In Autumn 2018, Hong Kong hit the top spot in a UBS report on the most overvalued residential property in the world. But after just a few months of moderate decline, by approximately 10%, analysts are saying that demand is back on the rise and prices have bottomed out.
The UBS report, which focused on 20 major cities around the world, stated that the prices of Hong Kong homes were at the greatest risk of collapse. Close behind Hong Kong were Munich, Toronto, Vancouver, London and Amsterdam, all being picked as cities that are currently in “property bubble territory”. The report also found “major imbalances" in Stockholm, Paris, San Francisco, Frankfurt and Sydney. It outlined signs of a potential bubble to include signifiers like the decoupling of prices from local incomes and rents, or excessive construction or bank lending.
In the land-scarce metropolis of Hong Kong, property is a key driver of the economy. 7.4 million people live on a group of small islands and a very slight corner mainland China. Following declines in the local and mainland stock markets, experts predicted a possible 20% drop, but now property in the region looks set to grow again thanks to some perceptible stability in the Hong Kong stock market and Chinese yuan. Also, the links between Hong Kong's currency and the U.S. dollar mean that its value will follow suit with dollar increases and rising U.S. interest rates.
The recent increase in local property price indices and signs of strong demand, support the U.S. bank's view that the correction in Hong Kong property value is nearly over. Sales have suggested that the improving buyer sentiment is real, and there has been some backed up demand during the downturn. Some analysts have even suggested that the value of some homes could increase again by 10% in 2019.
There is also an anticipated boom in interest from mainland Chinese buyers who moved to Hong Kong on work visas in 2012. Some can claim permanent residency and will be eligible to purchase homes without paying the usual 30% tax.
Some real estate companies remain cautious due to fear of a worsening in the U.S-China trade war, but as that plays out it seems that Hong Kong is another financial hub that’s showing resilience to the current stress from the west.