Hong Kong home prices drop to the lowest in nearly five years — and the worst may not be over

Prices of Hong Kong's residential properties plunged to a adjacent five-year debased arsenic rising involvement rates and a wide exodus of expat workers drove down prices successful one of the world's astir costly cities to enactment in.

And manufacture insiders pass that the worst is yet to come.

Hong Kong's location terms scale for October fell 2.4% to 352.4 compared to the erstwhile month, marking the lowest level for the gauge since November 2017.

According to a Natixis report, the city's property prices could plummet 25% from its erstwhile highest successful precocious 2021 earlier it starts to recover. 

The slump is expected to deepen by 12% successful 2023, and subsequently by conscionable 2% successful 2024, analysts led by Alicia Garcia Herrero said.

Hong Kong, the world's slightest affordable lodging market, saw dips successful immoderate of its largest backstage lodging estates. In YOHO town, a 393-square feet flat that's presently listed for 5.98 cardinal Hong Kong dollars — that's astir HK$15,216 per quadrate foot, and a 20% driblet successful terms compared to the erstwhile month.

A confluence of factors including weaker maturation predictions and mainland Covid policies lend to the grim outlook, but Hong Kong's migration situation and snowballing involvement rates stay salient sticking points. 

Hong Kong precocious hiked benchmark involvement rates to 4.28%, pushing up borrowing costs to the highest since March 2008.

"The anemic economical situation some successful Hong Kong and globally, and rapidly rising borrowing costs are the astir important contributors to the diminution successful spot prices," Nelson Wong, enforcement manager of probe astatine existent property institution Jones Lang LaSalle told CNBC.

"The magnitude has been somewhat deeper than expected chiefly owed to the escalated geopolitical risks [from the Ukraine war] and the crisp involvement complaint hike trajectory," Wong continued.

Hong Kong's increasing colonisation plays a decisive relation successful its location demand.

"While determination is unit from the deteriorating fertility complaint and the rapidly aging population, the illness of migration and the heated emigration question person added substance to the fire," Natixis said.

Hong Kong's residents person near the metropolis successful droves since 2021, driven successful portion by strict Covid measures implemented successful 2020 which was lone precocious relaxed successful October. In his inaugural code arsenic main enforcement of Hong Kong, John Lee pledged to draw endowment from astir the world.

While the spot marketplace downturn volition apt extend, the gait of diminution whitethorn dilatory successful the adjacent 2 years, according to Natixis.

The French concern slope said determination volition be limited declines successful 2024 if determination are nary further economical and argumentation accommodation to enactment up sentiment.

However, the analysts accidental that a assistance successful China's Covid restrictions could restore investor confidence.

Further easing of stamp duties for non-permanent residents and for imperishable residents intending to bargain a 2nd spot could besides assistance bolster the spot market, they said.

— CNBC's Monica Pitrelli contributed to this report.