Hong Kong Real Estate Market: There Is Plenty of Room to Correct

Should any major event damage market confidence and trigger a major fire sale in Hong Kong's real estate market, there is plenty of room for property prices to correct, reveals a new report.

The interest rate increase in the US in December 2015 will have a limited immediate impact on property investment volumes and capital values in Hong Kong because the adjustment was widely anticipated, and a better balance between market demand and supply will shield the sector from a dramatic correction.

«The Hong Kong property market is far better placed today to weather the hike compared to previous interest rate upcycles», said Marcos ​Chan, Head of Research, CBRE Hong Kong, Macau and Taiwan, said in a new report on Wednesday​.

«The current real estate sector, both domestic and non-domestic, has benefited from multiple factors, including a bigger pool of Chinese investors and end-users; sustained demand from global institutions; limited pressure on vacancy; and a lower gearing ratio,» he added.

Surge of Investors

Hong Kong interest rates have remained historically low and flat for the last seven years, following US measures to combat the global financial crisis.

Prolonged low interest rate levels attracted a surge of investors and occupiers, particularly from mainland Chinese individuals, companies and institutions. Many of these groups have chosen Hong Kong as their base and platform to do business and make global investments.

Interest Factor taken Into Account

The broader base of demand from locals, mainland Chinese and global investors, coupled with low vacancy and limited new supply across all property sectors has protected the real estate market from noticeable corrections. The market has remained stable in recent quarters despite the slower sales momentum.  

«Most investors with a mid-to-long term investment horizon have already taken into account the interest rate factor when making their investment decisions,» said Kam-hung Yu, Senior Managing Director, Investment Properties, CBRE Hong Kong.

Plenty of Room for Prices to Correct

«The rate hike was widely anticipated, so a market crash will only occur if there is a serious deterioration in the overall economy. That said, should any major event damage market confidence and trigger a major fire sale, there is plenty of room for property prices to correct,» he added.

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