting in rental yields rising to 2.8% in 2023. But at the same time, the highly leveraged owners of 15% were forced to "cut prices to sell their properties", including some immigrants who were in a hurry to sell their properties. Zheng Tianxiong, professor of finance at the Hong Kong Polytechnic University, suggested that property owners should conduct stress tests as soon as possible and set aside at least 12 months of mortgage payments in reserve to deal with risks.
4. Long-term trend: Structural adjustment is inevitable
4.1 Demand Basis of Population Structure Change
The Hong Kong Census and Statistics Department predicts that by 2046, 36% of the population will be over 65 years old. Elderly owners tend to "trade down to smaller houses" to release assets, which may aggravate the oversupply of small and medium-sized units. The Morgan Stanley report predicts that Hong Kong's residential demand will grow by only 0.5% per year in the next decade, far lower than the 1.8% in the past twenty years.
4.2 Economic transformation reshapes regional value
As the office vacancy rate in Central rises to 16%, the halo of the traditional core area fades. A study by Savills found that the decline in property prices in Hong Kong Island (9%) in 2023 will be higher than that in the New Territories (6%), reflecting that "marginalized areas" are more resistant to price declines. Park Chi-shui, director of the Department of Economics at the Hong Kong University of Science and Technology, believes that the property market is shifting from a "full bubble" to a "structural differentiation."
4.3 Pressure for sustainable development
The government's Long Term Housing Strategy calls for the delivery of 490,000 residential units over the next decade, but environmental groups warn that large-scale development will exceed ecological carrying capacity. The World Green Organization suggests promoting the concept of "vertical cities" to ease conflicts through the conversion of industrial buildings and shared living models, but it will take time to reform relevant regulations.
V. Conclusion: Opportunities in the midst of crisis
The decline in Hong Kong's property market is both a crisis and an opportunity to promote structural reforms. In the short term, property owners need to manage financial risks prudently and avoid excessive leverage; in the medium term, the government should accelerate land supply reform and develop diversified industries to reduce the economy's dependence on real estate; in the long term, a more complete social safety net needs to be established to alleviate the impact of shrinking wealth on people's livelihood. As Our Hong Kong Foundation Research Director Tin Sze Pei said: "Rather than chasing a rebound in housing prices, we should seize the opportunity to rebuild a more equitable and sustainable housing model."
Ups and downs in the property market are an economic norm, but for the owners in it, every fluctuation is a personal pain. Only by facing the essence of the problem can we find a way to new life in the pain.
References:
1. Hong Kong Monetary Authority, Semi-annual Report on Monetary and Financial Stability (December 2023)
2. Rating and Valuation Department's Hong Kong Property Report 2023
3. Jones Lang LaSalle, Hong Kong Residential Market Outlook 2024
4. Social Mobility and Housing Policy Research, Hong Kong Institute of Asia-Pacific Studies, Chinese University of Hong Kong (2023)
5. UBS: Analysis of the Impact of Wealth Effect on Asian Economy (January 2024)
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Further reading:
- In-depth analysis of the causes and consequences of bank call loans: operating principles, risk prevention and response strategies
- The Hong Kong property market is in a wait-and-see mood, with more than half of residents expecting property prices to fall and the desire to buy a home hitting a new low
