Hong Kong’s stubbornly high luxury property prices may be in for a correction in 2016. After years of stellar growth, luxury residential prices in the former British colony are forecast to fall 5% this year, according to a recent report by consultancy Knight Frank. If the predictions are correct, Hong Kong is set to overtake Singapore as the weakest-performing market among 10 major world cities surveyed for the report.
New supply coupled with a stronger Hong Kong dollar, which is pegged to the greenback, will see prime property prices soften, the report said. “This is more of a correction than the beginning of a downturn,” David Ji, Knight Frank’s head of research and consultancy for Greater China, told Mansion Global. “After so many years of strong growth, a 5% correction is not a big deal. It doesn’t signal a major change in the supply and demand (trend).” The broader home market is likely to see an 8% correction in the first quarter, following a sharper-than-expected 7.5% price fall in the last quarter of 2015, according to research by brokerage CLSA. Hong Kong’s home prices are among the most expensive in the world. The government has introduced a slew of measures in recent years, including an additional stamp duty and tightened mortgages, but has failed to cool the red-hot market driven by an influx of affluent mainland Chinese buyers seeking to park their cash in Hong Kong properties. A four-bedroom duplex unit at the swanky 39 Conduit Road development was sold for HK$594.76 million ($76.64 million) or HK$103,761 ($13,371) per-square-foot in December, reportedly breaking the record for Asia’s most expensive apartment set by another Hong Kong project, the Frank Gehry-designed Opus. Ji said volatility in the Chinese economy will impact transactions as investors recover from losses, but believes the impact will be limited as Hong Kong’s prices should hold up in the long-run due to a lack of supply in the land-scarce city of seven million. Prime residences are usually located in Hong Kong’s upmarket neighborhoods like The Peak or Mid-Levels, where there is little land for new development. Brokers say they continue to see interest for the super high-end market, and a price correction might present buying opportunities for investors. “These trophy assets are always rare to find anyway but the opportunities will increase for acquiring a good asset,” said Chris Liem, principal and owner of the Hong Kong unit of luxury real estate agency Engel & Völkers. Besides Hong Kong, Singapore and Paris are the two other cities predicted to see a decline in prime prices in 2016, according to the Knight Frank report. Sydney is expected to register the strongest growth with a 10% price increase. Singapore will see a slight rebound from its downturn, with the rate of decline slowing from 3.5% in 2015 to 3.3% this year, as the inventory of high-end homes shrinks.