Goldman Sachs expects Hong Kong home prices to fall 20pc by end-2025

HONG KONG: Goldman Sachs said Hong Kong residential property prices could drop as much as 20% through 2025, hurt by a drag on household income and homebuyer demand caused by the latest wave of the COVID-19 outbreak and a rise in interbank rates.

The investment bank lowered the price forecasts for 2022 and 2025 to a drop of 5% each year, from previous forecasts of flat for both years. For 2023 and 2024, it maintained its prediction of a 5% drop.

Hong Kong, ranked by survey company Demographia as the world’s most unaffordable housing market for the 12th consecutive year, posted a 2.9% decline in home prices so far this year, with prices dropping at a faster pace in February to their lowest since January 2021.

Home prices more than doubled over the last decade and reached an all-time high in September. They were largely resilient during the mass protests that convulsed the city in 2019 and through the pandemic over the last two years, supported by robust demand and lower interest rates.

Goldman Sachs said in a report dated on Monday it expected HIBOR, on which most mortgages in Hong Kong are based, to rise around 270 basis points through 2024, sending mortgage rates higher to around 3.8% from a low of around 1.46% in the fourth quarter of 2021, and property prices could decline as a result.

“Every 25bp rate hike would need c.5% rise in income or 5% decline to property price to maintain affordability at the pre-rate hike state,” it said in the report.